Indian Railways Lifeline of the nation (A White Paper)

February 2015 Government of India Ministry of Railways NEW DELHI

S.MookerjeeDirector General

National Academy of Indian Railways

FOREWORD

• Indian Railways, Empire within an empire• Indian Railways has suffered from considerable

under-investment. This is a vicious circle.• It is the only organization in the Government of

India that pays for its wage bill, pensions and working expenses in its entirety.

• It also accounts for replacements and depreciation like any commercial concern.

OBJECTIVE

• To show the challenges before IR

This status paper first in the series, • Second is the budget, • Third- A Vision 2030 document

INTRODUCTION

Runs 19,000 trainsdaily

12,000 trains for 23 million

passengers per day, 8,000 stations

It is equivalent to moving the entire

population of Australia.

7,000 freight trains per day

3 million tonnes of freight

65,000 route, Is more than one

and half times the circumference of

the earth

Select club of countries,

1008.09 million tonnes

Indian Railways carried 1.05 billion tonnes of revenue earning freight traffic

and is expected to carry 1.1. billion tonnes in 2014-15

INTRODUCTION…….

• Expenditure on Railways as a percentage of total transport expenditure has declined

• Remained under-invested• Share of IR in overall GDP - Static at 1%, • Has actually gone down to 0.9% in 2012-13.

7th Plan (1985-90) 56%

11th Plan (2007-12) 30%

Share of Transport Sector in Overall GDP (%)

2008-09 2009-10 2010-11 2011-12 2012-13 (1st RE)

Overall Transport of which 6.6 6.6 6.5 6.6 6.7

Railways 1 1 1 1 0.9

Road Transport 4.7 4.7 4.6 4.8 4.9

Water Transport 0.2 0.2 0.2 0.2 0.2

Air Transport 0.2 0.2 0.3 0.3 0.3

Services incidental to transport 0.4 0.4 0.4 0.4 0.4

Key Parameters

Items 1950-51 2013-14 %Variation

Route Kms (All Gauges) 53,596 65,806 23%

Total Track (Kms) 90,500 (1964-65) 1,14,907 27%

Double & Multiple Route Length (Kms) 5,127 19,887 289%

Freight Carried (Million Tonnes) 73 1,054 1344%

Wagon Turn Round (Days) 11 5.13 (-)54%

Passenger Originating (In Millions) 1,284 8,420 556%

Passenger Kms (In Millions) 66,517 11,58,742 1642%

No. of Passenger Trains Run Daily (Base Year 1982-83) 6,392 12,874 102%

Large scale congestion impacts passenger satisfaction. Growth of the network not commensurate with the growth of the traffic

Traffic Density

Challenges

• Inability to meet the demands of its customers, both freight and passenger.

• Quality of delivery is also an issue. • Cleanliness, punctuality of services, safety, quality

of terminals, • capacity of trains, • quality of food, • security of passengers, • ease of booking tickets.

Challenges…

• Under-investment, Expansion and modernization has not happened, Organization needs to become operationally and financially sound.

• This can be achieved, by eliminating bottlenecks, improving productivity of assets, efficiency of operations, optimal employment of its resources including human capital.

• High density networks,- faces acute capacity constraints• Low passenger fares - leading to increases in freight tariffs

to cross subsidize passenger revenues. • Does not leave enough resources for investment.

Challenges…Financing the Railway Plan% Share

Investments in safety suffered, low internal generation of resources.

2011-12 2012-13 2013-14 2014-15 (BE)

Budgetary Support 44% 48% 51% 46%

Railway Safety Fund 3% 3% 4% 3%

Internal Resources 20% 19% 17% 23%

Extra-budgetary resources

33% 30% 28% 27%

Productivity of IR

It does not match up with other countriesPassenger Service Yields in some Major Economies

Freight Yields in some Major Economies

Benchmarking Indian Railways with Chinese and Russian Railways

It is evident that the real issue today is the lack of physical capacity over IR on key routes due to severe congestion

The incremental traffic is being offered on the saturated routes only.

