DEDICATED FREIGHT CORRIDORS: Transformation of Indian Railways

Prologue

Indian Railways proposes to construct 6 high capacity corridors with speed potential of 100 Km per hour along Golden Quadrilateral and its diagonals- Diamond Quadrilateral. The strategic initiative is being driven through DFCCIL (Dedicated Freight Corridor Corporation India Limited). Indian Railways foresee about 2% additional contribution in the Country’s GDP via Railways modernization and Growth. Dedicated Freight Corridor is one of such initiatives to modernize and upgrade the railway infrastructure under long term strategic plan. Prime objective is to enable Indian railways to create additional capacity, guarantee efficient, reliable, safe and cheaper options for mobility to its customers and to support the Indian Government initiative to make Indian railway as most environment friendly ecological mode for transportation. DFCCIL is responsible to undertake planning & development, mobilization of financial resources along with construction, maintenance and operation of the Dedicated Freight Corridors.

It is a very challenging project considering the span it wants to cover up for expanding the railways infrastructure across Country into four zones i.e. Eastern, western, Southern and Northern. It’s a critical driver for the economy of the country and is also seen as an opportunity to adopt International best practices with latest technology, system, design and business processes. Railways plans to operate heavier and longer trains such as double deck container on these Freight corridors.

DFC development needs high capital and so Government has participated with World Bank, JICA and PPP Mode in association with DFCCIL for raising Funds. The project started with an initial cost estimate of 28000 Crore and 5 years’ plan in 2005, but got approved in 2008. The scope kept on changing over a period and the estimated cost got revised to 80,000 Crores. The Project is expected to provide a Return after 30% of its operation.

Conceptual Framework:

Indian Railways is owned by Government of India, started pre-independence to solve the then irrigation problems of farmers, was owned by Government in 1900. The first commercial train journey in India was between Bombay and Thane covering around 21 miles in length and took approximately 45 minutes. The railway network then started to grow and independent kingdoms of India started to have their own rail systems. In 1901, a railway board was formed under Department of Commerce and Industry and constituted of members from Government and one of the company railways.

India is a country of long distances and several commodities have a long transportation lead. Railways are the most economical means of transport for medium and long distance transport of goods. IR has, however, been losing market share in freight transport over the years to road transport mainly due to lack of capacity and in some cases due to poor service quality. Assuming an economic growth rate of 8% and an elasticity of transport demand to GDP of 1.25, freight traffic demand is projected to grow at 10%. IR has not been able to create additional capacity over the past two decades to keep pace with the increasing demand. The rail freight growth was about 4% versus demanded growth of about 7% during year 1991-2002. And, during year 2003-2010, the rail freight traffic growth was about 7% against a demanded growth of 10%. Continuation of inadequate rail freight capacity is forcing freight to move by uneconomic alternative modes of transportation that is imposing high avoidable cost on the Indian economy and increasing environmental impact since the alternatives are less energy efficient compared to rail.

Because of heavy passenger use and the rapid growth of IR’s freight traffic (by almost 50% over the last five years), the capacity utilization of heavily used routes of IR exceeds 100% of nominal capacity by a significant margin. The four routes connective Delhi, Mumbai, Chennai and Kolkata (also called Golden Quadrilateral) account for 16% of the railway network’s route length. They carry more than 60% of India’s total rail freight. It is projected that the freight traffic will to grow at 7% annually. IR urgently needs to add capacity to these routes. Government has approved an IR proposal to establish dedicated freight only lines, paralleling the existing Golden Quadrilateral routes to ease the congestion choking the railway system and constraining economic growth. There is a relief on the passenger lines as well since that will allow passenger trains to run faster and more reliably. Besides, the supply of both passenger and freight trains can be expanded to meet unsatisfied demand and make room for further growth. Total corridor capacity will be more than doubled. The DFC program will be built in stages. The first phase will cover up the development of Western Corridor (along the route of Rewari / Dadri-Jawaharlal Nehru Port Trust (JNPT)), and the Eastern Corridor (along the route of Dankuni – Khurja Ludhiana, Khurja – Dadri). JICA is financing the Western Corridor for a total length of 1,534 km. Eastern corridor improvement would be contributing towards development of Railway on Trans-Asian network. The Kolkata – Dhaka link will bring in a huge possibility with enormous trade benefits for both countries i.e. India and Bangladesh. And, it would use the Padma Bridge, which is being built with IDA financing. Power plants in the NCT of Delhi and UP constitute the main customers of freight trains in East. Today, the power sector is struggling to keep up with rapidly growing demand for electricity; black-outs are very frequent. The increase in freight capacity will help the power sector to close the gap between demand and supply of electricity and this is aligned to the government’s strategy for economic development. The WDFC is proposed to serve containerized traffic and will also use the Eastern Corridor.

