IIM-A study criticises railways

Last Updated: Sun, Jul 15, 2012 10:56 hrs

The Indian Railways has failed to give autonomy to the Dedicated Freight Corridor Corporation of India Ltd (DFCCIL), and has instead become its sole owner and customer, a study by the Indian Institute of Management, Ahmedabad (IIM-A) notes. This has led to lack of risk-sharing and guaranteed completion of project.

Titled 'Structuring the Dedicated Freight Corridor Project: A Lost Opportunity', the study states the unbundling that has happened in other infrastructure sectors (aviation, maritime and road) to bring in greater autonomy and accountability, has not taken place in the railways. Prepared by two IIM-A faculty members, Sobhesh Agarwalla and G Raghuram, the study points at the weaknesses in areas such as ownership structure, contracting strategy, role and market access of DFCCIL.

"In terms of ownership, it is interesting the government task force did not consider the option of a non-Indian Railways owned entity, presumably based on the premise that synergy on various dimensions (such as access to the existing network and land acquisition, construction and operations expertise and market development) could be leveraged only through the railways," it says.

Highlighting certain weaknesses in the ownership model, the study recalled the task force did not consider a third party ownership through an open competitive bid, a model that has been adopted in the roads, ports and airports sector.

This could have brought in a stronger commercial and entrepreneurial energy into the project. However, to ensure that such parties would have had the appetite to fund the project and bear the risk, the project may have had to be unbundled into smaller segments like in road projects. Also, selecting partners through an open competitive bid has the benefit of greater due diligence in the definition of roles, relationship and contracts.

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