Window dressing: Pay in advance, Indian Railways tells bulk customers



Source: FINANCIAL EXPRESS

Some Rs 7,300 crore the Indian Railways got as advance freight from bulk consumers and as proceeds of land monetisation from fellow PSUs enabled it to avoid reporting a deficit in FY18. It reported an operating ratio (OR) of 98.5 for the last financial year, as against the revised estimate (RE) of 96 announced when the general Budget was presented, but the OR would have been even worse at 104 or thereabouts had these ‘advances’ were not factored in.

Given that the transporter’s finances are not in for a major overhaul in the near future, it has decided to make this (seeking a tidy sum as advance payments) a custom. If the system runs on a continuous basis, it would amount to some bulk customers like NTPC, cement companies and steelmakers taking a hit on their bottom lines, while the railway’s finances are dressed up.

According to an official source, the transporter is devising a policy wherein customers will be encouraged to deposit their estimated annual freight payable in advance and in return get sweetened deals like assured availability of rakes, preferential loading etc. While the bulk customers may not be any freight rebate under the scheme, the rates could be capped for them for the year, making them immune to any rate hike during the period.

“There will a policy on this (seeking advance funds from big customers) soon,” Mohammad Jamshed, member-traffic, Railway Board, told FE.

On March 31, 2018, state-run NTPC paid Rs 4,700 crore as advance freight for coal to be transported to its power plants in FY19. The railways also got another Rs 2,580 crore from rail PSUs Ircon just before the end of last financial year; the amounts are to be adjusted against the dues to the railways once these PSUs raise funds through their planned land sales/leasing out.

The railways’ revenues are heavily dependent on freight – around 70% of the gross traffic receipts (Rs 1.65 lakh crore in FY18), its mainstay, comes from transportation of goods as passenger segment continues to be heavily subsidised. And large consumers like power and cement companies contribute the bulk of the freight: coal alone accounts for 50% of the loading.

According to Jamshed, there are many customers who may come forward for long-term commitments by paying advance freight. He added that the policy will have different parameters such as floor for minimum loading, say 5 million tonne a year, as eligibility criteria for customers to avail the scheme.

In FY18, the Indian Railways achieved highest-ever freight loading of 1,162 mt registering a annual increase of 4.8%. Freight revenue for FY18 was Rs 1.17 lakh crore—up 7.3%. Revenue from the passenger segment—which is cross-subsidised to the tune of Rs 30,000 crore — was Rs 48,000 crore for FY18, an annual increase of 4.3%.

Under the advance freight policy, it be will assures to customers that their demands will be fulfilled by the railways and conditions will be relaxed. For instance in the case of NTPC, earlier say it had a demand of 100 rakes of coal supply in a month and supply was only 80 rakes by Coal India, the remaining 20 rakes used to lapse. Under the new terms, the remaining 20 rakes will be carried over to the next month. Jamshed expressed the hope that the deal would help the railways in terms of ordering rolling stocks. If customers pay advance, it will have a fairly good idea of the requirement of rakes over the next one year. “This will facilitate rake induction planning,” he added.

Source: FINANCIAL EXPRESS