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P N Shukla, Director (Operations), Dedicated Freight Corridor Corporation Ltd

11 Nov 2011

Dedicated Freight Corridor which has been envisaged to answer the congestion in the freight traffic on two important corridors of the Indian Railways is a much awaited infrastructure project for the country. The project is being pursued by the Ministry of Railways, which has set-up an independent company Dedicated Freight Corridor Corporation (DFCC) for planning, construction, maintenance and operation of the massive project.

In an interview with InfralineEnergy's Jayashree Maji, P N Shukla, Director (Operations), DFCC shares the progress on the upcoming Dedicated Freight Corridor project and mentions the challenges and opportunities presented by the project.

Edited excerpts.

How did the idea of the Dedicated Freight Corridor (DFC) come into being?

Dedicated Freight Corridor (DFC) was conceptualised with an aim to expand the existing network of the Indian Railways. Since, all the routes from the golden quadrilaterals and diagonals were getting congested, we had two options either to add extra capacity to the existing golden quadrilateral or create a high speed passenger corridor or a freight corridor. Thus, the Indian Railways decided to develop freight corridors alongside the existing lines of the Golden Quadrilateral. But the corridor would be different from the existing system in terms of management, financial closure and technical capacity.

"Financially, DFCC gets one-third of equity from the Government of India/Ministry of Railways and two third from market borrowings. It is for the first time that rail infrastructure is being developed outside the present railway administration."

As a result a new company named DFCC Ltd under the Companies Act for planning, construction, maintenance and operation of this new infrastructure was set up.

The freight corridor has been divided into Eastern Corridor and Western Corridor. The Eastern Corridor extends from Ludhiana to Dankuni and the Western Corridor spans from Jawahar Lal Nehru Port, at Nhava Sheva near Mumbai to Tughlakabad, Delhi/Dadri. The two corridors interlink at Khurja.

How is the project being funded?

DFCC gets one-third of equity from the Government of India/Ministry of Railways and two third from market borrowings. It is for the first time that Rail infrastructure is being developed outside the present Railway administration.

For the Western Corridor, the Japan International Cooperation Agency (JICA) is providing the funds. Western Corridor has two phases. Phase one includes work on Rewari to Vadodara (950 kms). And phase two will cover Dadri-Rewari on the North side and on the West side, the project work would include Vadodara -Mumbai stretch (J N Port - 600 kms). It is envisaged that a Special Terms of Economic Partnership Loan of Rs. 43, 639. 17 crore (679 billion yen) will be provided by the government of Japan to finance the construction of the Western Corridor, as well as procurement of locomotives.

The loan will be extended on soft terms for 40 years with a moratorium of 10 years. The remaining portion of the cost will be borne by Ministry of Railways in the form of equity to DFCC. The first tranche of the loan, Rs 5,647.42 crore (90.2 billion yen) for construction between Rewari and Vadodara has been signed. Another Rs 17,155.14 crore (274 billion yen) funding for Phase II (Vadodara-JNPT) is under negotiation and is expected to be finalised by March 2012.

As part of the Eastern Corridor the section from Ludhiana to Mughalsarai (1150 kms) is going to be funded by a Rs 13, 176 crore (US$2.7-billion) World Bank loan, Mughalsarai to Sonnagar is being funded by the Government of India and Sonnagar to Dankuni is going to be completed on a Public-Private Partnership (PPP) basis.

"By August, 2011, we have been able to acquire just 50 per cent of the total land required for the project. We are expecting to acquire about 80-90 per cent of the land by June 2012. Now, unless we are able do that, we cannot award contracts because of the conditions laid by the multilateral agencies."

The World Bank has already sanctioned Rs 4,758 crore (US $975 million) in May for the Khurja-Kanpur phase. We will be receiving another two tranches of Rs 5,124 crore(US$1.050 billion) and then Rs 3, 416 crore (US $700 million).

The next tranche will get a go-ahead by March 2012. Before that, we have to achieve at least 80 per cent of land acquisition and award civil work contracts as part of the first phase.

What kind of response have you received for the Public Private Partnership (PPP)? Can you share some of the big names involved in the project?

There are a number of construction companies or business groups who have showed interested in the project. But, we are yet to decide on the revenue flows, according to which we will be deciding which companies make the best fit for the project. We are looking at the annuity based model. The final decision has to be that of Ministry of Railways and they will also advise us on the PPP model. Next, we will look for concessionaire.

So, as of now, you haven't decided on any company...

No. It is very difficult for me to give a timeline as to when we would decide the companies for the construction work. The moment the modality for revenue source is decided; we should be able to zero in on specifics within a year's time.

However, for the part of the project for which the work has already started, there are two companies, Soma Enterprises and CNC Enterprises that have come on board. These companies already have big experience of executing big contracts worth Rs 1,000 crore.

When is the first stretch of DFC expected to be completed? What are the reasons for the slow pace of work on the project?

This is a massive project running into nine states, 60 districts and 2,400 villages. It involves acquisition of 2,400 hectare of land. It's not an easy process. The process of documentation itself would take two years. The freight corridor project was started in 2008.

By August, 2011, we have been able to acquire just 50 per cent of the total land required for the project. We are expecting to acquire about 80-90 per cent of the land by June 2012. Now, unless we are able do that, we cannot award contracts because of the conditions laid by the multilateral agencies.

"Such big projects are known to add eight times to the existing freight capacity. A similar model exists in China, which runs into 650 kms. China commissioned that line with 200 million tonnes coal carrying capacity in 2002. In 2009, they carried 800 million tonnes using the same corridor. One single line carries almost half of the China's coal requirement"

The Japanese loan was sanctioned in March 2010, and the World Bank loan was finalised in March 2011. The loan agreement is also likely to be signed sometime this month. But unless we have land in hand, we cannot award the contracts. It took us almost four years to acquire the land and know from which route the DFC will pass through. The two stretches comprising Sonnagar-Mughalsarai Khurja-Kanpur will be commissioned in financial year 2014-15. Both the stretches put together will run into 470 kms.

