Walking-Pace Trains Spur $17 Billion India Rail Revamp: Freight

Vinay Kumar’s locomotive thuds into coal cars at a New Delhi power plant, coupling with a deep clunk to end a journey whose last two kilometers took over six hours, a pace slower than walking.

“We were held for hours at a stop signal because passenger trains get priority,” the 28-year-old said as he prepared to drive the cars away. He embodies the issues freight trains face across India, where a network built mostly under British colonial rule now struggles with supply disruptions and rising costs. That contributes to transport losses that McKinsey & Co. estimates may reach $140 billion a year by 2020.

India’s solution is to add 3,322 kilometers (2,064 miles) of track dedicated to cargo trains, a $17-billion expansion that’s the biggest since independence in 1947. The government raised passenger fares in January for the first time in a decade and freight rates about 20 percent last year to help boost funds for the delayed upgrade. The increases are part of a wider push to revive investment in a faltering economy.

“The dedicated freight corridor is a game-changing expansion of infrastructure,” said Manish Saigal, head of transport and logistics at KPMG in India, who has analyzed the nation’s freight network for more than a decade. “Increasing capacity and speeds will ease the flow of goods, helping to contain inflation and spur faster economic growth. But it’s crucial the government ensures rapid implementation.”

Prime Minister Manmohan Singh’s office has urged officials to give the expansion the highest priority, saying in February last year that the project’s two new railroads due by 2017 may become a “backbone” of Indian freight transport.

Train Slump

One will connect western ports in Maharashtra and Gujarat to inland container depots in Rajasthan and Haryana. The other will run east from Punjab through five other states, joining power plants to coalfields to ease energy shortages in a nation that had its biggest blackout in 2012.

Average speeds will more than double to as much as 70 kilometers an hour along the links. Trains will be twice as long at 1,500 meters, enabling them to carry greater loads, said Rajesh Khare, a spokesman for the Dedicated Freight Corridor Corporation of India Ltd., which manages the project.

The World Bank and Japan International Cooperation Agency will lend about 60 percent of the 900-billion rupee ($17 billion) cost in stages as progress goals are met, according to the state-owned company, with the Railway Ministry and public-private partnerships providing the rest.

Trailing China

The share of goods hauled by trains slid to 33 percent by 2008 from almost 90 percent in 1950 due to slow speeds, with India now lugging about a fourth of the cargo China carries per kilometer of rail, reports from the United Nations show.

Indian Railways, Asia’s oldest network, has struggled to raise passenger tariffs to fund capacity addition as it faces pressure to keep costs affordable. In India, more than 800 million people live on less than $2 per day.

Last month’s increase is a “good sign” of change, said Juergen Maier, a Vienna-based fund manager at Raiffeisen Capital Management, which manages about $1.1 billion in emerging-market assets.

Construction companies including Larsen & Toubro Ltd., IVRCL Ltd., Simplex Infrastructures Ltd., Gammon Infrastructure Projects Ltd., NCC Ltd. and Era Infra Engineering Ltd. stand to benefit from the rail expansion, according to P. Phani Sekhar, a fund manager at Angel Broking Ltd. in Mumbai.

Larsen & Toubro and Gammon are based in Mumbai, IVRCL and NCC in Hyderabad, Simplex in Kolkata and Era in New Delhi.

Missed Targets

The freight corridors face a legacy of missed infrastructure targets. About 20 percent of the land needed for the tracks has yet to be acquired more than six years after the government set up Dedicated Freight Corridor.

That’s one key reason why the project may be completed as late as 2019 even on the most optimistic timeline, said Srinath Manda, the program manager for transportation and logistics at consultancy Frost and Sullivan in Chennai.

“We did have our share of problems,” R.K. Gupta, the Dedicated Freight Corridor’s managing director, said in an interview on Feb. 8. “We’re confident of finishing the project come what may.”

Approximately 70 percent of the new railroad will be ready by the 2017 target, and one section of a corridor will probably be completed by December this year, he said.

The rise in ticket prices of as much 39 percent will add 66 billion rupees to revenues at Indian Railways, whose 1.4 million workers make it one of the world’s biggest employers.

Railway Bonds

The revenue gains are “positive” for the company’s bonds as their rating will improve, said D.K. Aggarwal, chairman of SMC Investments & Advisors Ltd. in New Delhi.

The yield on the 4.406 percent dollar-denominated note of Indian Railway Finance Corp. reached a record low of 2.52 percent on Feb. 14, according to prices provided by ING Groep NV. The security, due March 2016, was issued five years ago.

The fare increase in January added to economic changes Singh began Sept. 13 that aim to speed up infrastructure projects, damp consumer-price inflation of almost 11 percent and lure capital inflows to support the rupee.

The premier, facing a general election by May 2014, snapped two years of policy paralysis with the changes as he tries to stem the worst Indian growth slowdown in a decade.

India’s statistics office predicts gross domestic product will rise 5 percent in the year to March 31, the least since 2003. Claims of graft against officials contributed to the earlier logjam, deterring spending on roads, railways and ports.

For train driver Kumar, that adds up to long delays for many years yet, sipping tea to while away the hours in his locomotive as passenger carriers trundle past.

“We’re helpless,” he said. “We’ll just keep on waiting for the signal to move.”

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