 

Industry Structure and Developments

One of the prime drivers for Indian Economy is Infrastructure Sector. Infrastructure sector is very much responsible for boosting overall development of India. GOI puts a strong focus on this sector by initiating policies that would ensure creation of world-class infrastructure of the nation in a time bound manner. This sector includes Road Infrastructure, Railway Infrastructure and Port Connectivity etc.

Railways has become the backbone of Transportation services in India and Government is taking steps and making policies to bring back the share in Transportation sector. There is a rapid increase in need for Freight business considering the Economy and this puts an emphasis on overall Transportation Freight business. This is the reason, it has become very much essential for the Government to build more DFCs for increased traffic with benefits for the Economy and Environment.

The objective of DFCCCIL is to bring in “Special Purpose Vehicle” aiming to undertake Planning, Development, Construction, maintenance and operations of DFLs. In the Project proposal plan, it has been agreed to take up the following Freight Corridors:

– North-South Connective Delhi to Chennai

– East-West connecting Kharagpur to Mumbai

– East coast connecting Kharagpur to Vijayawada.

The above-mentioned projects are a high priority ones and has been put in execution to ensure structuring, award and implementation in a time-bound manner through innovative financing mechanisms including PPP.

This project is compliant to international best practices and it relies on technological solutions for Project management and monitoring. The project physical progress is being reviewed remotely via latest drone and Geo spatial based satellite technology.

 

Dedicated Freight Corridor Corporation of India Ltd. (DFCCIL)

DFCCIL, Dedicated Freight Corridor Corporation of India Ltd. is a public sector undertaking of Ministry of Railways (India). It is aimed to undertake planning & development, mobilization of financial resources, construction, maintenance and operation of the Dedicated Freight Corridors. DFCCIL has been registered as a company under the Companies Act 1956 on 30 October 2006.

The relationship between IR and DFCCIL is governed by an agreement between MOR and DFCCIL. It is proposed that IR will pay DFCCIL track access charges for use of DFC tracks by the Zonal Railways’ freight trains. Since most of these would be from/to points outside the DFCs i.e., on the IR network, the concession agreement and the traffic coordination implied therein are crucial. Upgradation of about 3,000 km of Indian Railway lines to handle the heavier trains operating on the DFCs has started. The concession obliges MOR to publish criteria for qualification of operators and to provide non-discriminatory access to them. The DFC lines is expected to provide quality and reliable freight service, at low cost, thereby enabling the railways to serve shippers better. This will enable railways recapture market share lost to a very competitive trucking sector, which has among the lowest road freight tariffs in the world. To deliver the program, DFCCIL is required to employ more effective procurement methods. Indian Railways construction and procurement has traditionally relied on item-rate contracts which have been prone to delays and cost overruns. Government has stipulated that the contracting arrangements should not be the traditional ones, and new approaches such as Public Private Partnerships or lump-sum Engineer-Procure-Construct type contracts should be used. Eventually a modified contract type, Design-Build Lump Sum contract, was chosen based on assessments by an international panel of experts on the appropriateness of contract types. This method allows introduction of international best practices, and provides incentives to contain costs and speed up construction. The implementation of DFC program will provide India the opportunity to create one of the world’s largest heavy-haul freight operations, adopting proven international technologies and approaches which can progressively be extended to other freight corridors. DFCCIL’s Business Plan is expected to achieve high performance through staffing and productivity against international comparators. DFC’s 25-ton axle-load standard will enable IR to introduce new rolling stock (locomotives and wagons) as well as newer energy saving locomotive technologies that will reduce the carbon footprints of India’s transport sector by almost 15% in Eastern Corridor.

 

Historical Perspective

Accordingly, the seeds for the project were sown as early as in April 2005, wherein, Honourable Prime Ministers of India and Japan made a joint declaration for feasibility and possible funding of the dedicated rail freight corridors. Honourable Minister for Railways, announced in the need and planning for the project in Lok Sabha. Soon after this announcement, RITES was entrusted with the feasibility study for the corridors – both eastern and western.

In May 2005, a Task force within Committee on Infrastructure (COI), chaired by Shri Anwarul Huda, Member Planning Commission was formed to device a new organizational structure for planning, financing, construction and operation of these corridors and to prepare a concept plan for Delhi-Mumbai (Western) and Delhi-Howrah (Eastern) dedicated freight corridor projects.

