Rail Budget 2013: Freight rate gets a fuel link

Last Updated: Wed, Feb 27, 2013 05:18 hrs

Railway Minister Pawan Kumar Bansal today proposed to link freight charges to fuel prices, effective April 1, which will lead to an average rise of 5.8 per cent in freight rates.

The rates will be revised twice a year, Bansal, who is the first Congress minister to present a railway budget in 17 years, said in his Budget speech today, which left passenger fares unchanged.

Owing to deregulation of high-speed diesel oil, the railways' finances need to be rationally insulated, he said. To neutralise the impact of fuel prices on operating expenses, a mechanism needs to be put in place, said the minister.

The government's recent decision to increase diesel prices has added Rs 3,300 crore to the railways' fuel bill. On the account of price revisions in the current financial year, the increase in fuel bill during 2013-14 alone would be more than Rs 5,100 crore.

The move to link freight rates to fuel prices comes a year after former railway minister Dinesh Trivedi proposed a fuel-adjusted component (FAC) in the formula for determining freight prices.

"In the (railway) budget 2012-13, it was proposed to segregate the fuel component in tariffs as FAC. As then suggested, this component will be dynamic in nature and change in either direction with the change in fuel cost twice a year. It's proposed to implement the FAC-linked revision in freight tariff from April 1," Bansal said.

After the implementation of the new charges, the revised freight rates per tonne for coal will stand at Rs 724.80, iron and steel at Rs 1,541.50, urea at Rs 920, iron ore (domestic) at Rs 664 and cement at Rs 724.80. The rates are excluding the development and busy season charges.

The freight earnings target for 2013-14 has been fixed at Rs 93,554 crore, a growth of nine per cent over the last year. The railways have fixed a target of 1,047 million tonnes (mt) of revenue earning originating traffic for the next financial year, which is about four per cent more than the 2012-13 estimate of 1,007 mt.

The railways had earlier fixed a target of 1,025 mt for 2012-13, but it lowered the estimate to 1,007 mt owing to slow growth in freight loading. Still, the freight traffic for the current financial year is expected to grow four per cent, against 969 mt in 2011-12.

"The railways' freight performance is based on a derived demand. There has been slower growth in freight loading than expected at the beginning of the year and accordingly, the railways had no option but to scale down the budget target of 1,025 mt to 1,007 mt… The freight earnings target has also been adjusted to Rs 85,976 crore from the budget estimate of Rs 89,339 crore, a reduction of Rs 3,383 crore," the minister said.

The steep increase in input costs had to be met primarily through adjustment in freight rates. The initiatives taken to become a major heavy-haul carrier include running of long-haul trains. As a part of this initiative, 49 long loops that could hold 1.5-km long trains have been sanctioned this year, besides large-scale induction of distributed power systems to mitigate capacity constraints and improve wagon utilisation.

Steel Authority of India Ltd chairman C S Verma welcomed the budget, saying it was "growth-oriented". "The thrust of the rail budget on new projects... will definitely boost steel consumption as railways is one of the largest consumers of steel in the country. The increased investment will spur steel consumption at a time, when large capacities for steel are being installed by SAIL, which shall be beneficial to us," he added. However, linking freight tariffs to fuel prices is estimated to have some negative implication, Verma said.

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