Prime Minister Narendra Modi inaugurated two sections of dedicated freight corridors (DFCs) in quick succession in December 2020 and January 2021. Immediately after, videos of kilometres long double-stack container trains chugging on the new lines emerged on social media handles of Ministry of Railways and Railway Minister Piyush Goyal. The trains hit top speed of 93 km per hour and average speed of 67 km per hour as against 23 km per hour clocked by a normal goods train in India.
The new lines - 351-km Khurja-Bhaupur section of the Eastern Dedicated Freight Corridor (EDFC) and 306-km Rewari-Madar section of the Western Dedicated Freight Corridor (WDFC) - are barely 20 per cent of the corridor. The 1,875-km EDFC will connect Ludhiana in Punjab with Dankuni in West Bengal. WDFC is a 1,506-km corridor between Dadri in Uttar Pradesh and Jawaharlal Nehru Port Trust (JNPT) in Mumbai. The much-awaited project has seen multiple delays over the years due to land acquisition and other issues.
The entire project, stretching 3,381 kms, however, still has a long way to go. The two completed sections, spanning 650 kms, are less than one-fifth of the total length, surprising for a project that has been under construction for more than a decade and a half. Meeting the latest deadline of June 2022 - the original date of FY18-end was revised to March 2020 and then to December 2021 - is a tall order considering the stage at which the project is at present.
The need for a DFC was felt because trunk freight routes of Delhi-Mumbai and Delhi-Howrah were saturated, with line capacity utilisation varying from 115 per cent to 150 per cent, slowing movement of goods. Railways were losing their share of freight traffic to truckers - The share of railways in total freight carried fell from 83 per cent a few years after independence to 35 per cent in FY12, according to data from the railway ministry.
The delays in the project have proved to be costly. When the Cabinet Committee on Economic Affairs (CCEA) approved the project in 2007, the capital cost was Rs 28,181 crore. The CCEA announced a revised cost of Rs 81,459 crore in June 2015. The current cost of the project is estimated to be Rs 95,238 crore. The cumulative capital expenditure incurred till November 2020 was Rs 67,971 crore, according to government data.
Japan International Cooperation Agency (JICA) is funding WDFC while the World Bank is funding EDFC. JICA has provided Rs 33,000 crore till date under the concessional Official Development Assistance (ODA). The repayment period in ODA is 40 years with a grace period of 10 years. The interest cost is 0.1 per cent. Tough Task Ahead
The railway ministry and Dedicated Freight Corridor Corporation of India Ltd (DFCCIL), the special purpose vehicle (SPV) implementing the project, have to inaugurate 13 sections in the next 15 months till June next year (there is an additional 538-km section on EDFC between Sonnagar and Dankuni which will be taken up on a public private partnership, or PPP, basis at an investment of Rs 15,926 crore; this does not come under the June 2022 deadline).
According to a December 2020 brief compiled by the SPV for the Prime Minister's Office (PMO), work on major bridges, road over bridges (ROBs) and road under bridges (RUBs) is lagging. The report says that as on December last year, of the 537 major bridges to be built on the alignment of the corridors, only 251, or 47 per cent, had been completed. Out of the 1,582 RUBs that were planned, only 966, or 61 per cent, had been completed till December. ROBs fare the worst with 27 per cent completion rate (84 out of the 300 planned). R.K. Jain, Managing Director, DFCCIL, however, says delays in building ROBs and RUBs will not affect the commissioning target and they are just for "smooth running of the trains." Sharing the details of the two upcoming sections, he says, "The 342-km Madar-Palanpur section of WDFC is scheduled to be opened by March 31. Trial run has already been completed on the 160-km stretch between Madar and Marwar on this section. This section will connect ports in Gujarat with the National Capital Region. On EDFC, the 100-km section, Sonnagar-Ganjkhwaja, will also be open by March 2021." With this, 1,100 kms of the total 3,381 kms will be ready by the end of FY21. However, no inauguration ceremony was scheduled till the time of going to press, even though the end of the financial year was a couple of days away.