In January 2006, RITES India Ltd. submitted the Feasibility Report of both corridors to Ministry of Railways. The Cabinet also approved the report of the Task Force and it was agreed that a SPV should be set up to construct and operate the DFC. Cabinet Committee on Economic Affairs (CCEA) approved “in principle” the Feasibility Study and asked MOR to go ahead with Preliminary Engineering cum Traffic Survey (PETS), and alongside firm up the cost of the project and work out the financing options. With the recommendation of the Task Force a SPV, named “Dedicated Freight Corridor Corporation of India Limited” (DFCCIL) was founded under Companies Act in October 2006. RITES also submitted a Report based and the project was approved at a cost of Rs.281.81 billion^.

 

Vision:

DFCCIL Vision is to Create a partnership with IRs for retaining and expanding the market share of rail through efficient and reliable services with customer focus.

 

Mission: As the dedicated agency to make the vision into reality, DFCCILs mission is

• “To build a corridor with appropriate technology that enables IR to regain its market share of freight transport by creating additional capacity and guaranteeing efficient, reliable, safe and cheaper options for mobility to its customers.
• To set up MLP along the DFC to provide complete transport solution to customers.
•  To support the government’s initiatives toward ecological sustainability by encouraging users to adopt railways as the most environment friendly mode for their transport requirements.”

Broad Objectives:

• “Reduce unit cost of transportation by speeding up freight train operations and higher productivity.
•  Increase rail share in freight market by providing customized logistic services.
•  Create additional rail infrastructure to cater to high levels of transport demand.
• Introduction of time tabled freight services and guaranteed transit time.
•  Introduction of high end technology and IT tracking of freight services.
• Segregate freight infrastructure for focused approach on both passenger and freight business of Railways.”

Why Dedicated Freight Corridor (DFC)

• For high GDP growth, we need lot of electricity and for that lot of coal need to be transported from mines to thermal power station.
• For infrastructure (bridges, roads, buildings), there is a need for fast transportation of cement, steel, and machinery.
• Because of growing international trade via sea lanes, there is a need for quick transportation of products from factories to ports. This led to birth of DFC along the Eastern and Western Routes in 2005.

	Eastern Corridor	Western Corridor
Start	Ludhiana in Punjab	Dadri in UP
Via	Haryana, UP, Bihar	Haryana, Rajasthan, Gujarat, Maharashtra
End	Dankuni in West Bengal	Jawaharlal Nehru Port Trust near Mumbai
When to Complete	2017	2017
Approx. Length	1800 KM	1500 KM

Total length: 3000+Kms.

Fig 1.1: Map of Eastern and Western Dedicated Corridor

 

Benefits of Dedicated Freight Corridor

• The existing network of rails, runs on a diesel + electrical trains combination.
• The Dedicated freight corridor will operate entirely on electric trains which will generate less greenhouse gases.
• With dedicated freight corridor, passenger and freight traffic will separate and lead to speeds and efficiency.
• A normal train takes approx. six hours to reach from New Delhi to Lucknow, but a high-speed rail moving at a speed of 300 KM per hour would take around 2 hours to cover the same distance.
• The benefits of high-speed rail are immense compared to road and airlines i.e. rail systems have 30% less land requirement as compared to similar expressways carrying same capacity.
• High-speed rail will directly compete with the economy class tickets i.e. cost of an airline.
• These trains shall be highly efficient and their energy consumption will be third less than cars and five times less than aircrafts
• Currently, passenger trains and Freight trains run on same track. The freight trains carrying high load damages the rails which are meant for passengers’ trains. The wear and tear of the rails causes several accidents. By shifting the freight trains entirely on DFC will reduce the accidents and thereby saving Human Life.

Transformational effect on Indian Economy and Railway

1. Freight trains with 1.5 km length, 3660 mm width and 7.1-meter height, a first in the world.
2. Double-stack standard shaped containers transported through electric locomotives, a first and only in the world.
3. Bridges & formation to support 32.5 Ton axle load and track loading capacity of 12 t/m.
4. 800 electric locomotives with 12,000 HP, Highest procurement of one of the highest horse-powered locomotive anywhere in the world.
5. Train load of 13,000 Tons.
6. Freight trains running above 100+ kmph
7. To bring down the cost of freight using electric locomotive, longer trains and help Indian industry to become competitive in the world exports.
8. DFC will help India to achieve target committed by India in the Paris climate accord, by migrating from diesel propelled freight trains and fossil fuel based road traffic to electric locomotives using electricity generated through renewable energy.
9. DFC deploys new generation pantograph which allows an increase in the overhead wires (catenary height) from the standard of 6 meters to 7.5 meters thus setting the world record for the pantograph with highest reach for electric locomotives. This enables IR to introduce double-decker passenger trains in high density suburban passenger routes and cargo service across the IR network.
10. Indian passenger railway network will be able to run semi-high speed and high speed trains in the existing network as cargo traffic will migrate to DFC.
11. Upgrading of transportation technology, increase in productivity and reduction in unit transportation cost are the focus areas for the project. The commissioning of the two projects, spanning over 3360 route km, will not only help the railways regain its market share of freight transport but guarantee, at the same time, an efficient, reliable, safe and cheaper system of goods movement.

