'Freight corridor project is moving with decent speed'

Q&A: V K Kaul, Managing Director, DFCCI

The Dedicated Freight Corridor Corporation of India (DFCCI) is building what would be the country’s largest infrastructure project involving almost 3,300 kilometres of railway track. The cost of the project has now ballooned to Rs 60,000 crore, which is more than double the Cabinet-approved project cost of Rs 28,000 crore. Nevertheless, V K Kaul, the managing director of the company, tells Sharmistha Mukherjee and Vandana Gombar that the project is viable and would be completed by 2018, with commissioning starting in 2016. Excerpts:

What is the final estimate of the total project cost?
The cost estimate is Rs 42,231 crore at current prices, excluding various statutory taxes, which vary from state to state. Those taxes would add 8-10 per cent more to the project. This is bound to escalate. We have come to the conclusion that it will be around Rs 60,000 crore on completion and commissioning.

What is the main reason for the sharp cost escalation?
The initial estimate was based on a preliminary survey. At that time, the project was at a conceptual stage. It was put up to the Cabinet and was approved at an approximate estimated cost of 28,000 crore, but the Cabinet did say that the railways ministry could come back with a firm costing.

Is this a viable project? There are some concerns…
There was a study done by RITES initially. Then the Japanese International Cooperation Agency (JICA) did a study and we have commissioned IL&FS to do the traffic projections. Even after taking into account the economic slowdown, the internal rate of return is about 9 per cent in the worst case scenario, and without taking any traffic share from Indian Railways. It could go up to 15-16 per cent in the best case scenario.

How will the recent decision of Railway Minister Mamata Banerjee to abstain from any forcible acquisition of land affect the project? Have you already received updated instructions from the ministry?
We have been asked to provide details on the land acquisition in progress by the ministry a few days ago, including the details of the representations received and our responses. Land acquisition is done by the railway ministry. DFCCI is only the facilitator. There are 51 districts involved covering more than 3,200 villages. But remember it is not large tracts of land that we require. What we need is only strips of land (10 metres wide) across existing alignments or a little more (40-50 metres) in the case of a bypass.

If land acquisition is to be only voluntary, can one non-cooperative land owner hold up a whole stretch?
That is if you go by the literal meaning of what the minister said. I think it needs to be taken in the right spirit. It is a confidence-building measure by the minister saying that the land won’t be snatched away by the government forcibly for a pittance. We will compensate, reasonably.

How much of the land required is already with the corporation?
The first notification (announcing intention of the government to acquire the land) have been issued and we have received some representations also. Most of the issues relate to quantum of compensation. We expect to have 70 per cent of the land with us in about a year.

With the Japanese International Cooperation Agency approving a conditional loan of Rs 17,700 crore for the western corridor, it seems this will precede the eastern corridor.
No. Both will move simultaneously. There is a Rs 10,000-crore loan from the World Bank for the eastern corridor likely to be finalised by July 2010 and probably another Rs 7,000 crore from the Asian Development Bank by December 2010. There is an additional loan that is likely from JICA for the western corridor which is likely to materialise in March 2011. Once the funding is made, we will invite international bids, though obviously, bids for the whole corridor will not be bunched together but staggered.

The loan from JICA is conditional. Does this tie us down to Japanese locomotives?
I want to clarify this point. The conditionality is that 30 per cent of the total loan amount should be used to buy some goods from Japan. The railway ministry has decided to procure electric locomotives. Half of these will be brought into the country in knocked-down condition and assembled locally. There will also be some technology transfer and local manufacturing. Also, this purchase does not tie us down to Japan. It does not prevent us from sourcing locomotives from any other part of the world.

How would you describe the progress of the project?
I think the project is moving with reasonable speed.