Project Planning and Implementation

Railways traffic is a derived demand.Table depicts Trends in Traffic Growth

Project Planning and Implementation- Challenges

• Significant investment in the network• Prioritised capacity enhancement works-

doubling/tripling/quadrupling and traffic facility works• Intermediate Block Sections, passes, loops, long haul

trains. • Goods sheds need to be strengthened. • Capacity of workshops needs to be enhanced. • Prioritized electrification• Signalling & telecom works for safety and efficiency.

Project Planning and Implementation- Challenges

• Large shelf of pending projects – Rs 4,91,510 crore.

• Fund requirement for the prioritized works estimated at Rs 2,08,054 crore.

• Requirements - sustained flow of funds for such projects

• Focused attention early completion, commissioning.

• There are constant demands for new lines.

Project Planning and Implementation- Challenges

• All of these demands do not translate into viable projects.

• Large number of socially desirable projects have been sanctioned, creating huge throw-forward liability

• Partnership with State Governments would be the way forward.

• In the current year, projects have been prioritized, funding assured for all the projects that can be taken up for early completion.

.

Congestion over IR

Line Capacity Utilisation on IR• Most of the Zonal Railways are in the of range of optimal and higher

than optimal utilization. 65% of the sections are running at 100% or above line capacity on High Density Network (HDN) routes

Total no of routes >100% utilisation %

1219 492 40.36%

247(HDN) 161 65.18%

Network ExpansionDuring the last four years- new lines- a growth of 74%Doubling - 167% Electrification - 21%

Table depicts Network Expansion during last 5 years

Network Expansion : Throw-forward of priority projects

With the present levels of funding, the prioritized projects may take anywhere from 3 to 13 years to complete.

64% of cost

Network Expansion: Categorisation of projects

362 numbers of sanctioned projects of new lines, doubling and gauge conversion which are included in the table above. Critical sanctioned works of Traffic Facility, Signal & Telecom, Workshops, Electrification, Track Renewals and Bridges that need to be undertaken on priority( DF/DRF).

Challenges in speedy creation of infrastructure

Absence of assured funding:Completion period of most of the projects is 3-4 years, assured funding would enable completion in an efficient and time boundLand acquisition and clearances:Last 3-4 years, the cost of land in most has increased manifold. Process of acquisition much lengthier. Suffering due to clearance from forest, wild life, etc.Law & Order problemsMany projects suffering on account of law & order problems.

Special Purpose Vehicles for execution of projects

Initiatives have been taken to generate additional resources through non-budgetary measures funding by state governments other beneficiaries, execution of projects through Special Purpose Vehicles basis etc.Table depicts details of projects executed through SPVs & Cost-Sharing Basis.

Special Purpose Vehicles for execution of projects

• NTDPC estimated Indian Railways should invest Rs. 900 billion in the 12th Plan, Rs. 1.9 trillion in the 13th Plan and Rs. 4.6 trillion in the 15th Plan to regain its lost

share in the transport sector. • Focus on investments which are remunerative. • For financing socially desirable projects, a

separate mechanism, which insulates the Railways from losses.

Safety

Major Accidents• Level Crossing Accidents, • Derailments, • Fire, • Collisions

Global standard - safety performanceComparison of IR accident statistics with European Rail Systems depicts that the safety record of Indian Railways compares favourably with that of advanced systems of European Railways. However, there is scope for improvement

Country Accidents per million Train Km United Kingdom 0.05

Spain 0.12Germany 0.13Denmark 0.16

France 0.17Netherlands 0.17

India 0.2Sweden 0.23Belgium 0.24Austria 0.29Finland 0.31

Portugal 0.35

Causes of Accidents

• Financial constraints- Arrears of track renewal are accumulating.

• Highest fatalities - accidents at unmanned level crossings.

• Train incidents at unmanned level crossings has reduced over the years, various measures, intensive publicity campaigns, social awareness programmes

• Removing the unmanned level crossings - Road Over Bridges, Low Height Subways.

Accidents….

• As on 1st April 2014, 11,563 unmanned Level Crossings still required to be eliminated.

• 730 removed - current year. • IR needs Rs.39,001 crore to complete all the ongoing works of

constructing Road Over Bridges, Low Height Subways and elimination of all the remaining unmanned Level Crossings.