 

High Speed Rail Corridors

• The Railways intend to run trains at the speed of 160 km to 200 km per hour on the High-Speed Railway corridors (HSR) plan.
• Following six corridors have been selected by Railways:

1. Delhi – Chandigarh – Amritsar
2. Pune – Mumbai – Ahmedabad
3. Hyderabad – Dornakal – Vijayawada – Chennai
4. Chennai – Bangalore – Coimbatore – Ernakulam
5. Howrah – Haldia
6. Delhi – Agra – Lucknow – Varanasi – Patna

Fig 1.2: Dedicated freight corridor in Southern India

Corridor	States Covered	Funding
Chennai-Bangalore-Chitradurga	Karnataka, Andhra Pradesh, Tamil Nadu	Japan
Bangalore-Mumbai Economic Corridor	Maharashtra, Karnataka	United Kingdom
East Coast Economic Corridor	Linking Kolkata-Chennai-Tuticorin	ADB
Vizag – Industrial Corridor – Chennai	Linking Andhra Pradesh and Tamil Nadu	ADB
Amritsar – Kolkata (Industrial Corridor)	It will be 150-200 km band on either side of the EDFC in a phased manner and will cover 7 states: Punjab, Haryana, Uttarakhand, Uttar Pradesh, Bihar, Jharkhand and West Bengal	Government of India

Budget 2016: Industrial corridor announcements

National Industrial Corridor Authority has been assigned duty to

• coordinate development of the freight corridors with smart cities.
• Creating links among all using transport connectivity
• To be Headquartered Pune for which 100 crores has been allotted

In Addition, there will be three new smart cities connected via Chennai-Bengaluru Industrial Corridor.

Suggested Reforms

Planning Commission formed a working group on Railways. It has recommended following things

Passenger trains

• Restructure the tariff to maximize Revenue. (increase ticket prices)
• At present, speed of trains of Passenger Mail/Express trains is below 55 kmph.
• These are low as per international standards.
• On busy routes, there can be 24/26 coaches’ trains to generate additional capacity.
• Replace conventional trains by EMUs/MEMUs/DMUs.
• Railways should develop alternative terminal at sub-urban areas of major cities.
• Railways need to fasten the implementation of Dedicated Freight Corridor. This will pave way for separate passenger and freight traffic resulting in faster passenger services as well as quicker freight movement.

Goods transport

• As the Chinese have successfully implemented strategy of “Heavier, Longer, faster” trains for freight transport, this should be our aim too.
• Further we need to upgrade to heavier load, speed (above 100 km/h) and longer freight trains. This will result in maximum utilization track capacity.
• Advanced bogies should be imported from US, which are track-friendly and capable of carrying larger loads.

Safety

• There are almost 15000 unmanned level crossings. They’re responsible for 40% accidents (2011 data.)
• Accordingly, Indian Railways Vision – 2020 and Railway Budget Speech, these unmanned crossing should be fixed in the next five years.
• For Signaling and Telecommunication in Railways, switch over to equipment or systems of higher reliability and safety standards.
• Setup On-Board Fire detection and Fire Fighting equipment in trains.
• Use of GPS technology and RFID technology for tracking railway trains.

Biometric VCD

• Driver’s Vigilance Telemetry Control System.
• It is a small wrist-watch like device. It constantly monitors driver’s posture, pulse etc.
• So, if the driver has consumed desi-liquor and fell half-asleep in the cabin, the station manager would get alarmed and can automatically stop the train.
• Russia has been using such telemetry system for Loco pilots (train drivers) since a long time.

Train Collision Avoidance systems (TCAS)

• Combines the GPS with Radio Frequency.
• Brakes are applied without pilots.
• Collisions avoidance in event of human errors, fog, natural disaster or potential sabotage.
• Maximizes level of safety by minimizing human dependence in operations of trains.

Problems

• Railway would require more than 16000 Crores to achieve all the above and is already tight on cash due to various other flagship schemes like MNREGA, food security etc.
• The Railways will need to arrange cash by itself and need to raise funds to implement safety reforms.
• The Railways is more interested in constructing the Ahmedabad – Mumbai project in the initial phase.
• Planning Commission recommends constructing Delhi-Agra corridor first instead of Ahmadabad-Mumbai project from the cost perspective

Outsourcing
	Minor Works	Major Works
Examples	Cleaning of coaches, provision of blankets and food in trains	Manufacturing locomotives, coaches, wagons.
Suggestion of planning commission:	Outsource this work to private companies which will yield less cost than permanent staff.	Partial disinvestment. Running it on corporate lines shall bring in more efficiency.

