New Delhi/Ahmedabad: Abrupt freight charge hike has put industries plying on Indian Railways in quandary. Key sectors like power, steel, petroleum, and cement producers are anticipating increase in their distribution costs that will burden the end users.
Power tariff will go up and oil marketing companies are also expected to witness further increase in the under recovery amidst rising crude prices.
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Railway Board chairman Vinay Mittal estimated additional revenues of Rs 15000-20000 crore by next fiscal. Railway Board's member (traffic) KK Srivastava said, "Our operation costs have gone up on account of price rise of oil, power and coal among other inputs.
Hence, we are compelled to introduce minor change in freight to offset our rising costs." He added that Indian Railways would not loose any customers on account of higher freight.
According to estimates, transportation cost accounts for close to 28% in cost of coal and 20% in petroleum products.
Experts fear that price hikes after the Union budget in various products is inevitable as infrastructure, agriculture & commodities are adversely affected areas since cost of transport is on rise.
"In India, railway freights are one of the highest in world. Due to inability to raise passenger fares, Indian Railways has been increasingly getting dependent upon freight to stay afloat.
As of now, about 70% of the railway revenues are coming from freight only," said Ernst & Young ED and Leader PPP Abhaya Agarwal said. According to Agarwal, the average realisation to railways in per net tonne per kilometer terms have grown at the compounded annual rate of 2.5% over the past 10 years.
An IOC official stated that under recovery for the company would go up unless the government allows it to increase petroleum prices.
Commodities like coal, iron ore, cement, food grains, fertilizers, petroleum oil and lubricants account for 80% revenues for Indian Railways that is expected to garner close to one lakh crore rupees from cargo movements this fiscal.
Coal accounts for highest traffic in Indian Railways' basket as 1,05,000 mw of country's total 1,86,654 mw of electricity generation capacity is dependent on coal. It was expected to transport 400 million tonne of coal in current fiscal.
According to top executives of power arms of Essar and Adani groups, 20% higher costs of coal transportation will be passed on to the electricity distribution companies as per the power purchase agreement.
A top official of one of the state power utilities said, "Railway tariff hike has come at a time when we are struggling with coal price hike and seeking electricity tariff hike. We will factor the same while presenting our case for tariff hike before the state electricity regulatory commission. The distribution companies will pass on the burden to the end users."
The steel makers estimate additional burden of $ 30 per tonne in exports and iron ore in domestic market will increase by Rs 1,800 per tonne on account of freight tariff hike. "It is not an industry friendly development.
Steel industry is already is witnessing slow growth in demands and margins are under pressure. Steel makers will not be able to absorb this cost and it will be uncompetitive if the cheaper imports flood the Indian market," said a top official of a large steel company.
"The 20% freight hike announced by Railways is unreasonable especially in context to the cement industry as this is a logistic driven and freight sensitive core sector industry.
This hike will lead to increased input and transportation cost and will adversely affect the already squeezed margins of the cement manufacturers who are currently under pressure of oversupply condition due to capacity additions," said Sanghi Cement wholetime director Alok Sanghi.
Commenting on the development, Rs 10,000 crore Gujarat Cooperative Milk Marketing Federation Limited (Amul) MD RS Sodhi said, "One third of our produces is transported through Railways.
Entire East and North East India is catered through Indian Railways. We agree with Railways for an appropriate tariff hike since it has remained in control for past few years. However, dramatic freight hike is not reasonable as end user will suffer the most." Sodhi claimed its cost of railway transportation would increase by over 30% effectively.
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