• Initiatives have been undertaken to streamline clearances and procedures.

• Funding from share of IR in Diesel Cess, Central Road Fund Act. IR gets only 12.5%, Roads get 50%.

• IR has been pursuing a higher share from the allocations to the Central Road Fund.

Accidents…

Loco drivers’ error addressed through technological intervention:

• Automatic Train Protection (ATP) systems. • Train Protection & Warning System (TPWS). • TPWS has also been approved for 3300 Route

Km • Automatic Signalling Sections on IR network.

Funds requirement for improving safety

• Special Railway Safety Fund (SRSF) Phase-I implemented 2003-2008 Rs.16,318 crore.

• High Level Safety Review Committee Chairmanship of Shri Anil Kakodkar was set up in September 2011.

• Committee has estimated expenditure of Rs.103,110 crore in 5 years, Rs.20,000 crore per annum for a 5 years period.

• IR has requested Ministry of Finance for a second phase of Special Railway Safety Fund.

Global Benchmark in Signalling

• It is proposed to adopt global bench marks in Signalling over next 3 to 4 years; availability of funds is the major issue.

Customer EngagementLow recovery of costs on the passenger segment, high freight rates led to imbalance in the revenues two business segments.Unit Cost vis-à-vis Yield per Unit in Table:

Customer Engagement

Issues related to passenger business• Cleanliness and catering

– Poor quality of toilets, cleanliness of trains, cleanliness of bed rolls, quality of food.

• Toilets– IR have developed bio-toilets use in coaches,

jointly by IR and DRDO.– First of its kind in Railway Systems in the world.

Punctuality

IT enabled Integrated Coaching Management System (ICMS) helps in online monitoring of the running of trains.Table on Punctuality of Trains

Punctuality….

• Punctuality severely affected on trunk routes due to over saturation, factors beyond control, eg. fog, law & order, running of pilots ahead of Mail/Express trains in areas affected by Extremism, unplanned traffic blocks capacity enhancement / project implementation, up-gradation of existing assets.

• For improving the punctuality, developing additional infrastructure needs to be undertaken on priority.

Proposal to Upgrade Passenger Trains Speed:• New Delhi Agra Section 160 kmph.• Speed of a higher number of trains 100/110 to 130 kmph

Table : Sections for Speed Upgradation

Losses in Coaching Operations

• Overall loss of Rs.21,391 crore• Net suburban losses of Rs 2,852.32 crore• Efforts are required to be made to cut down

losses -Train Audit.• Implementation of High level Committee

(Mittal) Committee Report on financial health of IR (Dec. 2014)

Losses in Coaching Operations• Premium trains needs to be enhanced• Running longer trains• Augmentation of coaches• Pattern of examination• A key change• New introduction of trains should be avoided• Running of AC-3 tier coach is most suitable for railways; should be augmented• Parcel business should be separated from passenger operation

business• Stoppages/trains without commercial justification should be

reviewed

Losses in Coaching Operations…..

• Poor quality of terminals– Modern passenger terminals– Station redevelopment is required– Through PPP– The arrival and departure areas need to be segregated

• Ticketing on e-platform - unreserved traveller– Purchase of tickets through mobiles launched– Setting up of vending machines

Freight Business – Some parameters

Freight Business

Main constraint- Congestion on all Routes and terminals

Initiatives taken:

Computerization of Goods Terminal:Terminal Management System (TMS)

Mode of Payment:70% of the payment electronically

Wagon Registration Fee (WRF):Exempted payment of WRF by premier customers who pay more than Rs. 10 crore per year.

Freight Incentive Scheme:• Plethora of schemes for its freight customers• Concessions in freight rates • To garner additional revenueProductivity test for the schemes to be introduced

Terminal Infrastructure:• A number of works sanctioned• Improvement of goods• Standards for all amenities at goods/sheds were

laid downQuick completion of projects essentials

Private Freight Terminal (PFT)• Policy was launched as a major PPP initiative in 2010• 50% of terminal charges were made available to the

investors• @ Rs.16 per tonne is now realized from the PFT

investorPolicy is being reviewed to make it more attractive

E-demand module• Registration of wagon on-line

Parcel Business

• Parcel business has a potentially huge market in India.