Strategic Profitability Analysis of DFCCIL

• The authorized share capital of DFCCI is Rs 8,000 Crores at present which is divided into Rs 8 Crore equity shares of Rs 1000 each.
• The paid share capital of the Company as on Date 31st Mar 2016 was Rs 4802.67 Crores and Share application money pending allotment was Rs 2855.60 Crore.
• As per Annual plan approved by MoR for year 2016-17, the expected inflow will be Rs 11722 Crore including land cost of Rs 2920 Crore.

Summary is as detailed below:

	Budget Estimate 2016-2017
		EDFC	WDFC	Total
1	Equity	1321	1388	2709
2	Debt (Through MoR)	919	3972	4891
3	Total Excluding Land	2240	5360	7600
4	Land	1420	1500	2920
5	Total including Land (3+4)	3660	6860	10520
6	Add EDFC II Loan (Direct Funding Loan Component)	898		898
7	Add EDFC III Loan (Direct Funding Loan Component)	304		304
8	Total BE including debt portion of EDFC II / EDFC III to be given by World Bank (5+6+7)	4862	6860	11722

 

Capital Structure:

Particulars	As at 31 Mar 2016	As at 31 Mar 2015
Equity Funding
Shareholder’s Fund	4975.97	3825.78
Share application money pending allotment	2855.60	1087.00
Debt Funding
JICA	1869.57	912.86
IBRD	1402.60	528.22
Total	11,103.74	6353.86

 

 

 

Break-up of Project Cost
	Western DFC	Eastern DFC	Total DFC
Construction Cost (RS Cr)
Land Cost	–	–	–
Civil (Tracks)	17288	17356	34644
Signal & Telecommunication	2676	2031	4707
Electrical	3526	3463	6989
Mechanical	115	106	221
Total Construction Cost	23605	22956	46561
Cost Escalation	5210	5426	10636
Working Capital	536	505	1041
Insurance, Taxes etc.	2017	1987	4004
Total Project Cost	39127	38503	77630

Source: Draft Business Plan for DFCCIL, October 2010

Capital Expenditure on Project Execution was as under:

 

	Description	As at 31-Mar-2015	During Financial Year 2015-16	As at 31-Mar-2016
1	CAPEX (without Cost of land)
2	Tangible Assets	11.83	3.13	14.96
3	Intangible Assets	0.41	0.99	1.40
4	Capital work in Progress	3272.10	2505.06	5777.16
5	Assets under development	9.31	0.59	9.90
6	Capital Advances	2836.27	1653.20	4489.47
7	Total CAPEX (without Land Cost)	6129.92	4162.97	10292.89
8	Cost of Land (Borne by MoR)	7112.81	4344.82	11457.63
	Total Capex with Cost of Land	13,242.73	8507.79	21750.52

 

 

Factors Considered while making the Financial Projections:

 

• Solid relationship between DFCCIL and Indian Railway
• Indian Railway being sole owner and in control of the Board and potential customers can influence policy including the charges it would pay to DFCCIL.
• DFCCIL’s role will be that of the infrastructure provider along with the overall responsibility of constructing, maintaining and operating two corridors with all infrastructures, enabling Indian railways to run freight trains.
• DFCCIL won’t have any role in fixing tariffs or collection of revenue. Neither will it own any rolling stock or crew.
• The DFCCIL will – accept freight trains on its system, operate them on the DFC and then hand them back to IR at the other end. DFCCIL won’t run trains from other operators and no other operator is legally allowed to run train services in India. However, with the presence of parallel railway lines, IR shall have the option of running trains on its own system or on the DFCC system. And, DFCC will be a captive supplier of services to a single buyer although the buyer would have choices.
• DFCCIL shall be receiving a user charge (TAC) in return for its services from IR. TAC is supposed to be fixed in a manner that all costs of DFCCIL get covered. At the same time, the structure of TAC will be as such to incentivize DFCCIL towards better performance.

Obligations of DFCCIL and MOR

 

Obligations of DFCCIL

• DFCCIL has to assist MOR in the acquisition of land for the new Corridor
• Develop the design, construct and commission the New Railway (other than the MOR Improvements) during the Construction Period which meets the Minimum Performance Criteria
• Operate, maintain and repair the New Railway during the Operation Period so that the New Railway meets the Minimum Performance Criteria on a continuous basis
• Hand over the New Railway to the MOR on the Handover Date: Any amount outstanding as per the CA has to be paid by MOR to DFCCIL on the Handover Date”
• In the implementation of the Project, DFCCIL has to put reasonable efforts to minimize any disruptions and avoid overall delays to passenger and freight services on any railway corridor used by MOR which is closely proximate to the New Corridor and New Railway.
• DFCCIL should comply with and ensure the compliance from the construction companies for respective obligations in respect to the project with all applicable laws.

