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Wednesday, July 18, 2018

Prabhu for pruning freight rates over two years

To take on competition from the road sector and even undertake disinvestment in some of the ministry’s enterprises.

Written by Subhomoy Bhattacharjee | New Delhi | Published: April 17, 2015 1:28:27 am

Railway minister Suresh Prabhu expects to reduce the state-run behemoth’s freight rates sharply in the next couple of years to take on competition from the road sector and even undertake disinvestment in some of the ministry’s enterprises.

The minister said this would be possible as the railways is targeting a 50 per cent rise in revenue within a five year time frame, while he anticipates gross expenditure to rise by a far more modest rate of 15 per cent. “The spread can be used to either show an increase in profitability of railway operations or passed on as a cut in freight rates,” he told The Indian Express.

The minister said the revenues would rise riding the efficiency of the railway-owned enterprises. Those enterprises will shoulder the largest responsibility of adding to tracks and rolling stock of the railways from now.

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“The thrust of my fund raising measures would be based on the railway-owned enterprises. They can borrow or even raise equity depending on the sort of project they expect to undertake,” he said.

Prabhu said that making companies like Ircon undertake additional capital expenditure also made sense as it would raise their valuations. The additional valuation allows for their disinvestment at attractive rates, he added. The disinvestment would provide additional revenue to railways.

This buffer can then be used to offer lower freight rates. Making capital expenditure only through the railway ministry’s own divisions did not offer any such advantage. With a larger capacity to run freight trains and more tracks to run them on, Prabhu said, he was sure he had a “game changer plan”.

“I would not need to service the entire additional money from the railway earnings only. I will get it from these companies, which adds to my capacity massively. So it becomes a game changer for the railways,” he said.

In the Railway Budget 2015-16 the minister has penciled an annual freight revenue target of 1.5 billion tonnes to be reached in five years, a 50 per cent increase from the current 1 billion tonnes per year. Most of the annual increase, the minister expects to earn by reducing the freight rates to lower than what truck operators demand. “It’s a doable plan,” he said.

Prabhu said this line of action has been overlooked by commentators who have instead claimed it would be difficult for him to finance the ambitious investment of Rs 8.56 lakh crore between now and 2019. They have pointed out that financing this level of investment would need about Rs 1,80,000 crore to be spent each year. But the Railway Budget has projected a plan outlay of only Rs 1,00,011 crore, a gap of nearly Rs 80,000 crore.

Within that, too, the railways has inked in Rs 17,655 crore as additional market borrowing. The interest cost on this borrowing will be a huge drag on railway revenue, they point out.

Prabhu said he is aware of the cost. He would consequently prefer to let the public sector companies share in the expansion plan. “So I don’t need budget for this from the department’s limited resource. Their borrowing on their balance sheet does not increase my liability,” he signs off.

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