The funding picture is not rosy either. "All contracts of EDFC and WDFC worth Rs 56,952 crore have been awarded. The cumulative contractual progress till December 20 is Rs 35,266 crore," says DFCCIL's progress brief to PMO. This means 38 per cent contracts are still to be implemented.
Such slow progress is unexpected as land acquisition, which plagued the project during its earlier years, has been taken care of, say experts. Out of the 10,619 hectares needed for the two corridors, 10,618 have already been acquired. The government is facing problems in land acquisition near JNPT in Mumbai, but options such as cash compensation and alternative housing are being worked out in collaboration with state authorities. In fact, according to DFCCIL, 89 per cent of the land had been acquired by June 2013 itself, a significant jump from 2010, when only 555 hectares (nearly 5 per cent) had been acquired.
"DFCCIL's Capex Utilisation is Quite High"
Ravindra Kumar Jain, MD of Dedicated Freight Corridor Corporation of India, talks to Ashutosh Kumar about the challenges in the DFC project and future plans. Jain is confident of meeting the June 2022 deadline for Eastern and Western DFCs. Edited excerpts:
Which are the next sections to be inaugurated and by when?
Work is progressing at a rapid pace on both EDFC and WDFC. The 342-km Madar-Palanpur section of WDFC is scheduled to be inaugurated in March 2021. Trial run has already been completed on the 160-km stretch between Madar and Marwar on the section. This will connect ports in Gujarat with the National Capital Region. On EDFC, the 100-km stretch on the 135-km Sonnagar-Deen Dayal Upadhyaya section will also be commissioned in March 2021. Work is in progress on the 35-km stretch connecting DDU junction. Freight corridor work at DDU, which is one of the largest junctions on the railway network, involves yard completion and large amount of utility shifting. So, 1,100-km, or 40 per cent, of DFC will be operationalised. On EDFC, the 46-km Khurja-Dadri section will be completed in June 2021. The entire EDFC and WDFC, excluding the public private partnership (PPP) Dankuni-Sonnagar section on EDFC, will be completed by June 2022.
What is the progress on the Dankuni-Sonnagar section?
The section has been divided into two phases. The first is the 263.7-km Sonnagar-Gomoh section and the second is the 273-km section between Gomoh and Dankuni. Nearly 93 per cent land acquisition has been completed for Phase-I and 86 per cent for Phase-II.
The four roadshows for this section got an overwhelming response. Multilateral agencies such as World Bank, investors and infrastructure companies like Russian Railways, L&T, Tata Projects, Siemens, Sojitz, KEC and GMR Group participated. The PPP documents for the first phase have been approved by the Railway Board and sent to the Public Private Partnerships Approval Committee. As announced by the finance minister in Union Budget 2021, the Sonnagar-Gomoh section will be taken up in FY22. The Gomoh-Dankuni section will be taken up shortly after.
The railways was supposed to do equity funding of Rs 3,679 crore for the 126-km Mughalsarai-Sonnagar section on EDFC. What is the status of this funding?
The railway ministry is providing regular funding. Till January 2021, Rs 2,447.39 crore capital expenditure has been utilised for the section.
Progress on major bridges, ROBs and RUBs is slow with only about 50 per cent target met so far. What is the reason?
ROBs and RUBs are important for smooth running of trains. Some work will be done by state governments and some by railways and DFCCIL. ROB and RUB delays will not impact the commissioning target.
The two freight corridor projects are funded by long-term loans from multilateral agencies. However, financial progress is only 61 per cent on WDFC and 64 per cent on EDFC. What explains this?
DFCCIL's capex utilisation is quite high. Compared to last year, despite Covid-19, it has increased by 20 per cent.