Obligations of MOR

• Grant of concession: MOR has granted the right to implement the Project subject to and upon the terms of the CA to DFCCIL for the Concession Period. MOR and DFCCIL shall review the performance by DFCCIL at the end of each period of 5 years to evaluate its period of rights and obligations under the Project Documents in context to the Project Objectives and any other matters as agreed between MOR and DFCCIL.
• Land: DFCCIL will get license for land from MOR, according to which all land in the Corridor and associated Railway Infrastructure is required to comply with Construction Programme.
• MOR Improvements: The MOR will procure the design and construction of the MOR improvements in line with the Works Design Brief. MOR will also ensure the completion of each stage of the improvements to allow DFCCIL to comply with the Construction Programme.
• Equity Subscription: MOR agrees to subscribe to and pay par value of equity shares of DFCCIL to facilitate the funding of the project, and in turn DFCCIL agree to allot the share.
• Financing: MOR confirms the initial financing arrangement of ₹67,596 crores. And, subject to the specific terms of the project finance documentation, the total amount to be initially financed prior to Completion of the Project for the purposes of the construction phase of the Project (including the costs of the DFCCIL Works and capitalised interest during construction), to be arranged from: MOR Loan (37,265 crore), MOR Equity (17,596 crore), Senior Debt Finance (12,736 crore).

Risks accepted by MOR

The risks and obligations are in relation to:

• Overall Cost of funding the MOR Loan and other funding to be made available by MOR to DFCCIL
• Any delay in funding of MOR Loan or any other funding should be made available to DFCCIL at any corresponding rise in costs
• A delay or failure to give any approval required from MOR, within a reasonable period
• Compliance is needed for all land in New Corridor with the Construction Program under DFCCIL through MOR Lease.
• Any undisclosed Interests.
• Pre-Existing Contamination and MOR Subsequent Contamination.
• Material Adverse Effect (MAE) Events
• Damage to the New Railway caused by defective trains run by Authorised Rail Users
• Loss of traffic or inability to carry traffic because of corresponding MOR Improvements not being completed as planned, and
• An error in the Design Brief affecting operations of the New Railway (including that the New
• Railway is not Fit for Purpose because of an error in the Design Brief).

Risks accepted by DFCCIL

The risks and obligations as set out in the CA, in relation to:

• The actual cost of the Project (which may include inflation, cost increase and any interest costs) being greater than the cost estimated by DFCCIL unless caused by MOR, any Associate of MOR or a Government Authority
• The New Railway not satisfying the Minimum Performance Criteria
• Obtaining of Approvals (other than approvals from MOR and its Associates)
• The availability and quality of any materials is to be provided by DFCCIL or the Construction Companies for the Project
• The use of any work previously performed by others in respect of the design and alignment of the New Railway (including any geological, hydrological or engineering studies)
• The New Railway not being fit for Purpose at any time (other than because of an error in the Design Brief).
• An error in the Design Documentation (other than because of an error in the Design Brief).
• Technical obsolescence occurring during the Concession Period in relation to the equipment or systems used in the operation, maintenance or repair of the New Railway unless it is a consequence of MOR failing to make or abide by the terms of DFCCIL Works Variation that is intended to address the same or such equipment or systems which were used at the request of MOR.

 

Taken verbatim from Modified Concession Agreement between MOR and DFCCIL, February 2011.

SWOT Analysis

Strength:

Land Acquisition has been said to be the Hallmark of Strength for DFCCIL. All efforts are being made to acquire remaining land planned for the project. To address the issue of cost sharing of ROB works on level crossings falling in DFC alignment, regular follow up at the Apex level was done including conducting meetings with Chief Secretaries of States and flagging issues on PMG/Pragati Portal. This has resulted in consent of cost sharing of ROBs in Maharashtra, Gujarat, Rajasthan, Jharkhand, UP and Bihar. Consent for ROBs have been received from Punjab on DFC financing (deferred payment by State) and in Haryana consent is under active consideration on similar lines. With this physical works have started for ROB Construction, inviting and finalizing tenders. Economic Affairs Cabinet Committee has approved the Revised Cost estimate (RCE) of Rs 81,459 Crore for the Eastern and Western Dedicated Freight Corridor projects comprising of construction cost of Rs. 73,392 Crore and acquisition cost of Rs 8,067 crore. The cost excludes the construction cost of 538 Kms (Sonnagar-Dankuni section of EDFC) as that is implemented through PPP route. First completion and trial has been done on Durgauti to Sasaram DFC Track. Progress of work is being monitored through Drones in WDFC and EDFC. CRSIL has reaffirmed the “CCR AAA (pronounced Corporate Credit Rating Triple A) rating to DFCCIL. DFCCIL has signed up an agreement with PGCIL for construction of associated transmission network for supply to 12 Traction sub stations of EDFC. This helps to avail economical traction power supply to DFC.

