Centre looks to meet freight corridor cost escalation from its own pockets

The Centre is likely to meet cost overruns of nearly Rs 43,000 crore on the Eastern and Western Dedicated Freight Corridors (DFCs) from its own pocket, even as about 75 per cent of the projects has been funded by multilateral bodies.

“The Eastern DFC is already completed. There’s an expenditure of around Rs 10,000-12,000 crore remaining on the Western corridor, and it’s likely to be met with government support too,” a senior executive of the Dedicated Freight Corridor Corporation of India Ltd (DFCC) told Business Standard.

The executive added that the final cost structure will be ratified when the Union Cabinet approves the revised cost estimate. 

A senior government official confirmed the above, and added that multilateral agencies have been willing to give additional funds for the cost overruns as well.

However, the Centre wants to meet these expenditures while its aggressive push on capital expenditure, especially for railways, is ongoing.

Last year, the ministry of railways had prepared a revised cost estimate of the two DFCs, which were earlier to be built for Rs 81,000 crore.

This cost has risen 54 per cent to Rs 1.24 trillion, with the now-completed eastern corridor costing Rs 51,000 crore and the under-construction western corridor costing Rs 73,000 crore.

The revised costs include Rs 21,846 crore for land acquisition and Rs 1.02 trillion in construction and other costs.

According to DFCC managing director (MD) RK Jain, some of the cost overruns were on account of change in the scope of work as the initial project plans were made years ago and needed to be updated.

DFCs were sanctioned with a debt-equity ratio of 3:1 for the railways’ special purpose vehicle, DFCC.

The eastern corridor had an equity infusion of Rs 3,679 crore from the ministry of railways and loan from the World Bank. The western corridor was entirely funded through debt from the Japan International Cooperation Agency (JICA).
 

While the DFC project was approved more than 15 years ago, it faced several hurdles. These were related to land acquisition, delay in awarding contracts, appointing consultants, loan approvals, and the outbreak of Covid. All these resulted in delay in implementation of the project, resulting in cost escalation.

Recently, the Union Cabinet also decided to reduce the scope of the eastern DFC by 538 kilometres. Instead, it will now develop a crucial stretch between Bihar and West Bengal as mixed-use railway tracks.