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Private Railroad Operators: A Game Changer. Really?

by | Jan 21, 2019 | Blog

The recent news about Indian Railways on allowing private companies to run freight trains from their own private terminals is widely seen as ushering of fundamental reforms in the stodgy behemoth. However, past experience does not exactly paint a positive picture for even less ambitious initiatives like allowing Private Container Terminal Operators ( CTOs) , MMLP or most recently PFTs. To be fair, PFT has shown glimpse of railways readiness to take necessary steps in the right direction but not sufficiently. At a more fundamental level, the problems being faced by Indian railways such as creaky signaling infrastructure and the tracks needing maintenance will largely remain the same. The problem is compounded on the congested routes like Delhi Mumbai, which are already facing immense pressure. Moreover, precedence given to passenger trains will cause uncertainties in running the freight trains in a scheduled manner. This takes to another question of economic viability of any such operations. History shows that most of the CTO operators have either burnt their fingers or not started operations in a meaningful way. In fact, there are instances where some of the licensees operated only few rakes to prevent their license from being revoked. The main cause of unprofitable operations may be attributed to the charges by Railways and ad-hoc changes in tariffs in some of the profitable cargo segment (heavy cargo and long distance haulage). Also no guarantee of timely delivery of cargo repulsed EXIM cargo . For example, railways command less than a 3rd of total container volumes at JNPT, the largest container port in India located in Mumbai. JNPT attract most of the cargo from long distances from North West hinterland of India. This situation is unheard in any other country with advances logistics system .Long distances must mean competitive advantages to railways over the road . The problems such as heavy detention charges, fixed haulage charges (whether the rake is full or empty) etc. coupled with the lack of visibility on timely movement of rakes are likely to affect the railroad operators in the same way as they affected the CTOs. Clarity has also not been provided on whether the private operators will be allowed to run their rakes on proposed Dedicated Freight Corridors ( DFCs). In addition, process of approval of rake design has not been detailed. For the uninitiated, the approval from Railways (specifically RDSO) is required for running any non-standard rake. The approval process can take a long time and filled with bureaucratic hassles. Lastly, issue of dispute resolution has also saddled the operators in a significant manner. Railways being both the operator and regulator caused less effective dispute resolution system in place. The proposed Rail Development Authority may address the issues of effective and efficient regulation and dispute resolution. In conclusion, although the announcement to allow private railroad operators is laudable, ambitious and bold, it has be backed with proper implementation mechanism. If implemented properly, it can begin the virtuous circle by freeing up the resources of Indian Railways and enable focus on basic infrastructure such as modern signaling equipments and robust rail network. The result will be more capacity from existing infrastructure and more cargo thus more resources for railways. Contact us : Rohit Chaturvedi partner@kitzoadvisory.com

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