National Thermal Power Corporation (NTPC) and Container Corporation of India Ltd (Concor) have agreed to together shell out about Rs 13,000 crore as advance freight payment for the financial year 2019-20 to the Indian Railways, which will carry coal and containers, respectively, throughout the fiscal against this sum.
Concor is a public sector undertaking under the Ministry of Railways.
With this move, Indian Railways aims to keep its mounting operating ratio (OR) in check. In FY18 too, NTPC paid Rs 5,000 crore in advance for FY19 for transporting coal.
Coal accounts for almost 50 paise of every rupee earned by Indian Railways from freight and NTPC accounts for almost a fifth of the total coal loaded each year. A look at Railways's operating ratio since the NDA government took over shows why advance payments for freight are critical for its finances. Operating ratio shows how much Railways spends to earn each rupee. The higher the OR, the worse the financial position.
In three of the five years of the NDA government, this ratio was over 95%. According to the 22nd report of the Standing Committee on Railways, the OR was 96.5% in 2016-17 and 98.4% in 2017-18. For 2018-19, it has already been revised upwards from the Budget Estimate (BE) of 92.8% to 96.2%. For some of the UPA years, this ratio was much lower: 90.2% in 2012-13, 93.6% in 2013-14 and 91.3% in 2014-15.
So the Rs 13,000 crore advance will likely keep the OR manageable.
Indian Railways officials say more such tie-ups with other freight customers could be in the offing since Railways has now formulated a policy called the 'Freight Advance Scheme', which offers tariff certainty to big freight customers who pledge a large sum of money in advance.
The policy specifies that customers who had minimum annual freight revenue of Rs 500 in the previous calendar year can participate in the scheme. This way, Railways will get much-needed cash ahead of schedule through such advances and the freight customers will get tariff certainty as they will be insulated from annual tariff hikes.
An Indian Railways official told DNA Money that this as a "win-win'' for both the parties: It helps the Railways in avoiding high-cost market borrowings and helps customers get tariff stability.
For several years in a row, Railways has had trouble in achieving its annual earnings target. In the Interim Budget for 2019-20, it revised gross traffic receipts target for 2018-19 down by over Rs 4,000 crore or by about Rs 11.3 crore each day. In the revised estimates (RE), gross traffic earnings were Rs 1,96,714 crore as against Rs 2,00,840 crore in the BE.
For four successive years since 2015-16, Railways has fallen short of its BE earnings target, as per the report from the Standing Committee.
A senior Railway Board official had said earlier that earnings from both freight and passengers have seen "healthy" growth in 2018-19 but declined to comment on the mismatch between BE and RE targets as well the operating ratio.
Indian Railways earns almost 65 paise of every rupee through freight while subsidising passenger travel. A former chairman of the Railway Board said that this "social service obligation" is upwards of Rs 40,000 crore each year. Hence, the inability to raise passenger fares and keeping some freight rates uncompetitive adds to Railways's financial woes. In this scenario, advance freight payments are a life-saver.