Ready to roll

There's finally some action on the much-vaunted Dedicated Freight Corridor Project. Better late than never. The delay of almost two years in the execution of the Dedicated Freight Corridor (DFC) project had raised doubts over its final completion. But ultimately, there is some action on that front with the Dedicated Freight Corridor Corporation of India Ltd (DFCC) finally awarding its first major contract of about Rs 3,300 crore to Tata-Aldesa JV for the construction of a 343-km double track line between Kanpur and Khurja. Additionally, the company also signed a MoU with the Railway Ministry for timely release of adequate funds. And as reported, in the Rail Budget for 2013-14, the Ministry's planned expenditure in DFCC received a massive jump from Rs 1,542 crore (revised estimate) in the last fiscal to Rs 7,124 crore in 2013-14. With these developments, the project at last seems ready to roll. DFCC expects the commissioning of the Western Corridor to start from March 2017 in a phased manner, according to a recent report by Lokesh Garg of Kotak Institutional Equities Research. However, the report also highlights that this is against the original target of completing the entire project by 2017. Not a single order for civil works has been placed in the Western Corridor, though one is expected to be awarded soon. Nonetheless, the Eastern Corridor seems to be slightly less delayed, with commissioning - in a phased manner - expected to start from December 2013. While there has been progress in some select sections, the Kotak research report notes that DFC is gearing up to cater to the incremental freight traffic beyond FY2017. Excerpts from the report... Plan A The DFC project, undertaken by Indian Railways, aims at supplementing the rail transport capacity with a potential project cost of over Rs 800 billion ($16 billion). This project envisions the construction of two dedicated freight railway lines along two busy (eastern and western) trunk routes. The existing trunk routes of Howrah-Delhi on the Eastern Corridor and Mumbai-Delhi on the Western Corridor are highly saturated with line capacity utilisation varying between 115 per cent and 150 per cent. The two main routes planned in the DFC include: • Western DFC (1,534 km): This route, from Jawaharlal Nehru Port (JNPT) in Mumbai to Tughlakabad and Dadri near Delhi, will cater mainly to the container transport requirements between emerging ports on the west coast and the northern hinterland. • Eastern DFC (1,839 km): From Ludhiana in Punjab to Dankuni near Kolkata, this route is expected to largely fulfill coal and steel transport requirements. All incremental freight traffic is expected to be moved on the DFC. According to the RITES project report, each corridor is expected to carry about 91 million tonne of cargo in FY2022. The plus points DFC will help meet growing freight demand, decongest an already saturated rail network and promote the shifting of freight transport from road to more efficient rail transport. It will help in faster transportation of goods owing to the separation of freight and passenger lines. Also, it will allow for faster, longer, stronger (higher load capacity) freight trains because of improved design features. Moreover, the corridor will help boost industrial development along the Delhi-Mumbai Industrial Corridor. Revenue model DFCC's revenue model is driven mainly by track access charges levied on Indian Railways. The company is a special purpose vehicle (SPV), set up by the Ministry of Railways (wholly owned PSU) in October 2006, to undertake the implementation of the DFC project. It will undertake planning and development, mobilisation of financial resources, construction, maintenance and operation of the DFCs. The project is expected to be implemented in combinations of EPC and PPP models. While DFC's revenues will be primarily driven by track-access charges from Indian Railways, these will have a fixed and variable component. The fixed component will be calculated based on total project cost and the variable component will be dependent on the quantum of traffic (tonne per kilometre). DFC will work on a no-profit, no-loss principle. Moreover, the DFC project is expected to involve a project cost of over $16 billion (cumulatively for the western and eastern corridors). The two main freight corridor routes (western and eastern) are divided into phases, as follows: • The Western Corridor is divided into two main phases: Phase-I comprises the Rewari-Vadodara section of about 930 km, and Phase-II comprises the Vadodara-JNPT and Rewari-Dadri section (cumulatively about 570 km). • The Eastern Corridor is broadly divided into five key segments: Phase-I comprises APL 1 of Khurja-Kanpur section (343 km), and Phase-II comprises APL 2 of Kanpur-Mughalsarai section (393 km), Phase-III of Khurja-Ludhiana section (404 km), Phase-IV of Dankuni-Sonnagar section (538 km), and Phase-Ia of Sonnagar-Mughalsarai (125 km). The Western Corridor is being funded with Japanese assistance. Japan International Cooperation Agency (JICA) will provide a STEP (Special Terms of Economic Partnership) loan of about $8 billion to fund the construction and procurement of locomotives for Indian Railways. The loan will be extended on soft terms for 40 years with a moratorium of 10 years. The remaining portion of the project construction cost will be borne by the Ministry of Railways as equity funding to DFCC. The first tranche of the main loan agreement of $1.1 billion (about Rs 50 billion) was signed in March 2011 for the Rewari-Vadodara section of Phase-I. The main loan agreement of $3.2 billion for funding the Vadodara-JNPT section in Phase-II is under negotiation. On the contrary, the Eastern Corridor is proposed to be funded through the World Bank, internal generation of the Indian Railways and PPP. Financing for the 725-km section between Ludhiana and Mughalsarai will be undertaken over three phases by the World Bank through an IBRD loan. The section from Mugalsarai to Sonnagar will be funded directly by the Railway Ministry while the 546-km section from Sonnagar to Dankuni will be financed through PPP. The first tranche of the IBRD Loan, aggregating $975 million, has already been signed between DFCC and the World Bank. The remaining portion of the loan will be disbursed in a two further tranches of $1.05 billion and $700 million. Faster, longer, stronger The DFC project proposes significant improvement over existing carrying capacity by modifying basic design features. The corridor will be constructed with higher design features that will enable it to withstand heavier loads at higher speeds. Simultaneously, to optimise productive use of the right of way, dimensions of the rolling stock are proposed to be enlarged. Both these improvements will allow longer and heavier trains to ply on the DFC. Future outlook Evaluations are being made for four more rail