The project has faced problems in acquiring land at some places. What is the current status of land availability with you?

Out of the total land required for the project, 85 per cent of the land would be private land and only 15 per cent would be government owned land. Since, we are building the structure alongside the railway line; therefore, there have been lesser hiccups. In most of the cases, individuals stand to lose 400 sq meters or 1000 sq meters of land and given such small portions of land, we do not face major problem. It is only while bypassing the city and a greenfield area, that we are facing protests. Mostly, the problems have been on account of inadequate compensation. In cases where we faced problems, we formed a committee and worked with the state government to arrive at a market rate.

We are required to acquire 10,000 hectares of land for the entire project. We have already acquired 5,000 hectares of land as on August 2011. We are hopeful that we will be able to acquire at least another 3,000 hectares of land by June 2012. By this analogy, we can award up to 1000 kms of contract in the current year itself. But, each of our contracts, is going to be valued at Rs 4,000 crore. And 20 such contracts have to be awarded. Thus, building freight corridor means spending Rs 15,000 crore every year for the next five years. The good part is that the funds have been tied up for phase I for both Eastern and Western Corridors which runs into 1,000 kms. We are now in the process of awarding contracts which will be completed another six to eight months.

How are you going to arrange rest of the funds for the project? What about the rest of the funds? Are you on a lookout for a funding agency or company?

Funding is not a problem for us. The funds have been tied up for the entire freight corridor except for PPP portion. About 10-12 per cent of the project's funding will come from PPP. Given that it's a massive project we have successfully arranged finances for 2,750 kms. That leaves us with only 550 kms which we will be funding through PPP. And that will be finalised in a year or two. The entire project will cost Rs 97,540 crore (US$20 billion) project.

What is the capacity that you are planning to add in this financial year? How much freight handling capacity are you looking to add through the freight corridor project?

Such big projects are known to add eight times to the existing freight capacity. A similar model exists in China, which runs into 650 kms. China commissioned that line with 200 million tonnes coal carrying capacity in 2002.

"The freight costs will come down because the capacity will be added and the transit time will come down. The operation and management costs are lower because of very small manpower. We expect that the operating costs will be halved than the existing railway system. Latest loading technology, manpower and efficiency of rolling stock should bring this change"

In 2009, they carried 800 million tonnes using the same corridor. One single line carries almost half of the China's coal requirement. Here too, the Eastern Freight Corridor will carry the entire northern India's coal requirement from the collieries.

Which other commodities apart from coal do you intend to transport through the DFC?

We intend to transport all the major commodities such as cement, steel, fertiliser, petroleum and containers through the corridor. Many NTPC plants are facing shortages of coal with delays in supply of coal owing to unavailability of wagons for coal loading.

To what extent the DFC will be able to solve these issues?

Freight corridor is one of those infrastructures, where capacity is being added ahead of demand. DFC will have the capacity to carry 800 million tonnes of coal. Presently, we are carrying only 50-60 million tonnes in that zone in northern India. But it has the capacity to carry 10 times of the existing freight. Our traffic projections indicate that we will need only 200 million tonnes of coal in another 20-25 years.

What arrangements have been made for movement of goods between existing tracks and DFCC? How much additional traffic is likely to move with the creation of freight corridors?

All the terminals of railways are on existing system. There is no terminal on DFC. We take over or hand over traffic through junction arrangement between the two systems, which are located at 120 kms intervals.

Following the Japan earthquake and tsunami Japanese companies appeared reluctant to bid for the project. What is the current situation regarding Japanese companies, whose presence is mandatory for the Tokyo-funded Delhi-Mumbai freight corridor?

There were never any problems from Japanese side. Japanese, will bring technology. As such there are no issues with them regarding the in the bidding process. They have made it clear to us that they are in a strong position to fulfill their financial commitment. They have expressed complete solidarity with the project.

On account of delays how much has the cost of the project escalated?

In 2006-07 the cost of the project was estimated to be Rs 27,000 crore. Since then number of modifications have been made to the project including electrification of the Western Corridor. The final estimates indicate that the total cost of the project at 2011 prices is going to be Rs 42,561 crore. By the time, the project gets completed in 2016-17, the total cost will come out to be Rs 77, 630 crore. The final cost of the project includes inflation and other statutory liabilities.

What kind of workers' base have you created for the project?

The work force for the project will be brought in by the contractors. These are big construction agencies with an annual turnover of Rs 15,000 crore. Now, nobody can run such huge firm until they have a strong workforce. Being the biggest agencies, they are very much capable executing huge projects.

How do you plan to stick to the timelines and monitor the progress made on the freight corridor project?

We have strict penalties for delays in the construction. But, one of the biggest contributing factors for timely construction is litigation free land. It is going to be the biggest facilitator. Moreover, the project is also going to be monitored by the international agencies such as World Bank and Japanese International Corporation Agency (JICA).

Will there be any significant impact on the freight rates after DFC comes into place?

Freight costs will definitely come down, but I cannot comment on whether freight rates will also come down. The Ministry of Railways will take a decision on this. The freight costs will come down with more capacity being added and with transit time coming down. The operating and management costs are also going to be lower owing to small manpower. We expect that the operating costs will be halved in comparison to the existing railway system. Latest loading technology, small manpower and efficiency of rolling stock should bring about this change.

(InfralineEnergy thanks P N Shukla, Director (Operations), DFCC for sharing his valuable insights with our readers. The column 'In-Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)