• Share of Railways is very limited

• In 2013-14 IR earned Rs.1800 crore. Debate: Will segregation help ?

Parcel Business

• Presently transported by Assistant Guard’s Cabin• Break Vans, Parcel Vans, Special Parcel Trains There are a number of issues that have hampered the growth• The booking is done manually• Non-availability of space in trains • Over-carriage of parcels• no prior intimation regarding arrival of parcels; damage during transit• passenger business is being separated from parcel business• These shall run in full parcel trains

Fixation of Tariffs

• Recover the cost of service and to factor in inflation

• A mechanism needs to be put in place• Critical: The true evaluation of cost of service Accounting Reforms & Dynamic Costing model

to be invoked after HLC on Rly. Restructuring Committee( headed by Sri Bibek Debroy) gives its report in April 2015.

Rolling Stock

• Indian Railways has a total holding of 10,749 locos– 5,749 diesel locos – 5,000 electric locos– 71 sheds

• 63,511 Broad Gauge coaches• 9,319 are AC coaches• All Mail and Express trains are being

introduced with LHB coaches for 130 Kmph

WagonsNew initiatives

Development of wagons with higher pay to tare ratio

• Open BOXN wagons (Pay to tare 2.5)• Upgraded to Stainless steel in BOXNHL (pay to

tare 3.46)• BCN type (pay to tare 2.31)• Micro-alloyed steels are now being used in

BCNHL wagons (Pay to tare 3.40)• 22.9T axle load

Development of Special types of wagons

• There is need to develop special types of wagons for bulk movement of specific commodities

• RDSO has already developed special types of wagons to carry fly ash, food grains, automobiles, salt, parcels, steel coils etc.

• New design of Autocar wagons capable of 318 cars have been developed. Participation with M/s. Maruti Suzuki India Ltd. (MSIL)

• Develop parcel, steel coil wagons

Development of Light weight wagons for salt movement

• Two designs of wagons are being developed:

– Open wagon – Fibre Reinforced Plastic (FRP)

– Covered wagons of FRP/synthetic material

Locomotives

Western DFC (Package-7) STEP Loan• Procurement of 200 locomotives of 9000 HP• Infrastructure at Rewari• Special Terms for Economic Partnership (STEP) loan

agreement of Japan International Cooperating Agency (JICA)

Western DFC Project• Energy Efficient• Regenerative braking• IGBT Propulsion Technology

High Horse Power Electric Locos at CLW

• High horse power 3-phase electric locomotives (HHP)

• Regenerative braking, energy efficient, less maintenance requirement

• It is planned to completely switch over to production of HHP locos at CLW

• High horse power diesel locos are being manufactured at DLW

• Setting up of loco factories (diesel and electric) in Bihar, through PPP, is also under consideration.

Financial Status

• Structure of IR’s Finance– Divided into revenue and capital expenditures– Revenue expenditure takes care of the day to day and

operational working expenses, inclusive of debt servicing and dividend payment, capital expenditures take care of IR’s investments

– Three streams for Capital expenditure• Budgetary Support• Internal Generation• Leasing from IRFC/EBR

Revenue Expenditure

Revenue Expenditure

Revenue Share

Trends in OWE

Operating Ratio

IR fully met for the successive pay commissions from out of its internal resources

Working Expenses

IR has 13.07 lakh employees • Increase in staff costs over the previous year is 12%

IRFC Payments:• Market borrowings• Extra Budgetary Resource• 25-30% of the IR’s plan size• Invested mainly in rolling stock assets• Leased for a period of 30 years• Targeted to be Rs.11,790 crores• Cost of borrowing in 2013-14 is around 8.4% to IR while lease rentals

are around 11.4%.

Fuel

31% of the OWE

Diesel (21.4%)

Electric (9.7%)

Major contributor - Increase in fuel outlays

Steady increase in prices

Alternate Fuels

• Bio-diesel, CNG/LNG – Cheaper• Aggressive push towards alternate fuels• IR is also aggressively working towards

reducing cost of fuel• Signing long term PPAs.• Procuring power from power exchanges

Pensions• Witnessed a high growth rate• Number of pensioners on IR is • 13.64 lakh as on 31-03-2013• 13.07 Lakh serving staff • To grow over 17% over the previous yearDANGER: Acturial liability before 6th PC was > Rs. 5 lakh crores !