Weakness:

Time taken in obtaining of statutory clearances for the procurement of construction material has affected the schedule of implementing agencies. DFCCIL is facing a biggest challenge in terms of Land Acquisition from the concerned states by which the 3360 Kms of EDFC and WDFC is passing. Land is to be acquired in terms of various guidelines issued by State Government and Zonal Railways, central Government, requirement of funding agencies and provision of NRRP 2007 with respect to environmental and social consideration and expectations of project affected parties. A new entitlement matrix has been issued by Railway Board as per a new act “the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013”

Opportunity:

DFC Project is Green field project implemented in environment friendly manner is an opportunity to replicate the same in future DFC Project. DFC Project will bring a drastic rise in Rail Transport Capacity, efficient technology leading to faster movement within guaranteed transit time and operational efficiency, contributing to national economy both directly and indirectly. Even during the construction phase, this project is major boost for the national economy and various industries. There is a lot of hope by Infrastructure Sector in the timely execution of the project as it is expected to provide long awaited total logistics solution to trade utilizing energy efficient rail transportation leading to development of various main industries and ancillaries. DFC will also help in developing Industrial Hubs like DMICDC on WDFC, Special Primary Economic Region (SPER) on EDFC. There is an opportunity to decongest major highways and with its world class infrastructure it will have a capability to bring about a paradigm shift in the transportation sector of India. DFC is a game changer in transport logistics by providing speedier, scheduled services and bringing down logistics cost significantly. Logistics terminal development will provide much awaited end logistics solutions to the industry. Employment will be created at national level. CSR policy of the company is focused towards upgrading the skills of the PAPs by providing the training.

Threats:

Delay in consent and subsequent sanction of cost sharing of all RoB’s by the state Government’s falling the DFC alignment puts a threat on Timely execution of Project. Compensation disbursement in the process of acquiring the remaining land is complex thus causing further delay. Multi stage clearances from funding agencies at times results in delay in the procurement process. Limited participation from Japanese Contractors is leading to delay in process.

Multiple court cases and surging arbitration cases appear to be a threat if not managed in a systematic way.

Strategies:

Land Acquisition in the project shall continue to be a challenge but at the same time hallmark of strength of the Organization and to further enhance the acquired capabilities of the organization learnt over a period through trials and tribulations, the company has adopted and pursued the simple strategy of ensuring compliance with Right to Fair Compensation & Transparency in land acquisition Rehabilitation and Resettlement Act, 2015. DFC addresses needs and concerns of the Project Affected Persons (PAPs) by emphasizing their participation and by extending necessary support to them in Resettlement and Rehabilitation process. For redressal of grievances related with Rehabilitation and Resettlement Plan, an Ombudsman has already been appointed Arbitrators have been appointed in each District to consider the grievances pertaining to compensation for land and structure related issues, District level Grievances Redressal Committee have also been formed in EDFC-1, EDFC-2, EDFC-3 and provision for redressal of grievances at Field as Project level has been included in the published RRP for WDFC also.

Risks and Concerns

The company has developed the Enterprise Risk Management Framework which has been approved by the Audit Committee and by the World Bank. The Enterprise Risk Management Framework has been implemented with effect from 1st December 2014. The top 20 risks each perceived at this stage during “Planning and Construction phase” and Operations phase have been identified and prioritized. Mitigation plans for these top 20 risks has also been formulated. A Risk Management structure has already been defined which would be responsible for risk identification, its prioritization and for framing the mitigation plan. To ensure that there are appropriate controls in place for the risk management activities a risk monitoring and assurance mechanism through MIS has been provided for as a part of Enterprise Risk Management Framework to assess the effectiveness of mitigation plan for a risk.

Road Ahead:

DFCCIL is committed to its defined motto of Triple S “SSS” which signifies “Sincerity”, “Speed” and “Success”. This motto would lead to fulfillment of its Mission, Vision and Objectives.

Abstract

Title – Dedicated Freight Corridors: Transformation in India Railways

Case Overview

Indian Railways (IR) has been the prime transporter of India. IR is the largest railway system in Asia and the second largest railway system in the World under single management. IR operates more than 11 thousand trains per day out of which almost 7 thousand are passenger trains. IR has played a critical role as catalyst to enhance the pace of economic development of the nation and continue to be an integral part of the growth engine of the country.

