ADB links funds to rail reforms

The Railways have a 2010 reforms target to meet. For a start, Crisil will monitor the progress between 2004 and 2007.

The initial $ 313 million is meant for projects under the National Rail Vikas Yojana (NRVY), which includes strengthening of the Golden Quadrilateral and its diagonals, port connectivity and construction of mega-bridges.

‘‘It was after reviewing the Railways’ financial performance over the years that the ADB decided to put some conditions for release of the money. The funding organisation wanted to be sure that the Railways were in a position to pay back the loan. So the issue of reforms,’’ said a senior official, adding that the ADB had even given it a name: Railway Sector Improvement Programme (RSIP).

Railway Board chairman R K Singh confirmed the appointment of Crisil by ADB to monitor the reforms agenda and advise the Indian Railways on improving business performance.

Among the reforms that the Railways have agreed to carry out are increased private sector participation, ‘‘rightsizing’’ of staff, rationalisation of tariff and focusing on ‘‘core business’’ of running trains profitably. Non-core activities like railway workshops, hospitals and schools need to be privatised.

On their own, the Railways will take up only remunerative projects where profitable returns are possible. Social responsibilities of the Railways are to be delineated and will be funded separately.

At present — and this is according to Railway minister Nitish Kumar himself — Rs 30,000 crore is required for projects and lines which are non-remunerative and meant mainly for under-developed areas.

In all, the Railways need at least Rs 50,000 crore to complete ongoing projects. They also need Rs 17,000 crore for safety related projects.

The ADB called for rationalisation of tariff since the Railways have been losing some Rs 40 billion every year on account of cross-subsidisation of passenger services by freight revenues.

The rationale behind right-sizing of staff is that the Railways spend nearly 50 per cent of the total Rs 48,000 crore earnings on wages.

According to the brief to Crisil, ‘‘internal business processes will be re-engineered and customer orientation improved.’’ In addition, Railways have also agreed to take up accounting reforms to identify their own financial strengths and weaknesses.

‘‘The GQ of the Railways, for example, is a profit centre while the Konkan Railway Corporation (KRC) runs into major losses. The Railways keep digging into their resources to fund KRC but do not invest appropriately in the GQ. A system of accounting needs to be formulated where profits are enhanced and losses minimised. This is where Crisil will step in,’’ explained a senior railway official.

Most suggestions were also part of the Rakesh Mohan committee report on railway restructuring, which incidentally had then been rejected by the Railway ministry. Among other things, the committee had also suggested corporatisation of the railways.

But now that the Railways have agreed to the ADB terms, Crisil will conduct annual reviews (from 2004 and 2007) of Indian Railways’ business development and opportunities. According to the terms of reference, it will ‘‘review available reports and financial and other information, including accounts, operational statitics, and performance indicators.’’

In addition to analysing markets, costs and competitive position of each Railways’ line of business and profit/loss centre, Crisil will provide advice on strategies for improving business performance. From the second year, it will also review the extent of advice that Railways have incorporated in their activities.

The annual reviews by Crisil will also include updated reform related indicators in accordance with ADB instructions. In addition to annual reports, the consultant will be required to prepare an inception report, stand-alone reports and a final report by July 2007.