Contribution to Depreciation Reserve Fund

• Budget estimate for DRF is based on the replacement program

• Currently minimal balance available in the fund due to lack of adequate surplus

• Committed working expenses • Restricts the capacity to fully provide for this

Dividend • Budgetary support from General Revenues -Held as capital-at-charge on the IR• In MoF, Budgetary Support (i.e. capital-at-charge) is treated as loan extended

to the Railways• Dividend being paid as interest• Total capital-at-charge of IR stands at Rs 1, 74,625 crore as on 31.03.2014• The rate of dividend is Determined by the Railway Convention Committee

(RCC) of Parliament• Presently dividend is paid to the MoF at 5%• Staff quarters paid at 3.5%• 2014-15 (BE) dividend payable Rs.9,135 Crore

– Subsidy Rs.4,059 Crore– Net basis Rs. 5.067 Crore

Issue: Can we demand linking Dividend(interest) with net surplus?

Social Service Obligations of IR

• Service obligation of around Rs 25,000 crore every year • Committee of Secretaries had recommended that these be

reimbursed still remains unresolved• Service Obligation borne by IR in 2013-14 is Rs 21,391 crore• Main elements – Commodities carried below cost – Essential

Commodities.• Passengers particularly in Second Class-90% pays 10%• Operation of uneconomic branch lines• New lines opened for traffic during the last 15 years• Passengers 94.63 % share concentrated in unreserved

segment – Loss in 68%

Earnings

• Growth in earnings - 14.5%Rs in crore

Year Goods Passenger Sundry Other Coaching Total

2011-12 69548 28246 3643 2717 104154

2012-13 85263 31323 4261 3054 123901

2013-14 93906 36532 5721 3679 139838

2014-15 (BE)

105770 44645 5500 4200 160115

2014-15 (RE)

106927 43002 5241 4028 159198

2015-16 (BE)

121423 50175 7318 4612 183528

Goods Earnings

• Traffic Earnings (Traffic Plan: Goods): NTKM decreased during 2013-14

Commodit

y

Tonnes Originating (in million) Net Tonne Kms. ( in millions) Earnings Earnings in Rs cr

2010-11 2011-12 2012-132013-14 (R.E.)

2010-11 2011-12 2012-132013-14 (R.E.)

2010-11 2011-12 2012-132013-14 (R.E.)

Total 921.73 969.05 1008.09 1051.55 625,723 667,607 691,658 654,395 62844 69548 85263 94000

Passenger Earnings• Traffic Plan: Passenger• After a high growth registered in 2013-14 in Originating Passengers,

growth this year is estimated to be negative relative to last year. Non-PRS segment registered a negative growth last year.

• IR increased the passenger fares in last two years• The lead came down as did the number of passengers travelling mostly in

the segment of the unreserved travel

 

Passenger Originating (in million) Passenger Kms. ( in millions) Earnings in Rs cr

2010-11 2011-12 2012-132013-14 (R.E.)

2010-11 2011-12 2012-132013-14 (R.E.)

2010-11 2011-12 2012-132013-14 (R.E.)

Total 7809.09 8224.38 8420.71 8471.97 9,80,131 10,46,522 10,98,105 10,72,542 25793 28246 31323 37500

Capital Expenditure

• Share of Fund Sources• Declining share of internal resources • increasing reliance on borrowings as well as GBS, both of which

carry a cost • Other and alternate means of resources are required to be

tapped for funding of bankable projects• We must search for Alternate Financing Models of funding.