How Things Were Speeded Up
Taking note of the delays, the prime minister reviewed the project in August last year and asked the railway ministry to closely monitor its progress. Immediately after, Goyal shot off letters to chief ministers urging them to help implement the project. He has since then been reviewing the work on a weekly basis, pushing contractors and companies to speed up things. Alstom, which has got the contract for electrification, signalling and telecommunication systems for the 351-km Bhaupur-Khurja stretch of EDFC, responded by deploying additional workers at its sites. It points to land acquisition delays but says they were anticipated given the "scale and complexity of the project." Covid-19 came as an unexpected blow over and above the delays due to land acquisition, project planning issues and Centre-state coordination. "Given our vast experience, we were able to anticipate most of the challenges and expedite the project. While Covid-19 slowed the progress, with Unlock 1.0, our teams restarted with an undeterred spirit. Alstom deputed over 1,300 employees round the clock to deliver as per timelines," says Alain Spohr, Managing Director, India & South Asia, Alstom.
Experts, however, point at multiple hurdles that still need to be crossed. Though funding has never been a problem due to support from multilateral agencies, there is a call for effective execution of contracts. "Contract management and administration need to be reworked. Sadly, these are not being looked into adequately even today. The project was supposed to be complete in 2018. Absence of a dispute redressal mechanism, lack of interface between contractors and hindrance in cash flow of contractors still need to be sorted out," says Bharat Salhotra, former Director, Finance, DFCCIL, and former MD, Alstom India and South Asia.
Experts also say state governments should have had a higher stake in the project. "Absence of state governments' equity in a project like this lowers their interest. They need to be a stakeholder and convinced about the economic benefits of the project," says Arindam Guha, Partner, Government and Public Services, Deloitte India.
Project Planning, A Key Lesson
The World Bank has provided Rs 12,957 crore for the 1,200-km Ludhiana-Mughalsarai stretch on EDFC while railways is putting Rs 3,679 crore equity in the Mughalsarai-Sonnagar section. The Dankuni-Sonnagar section (538 km, for which 93 per cent land has been acquired) will be bid out under the PPP mode. The expected investment is Rs 15,926 crore. The project will come up on the DBFMT (Design-Build-Finance-Manage-Transfer) model. The railway ministry will provide the land to the concessionaire. The two will share the revenue from the assets.
Experts give a thumbs-up to multilateral agency funding for such long-term and capital-intensive projects, but say lessons need to be learnt in terms of project planning, land acquisition, contract renegotiation and, most importantly, revenue generation from assets. "Multilateral funding, essentially on government of India balance sheet, is sensible at present. Funding at a level below railways (DFCCIL or project level) will require revenue streams to be clearly identified," says Manish Agarwal, Partner, Infrastructure Advisory, PwC India.
"At this stage, there isnt sufficient certainty on traffic and revenues. So, private capital at project level is unlikely. Also, a change in financing model will not impact execution speed as delays are primarily due to land acquisition issues," he adds.
Guha of Deloitte says there are several takeaways from India's DFC experience. "Infrastructure projects are delayed due to usual reasons. DFC projects were approved in 2006. Budgetary outlay and everything else started in 2013. Land and other clearances also remained pain points," he says. He sees multilateral funding as a viable option, but lists lessons from the project to avoid delays in future. "The first thing is robust project planning. Second is contract renegotiation. A model contract-renegotiation framework has to be in place to deal with delays due to factors not attributable to the contractor," he says, adding that the government needs to think of monetising the asset. Finance Minister Nirmala Sitharaman, in fact, set the asset monetisation ball rolling in this year's Budget; the DFC is one of the major projects in the asset monetisation pipeline. This will free up cash for other DFC projects that are lined up. The government is in the process of finalising the detailed project report for three more freight corridors - East-West (Kolkata-Mumbai), East-Coast (Kolkata-Chennai) and North-South (Dadri-Chennai). The interim detailed project report is targeted by December 2021.
Meanwhile, in what is a silver lining of sorts, capital allocation for the project does not seem to have been impacted due to the pandemic and the lockdown. In a review meeting held by Goyal last month, DFCCIL said capital expenditure in the first 10 months of FY21 was up 21 per cent to Rs 8,201 crore, compared to Rs 6,783 crore in the corresponding period of the previous financial year.
One hopes this is sufficient to put this and similar other projects on the fast track.