India will have to spend approximately Rs 1 lakh crore for its first bullet train corridor between Mumbai and Ahmedabad, preparatory work for which has gained speed.
In its latest interim report submitted last week, Japan has factored in the cost escalation through the years that it will take to finish the project. The amount, around Rs 98,000 crore, could rise a bit more.
Based on estimates from the Japanese team working on the feasibility study for the proposed 550-km corridor, Railways has circulated a 21-page inter-ministerial concept note detailing the way it intends to go about implementing the project.
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From an earlier estimate of around Rs 62,000 crore, the concept note’s figures seem to have jumped to Rs 70,000 crore at 2014 prices. The interim report estimates 40,000 people will use the corridor daily by 2023. After the commissioning of the works, it will take around eight years for the first bullet train to hit the tracks.
The project estimate got a reality check after Finance Ministry, in its response to the concept note, highlighted that the estimate of Rs 70,000 crore did not factor in cost escalation and tax to be paid to the government.
The Ministry has now asked Railways for a copy of Japan’s interim report to study it further. Railways, in turn, has asked the Japanese team to give detailed estimates based on multiple technological options available to see if using any particular technology would lead to a significant variation in prices. The final report is expected in June.
The note says “discussions indicate” Japan International Cooperation Agency might agree to fund 85 per cent of the project in which construction and procurement cost alone is around Rs 49,504 crore. Other major expenditure heads are Consulting Service Cost (Rs 2,190 crore); land acquisition (Rs 10,248 crore); a contingency fund (Rs 3,334 crore) and the implementing agency’s management fee (Rs 4,700 crore).
The project may also bleed India’s coffers as its rate of return is projected to be only around 3-4 per cent. Railways considers a project economically viable if it has a rate of return of at least 14 per cent. But Railways said the bullet train’s “economic rate of return”—its contribution to the economy by the virtue of saving manhours and connecting two major cities—would be upwards of 11 per cent.
The concept note is a precursor to handing over the the job of the project’s implementation to Rail Vikas Nigam Limited (RVNL) and its subsidiary, High Speed Rail Corporation (HSRC). Railways has argued that the job be given to RVNL as opposed to creating a new entity for this project.
The Cabinet will decide if the job can be given to RVNL on a nomination basis; a cabinet note will be moved after evaluating response from other ministries. RVNL would require a fresh mandate from the Cabinet since its original mandate was to take up “viable and bankable” projects along the Golden Quadrilateral.
A section of the ministry has also been in favour of assessing multiple available options before zeroing in on an agency. An earlier Rail budget had said a High Speed Rail Authority would be created for this. Another Rail PSU, IRCON had last year sent a letter to Railway Ministry seeking to be considered for the job. The HSRC’s formation did not have the vetting of the Railway Ministry’s Finance directorate, but sources said Railways has internally resolved that issue.