corridors, with a length of over 6,000 km, connecting north-south and east-west regions of India. DFCC has assigned the study of these projects to RITES, which is expected to be complete by December 2013. This apart, will it meet the deadlines? That's a billion-dollar question. "We are acquiring land under the Railway Amendment Act 2008." - RK Gupta, Managing Director, DFCC With over 80 per cent of land acquired, DFCC remains strong in terms of land acquisition. The entire freight corridor project envisages requirement of about 10,840 hectare of land passing through nine states, 60 districts and 2,500 villages. Having said this, DFCC has made quick progress in terms acquisition with over four-fifths of the land being acquired. It is envisaged that the entire land acquisition for the freight corridor will be completed by December 2013. RK Gupta, Managing Director, Dedicated Freight Corridor Corporation of India, shares an update on this mega project in conversation with SHRIYAL SETHUMADHAVAN. While many projects are battling the issue of land acquisition, DFCC has acquired quite a considerable amount of land over the past three years... First, we are not acquiring land under the normal land acquisition act of 1894. We are acquiring land under the Railway Amendment Act 2008. This is basically for projects that have been declared as a 'special project' by government notification. Here, the entire land acquisition is done by project authorities and not by the state governments. Also, our entitlement matrix is very good; we have flexibility on that. We have gone for a participative kind of acquisition where we inform people about their privileges and compensation packages in advance; we consult with them. That's how we have been able to acquire about 82 per cent of the land right now; that's about 8,000 hectare. The total area is over 10,000 hectare. Despite this, we still have people who are not satisfied with the compensation. We have a three-level mechanism for redress. First at the district level; then, they can file for arbitration with the commissioner. We can also choose this route if we feel that the compensation granted by the authority is not within the guidelines of the entitlement matrix. So, either party can choose arbitration. Of course, the courts are available, but there is also a new provision here with an ombudsman. Of course, the ombudsman's job is not to adjudicate claims relating to land but other R&R (rehabilitation and restructuring) measures. These have helped us get through the process without any major upheaval. Despite some inevitable resistance, we did not have any major upheavals. Is there any key strategy you have employed? We have been really transparent in delivering the compensation properly. It is given and delivered to the right person. We have even appointed NGOs to help us and have monitoring agencies with us, our lending agencies, the World Bank and JICA, Japan. Their teams come from Washington or Tokyo. They go to the field and do sample checks to ensure that the job is being done perfectly. Can you name a few big players in the queue? The response has been huge. We have companies coming from Europe, the US and East Asia, China, Australia, Japan, Korea, Singapore and Malaysia. They envision immense potential. Apart from the current workload, which is for the two corridors, we are planning four more corridors in the future. In that case, there is continued work load available for the next 10-15 years. What are the selection criteria while awarding tenders? We do have a predefined criteria; we go for prequalification wherein we shortlist capable people with experience and then invite them to bid. It is two-stage or three-stage tendering depending upon where we are, but prequalification is a must, followed by either one or two stages, either technical or financial separately, or together. According to you, how is the railway sector performing at present in terms of project execution and completion? The Railways are plagued with some problems. One is land acquisition and second is lack of assured funding. If you do not get the money for a project on time, the project faces time and cost overruns. These are all interlinked. But, in the case of DFCC, the situation is different. First, we plan to implement a project only after the cash flow is in place; second, we follow a different process for land acquisition. Here, the lending agency requires at least 80 per cent of land in your possession at the time of awarding the contract, and the balance 20 per cent needs to be handed over within six months. If this is not done, you are liable to pay penalty to the contractor. So this puts pressure on us and in the case of several railway projects, only 40-50 per cent of the land is acquired. The project is executed with the expectation that the remaining land will fall in place; but sometimes, there are failures. Freight forward Work on the Eastern DFC begins with Tata Projects and Aldesa winning the first contract. Tata Projects Ltd has secured first mover advantage. The company has commenced work on the Eastern DFC project, which it recently won in partnership with the Ç800-million Spanish civil construction firm Aldesa Group. This is the first major contract awarded for the Eastern DFCC through an international competitive bidding process and involves the construction of a 337-km double track line, and 14 km of single line between Bhaupur and Khurja in Uttar Pradesh. The eastern corridor from Ludhiana to Dankuni covers a length of 1,839 km. The World Bank has sanctioned $975 million for the complete project. The section, involving an investment of Rs 3,300 crore, will be completed within four years. The project cost for both eastern and western freight corridors has been pegged at Rs 88,000 crore. DFC has been designed for 32.5 tonne axle load compared to the current carriage tracks of 22.5 tonne axle load, which is on a par with prevailing standards in America, Russia and China. The corridor will increase the speed of freight trains up to 100 km per hr, thus significantly subtracting from goods transit time. Incidentally, Tata Projects has a dedicated business unit for the railways, and the Rs 3,800-crore company's order book position currently stands at Rs 14,000 crore. Vinayak Deshpande, Managing Director, Tata Projects Ltd, tells CW, "TATA Projects will leverage its technological capabilities and execution excellence while our foreign partner will bring to the table mechanical track laying experience for high-speed trains. We are best suited for delivery of this world-class transportation project." With a chunk of the east under its belt, the Secunderabad-based company, which is focused majorly on EPC contracts, has now tied up with Japanese construction firm Marubeni to bid for portions on the Western Dedicated Freight Corridor. To share your views on this report, write in at feedback@ASAPPmedia.com