Alternate Financing Options

• Involving customers in building rail lines especially for ports and mines have been a successful experiment on Indian Railways

• Pipavav, Mundra, Mangalore, Kandla, Dahej, Krishnapatnam and Dhamra

• Bringing private investments in rail sector• Wagon investment/ leasing schemes, private

operations of container trains• Development of private freight terminals and

private sidings

Alternate Financing Options

• Efforts are also being made• Private investments• Locomotive factories• Redevelopment of stations• For PPP projects; appropriate risk allocation

between public and private needs to be done

Alternate Financing Options

• Projects amenable to alternate means of financing • Construction of New Lines, Doubling, Gauge

Conversion, construction of Dedicated Freight Corridors, High Speed Corridors

• Manufacturing/maintenance units for rolling stock• Electrification and signaling• Railways would be required to lay down certain

benchmarks for appraisal

Private Participation in Building Rail Connectivity

• December-2012• Participation of the private sector• The policy had proposed the following five methods:

– Non-Government private line model– Joint venture– Capacity augmentation through funding by customer– BOT– Capacity augmentation through annuity model

• The first three models involve participation of strategic investors/customers and leverage the requirement of such investors and railways for having last mile connectivity. The other two-models are pure PPP models

• Three Model Concession been approved and put in public domain. The agreements for the other two models are under approval process

Private Participation in Building Rail Connectivity

• Agreements have tried to balance the risk allocations between private and public sector

• Rail connectivity to Dhamra Port has been commissioned. Projects of rail connectivity to Tuna Port, Jaigarh Port and coal connectivity projects in Chhattisgarh are under implementation

• Four projects under customer funded model • “In principle” Approval by MoR

Projects under PPP

Foreign Direct Investment (FDI)

Vide Notification No. S.O.2113(E) dated August 22, 2014, Government of India has opened up the following activities of Indian Railways for FDI- construction, operation, maintenance of :

(i) Suburban corridor projects through PPP- ; (ii) High speed train projects ; (iii) Dedicated freight lines,; (iv) Rolling stock including train sets, and locomotives

or coaches manufacturing and maintenance facilities;Details of models and Agreements are on Rly Bd website here:

http://www.indianrailways.gov.in/railwayboard/uploads/directorate/infra/downloads/Framework_NGRPLM_FINAL_40_AW.pdf

Foreign Direct Investment (FDI)…2

(v) Railway Electrification; (vi) Signaling systems; (vii) Freight terminals; (viii) Passenger terminals; (ix) Infrastructure in industrial park pertaining to

railway lines or sidings including electrified railway lines and connectivity to main railway lines; and

(x) Mass Rapid Transport Systems. Details of models and Agreements are on Rly Bd website here:http://www.indianrailways.gov.in/railwayboard/uploads/directorate/infra/downloads/Framework_NGRPLM_FINAL_40_AW.pdf

Commercial utilization of Surplus Railway land

• The total area of land under Railway network is 4,58,589 hectares, out of which approx. 46,409 hectare is vacant (as on 31.03.2014).

• The vacant land, which is not required by Railways can be utilized for commercial development, wherever feasible through Rail Land Development Authority (RLDA).

• 102 sites measuring 916 hectare of Railway land has been entrusted to RLDA for commercial development. Out of 102 sites, 62 sites totaling 597 hectares are amenable for commercial development.

Station Re-development by PPP

• 5 stations were entrusted to Indian Railway Stations Development Corporation (IRSDC) viz. Habibganj, Chandigarh, Bijwasan, Shivaji Nagar and Anand Vihar

• Approvals have been obtained for Habibganj. • Surat station has been entrusted to IRSDC for

redevelopment • New Bhubaneswar and Baiyyappanahalli (Bengaluru)

stations are identified for prefeasibility studies by China Railway Construction Engineering Group at their cost

The way forwardNew areas identified1. MOUs with State Govt – Participation with IR through joint ventures for

critical projects.2. Action to make PU’s and Workshops self-sustaining.3. Involvement of Corporates and MPLAD fund for improving Passenger

Amenities4. Plan for long term funding through Multi lateral development funds,

pension funds etc.5. JVs with major Public Sector customers for new lines.6. Formation of Financing cell

1. JV with NBFC, PSU and IRFC for raising term debt for domestic/overseas sources

2. Institutional finance for multi lateral and bilateral FIs.3. Monetizing of assets

The way forward

1. Offering stations, trains for corporate branding2. Coastal connectivity programme in partnership with ports.

Transport Logistics Corporation of India TRANSLOC for following activities

1. Developing common user facilities2. Provide end to end logistics solution through PPP.

Discussion