DFC is a Special Purpose Vehicle that has been set up by MoR to undertake planning & development, mobilization of financial resources and construction, maintenance and operation of the DFCCIL. DFCCIL was formed in October 2006 under Indian Companies Act 1956. This report explores the evolution of dedicated freight corridors (DFC) in India (covering around 4500 kilometres), and critique them from the perspective of delivering the intended rail transportation. It also identifies the movement of structures in a direction where the autonomy of DFCCIL has been reduced to make the IR the sole owner and sole customer. The unbundling that has happened in other infrastructure sectors (aviation, maritime and road) to bring in greater autonomy and accountability has not yet happened in the railways. There is no unbundling of roles in terms of policy making and licensing, operations, and regulations. The report also deals with other dimensions like:

Freight Corridor concept, plan and implementation strategies, DFCs- Planning and Current scenario, Financing options and Investment opportunities, Strategies to leverage Private Capital in Industrial Corridors, Investment gaps and future challenges, Project execution and management challenges, Regulatory roadblocks and environment clearances, International experiences in building Freight/Industrial Corridors, Integrated Investment Regions, Enhancing Freight Movement, Managing Dedicated Freight Corridors, Best practices for achieving High Quality Public service, Technology transfer, Public Private Partnership, Energy Efficiency in Transportation, Making India a Global Manufacturing and Trading hub.

Study Level / Applicability:

This case can be used as a teaching tool in the following courses: MBA /Post-Graduate Programs in Management in Management Accounting, Management Control Systems and Strategic Cost Management; Executive training programs for middle and senior level employees; and under-graduate/post-graduate programs in entrepreneurship. It can be used to explain and test the concepts of SWOT Analysis, and PEST Analysis. Further, it also highlights the importance of how future projects can be undertaken based on public private partnership (PPP) model.

 

Expected Learning Outcomes:

These include the use of:

• SWOT Analysis to identify the Strengths, Weaknesses, Opportunities and Threats to a Company;
• PEST Analysis to identify the Political, Economic, Social and Technological Factors that affect the Operations of a Company;

The case also helps students:

• By identifying fixed costs and variable costs that are a part of operating expenditures of a business; in the use of forecasting the financials of a company for the sake of predicting the future outcomes of certain business strategies; by application of Du Pont analysis to examine the efficiency of the various processes and strategies; in determining quantitative terms like contribution margin, breakeven sales, operating leverage, margin of safety, their significance and the relationship between these terms.

 

 

Social Implications:

Company like DFCCIL, which is involved in infrastructure projects associated with Indian Railways is strategic in nature for the country. Analysis of such companies help in understanding its performance, challenges and efficiency along with the benefits of overall deployment, including the reasons for their growth/decline in generating revenues and profits, has multiple social implications especially for an emerging economy like India.

Practical Implications:

• Problems of Land Acquisition.
• Rehabilitation of People is one of the major problems.
• Problems in Co-ordination between Industrial Corridors.
• Efficient utilization of funds.
• PPP projects often over run time and cost than the private players who want more revenue/ Profits.
• Environmental laws have become very stringent and getting Clearances from National Green Tribunal (NGT)are delaying the project.

 

Supplementary Materials:

We put across the reference link for Dedicated Freight Corridor India PVT Ltd below. Further details and references shall be provided along with final report.

http://dfccil.gov.in/dfccil_app/Home

 

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Glossary of Abbreviations Used:

APL: Adaptable Program Loan

BD: Bid Documents

BoD: Board of Directors

BTKM: Billion Tonn Kms

CA: Concession Agreement

CCEA: Cabinet Committee of Economic Affairs

COI: Committee on Infrastructure

DFC: Dedicated Freight Corridors

DFCCIL: Dedicated Freight Corridor Corporation of India Limited

EDFC: Eastern Dedicated Freight Corridor

EIA: Environmental Impact Assessment

FIDIC: International Federation of Consulting Engineers

GOI: Government of India

GoM: Group of Ministers

GC: General Consultants

GQ: Golden Quadrilateral

IDC: Interest During Construction

IR: Indian Railways

JBIC: Japan Bank for International Cooperation

JICA: Japan International Cooperation Agency

JNPT: Jawaharlal Nehru Port Trust

MLP: Multimodal Logistic Parks

MOF: Ministry of Finance

MOR: Ministry of Railways

MOS: Ministry of Shipping

NCR: National Capital Region

PC: Planning Commission

PETS: Preliminary Engineering cum Traffic Survey

PPP: Public Private Partnership

PSU: Public Sector Undertakings

RRP: Rehabilitation and Resettlement Plan

SBD: Standard Bidding Document

SIA: Social Impact Assessment

SPV: Special Purpose Vehicle

STEP: Special Terms of Economic Partnership

TAA: Track Access Agreement

WDFC: Western Dedicated Freight Corridor.