Cil Refuses To Bear Vizag Fuel Supply Risk

The public sector Coal India Ltd (CIL) is jittery about supplying fuel to the proposed Hinduja National Power Company Ltd to one of the fast track projects, and has refused to bear the post-loading risks having penalty clause which the power company wanted.

Highly-placed sources in Coal India headquarter here said that CIL was asked by the government to supply nearly five million tonne of washed coal to the proposed 1000 mw power plant to be set up in Vizag from its subsidiary, Mahanadi Coalfields Ltd.

Sources said that CIL would be responsible for the delivery of coal up to the loading point but carrying the coal to the plant would be the responsbility of the railways.

 

The new company, however, wanted a provision in the agreement that if the plant suffered production even for railways lapse of carrying the coal after loading, CIL would be reponsible for that, the sources said wondering how could Coal India take the post-loading risks having high penalty.

Stating that the Hindujas wanted the single-window treatment, the sources said that the power company wanted a separate agreement between the MCL and the railways for the delivery of coal.

But in case of any lapse in the delivery, MCL would have to pay first and subsequently the matter would be taken up with the railways, the sources said, adding that MCL, being a small company, would not have the capacity to pay.

source mobilisation of Rs 1,800 crore and higher budgetary support of Rs 1,831 crore to tide over the resource gap in financing the plan outlay of Rs 8,300 crore, the RBI has said.

While in nominal terms, the proposed plan outlay showed no increase over the previous years outlay, in real terms, this implied a lower investment provision in 1997-98 than in 1996-97.

The RBI felt that railways reliance on market borrowing for financing its plan investment has grown at a high rate in recent years. In 1997-98, Railway Finance Corporation (RFC) would borrow Rs 2,150 crore for railways for financing about 25.9 per cent of the projected plan outlay.

In recent years, RFC had been borrowing from the domestic market through taxable bonds at an interest rate of 16 to 17 per cent, which was higher than the rate of return of 12 to 15 per cent earned by railways on capital-at-charge and investment from capital fund.

The current gap between the returns earned and interest paid on market loans has a cascading effect on railway finances to the extent that this adds to the net working expenses and cuts into the appropriation to developmental funds for investment.

Furthermore, higher borrowing requirements from the market could add pressure on the interest rate in 1997-98 and given the projected deterioration in the operating ratio and the resulting adverse effect on the risk perception, the interest rate effect might even get reinforced.

In this context, internal resource generation assumed a great deal of significance in promoting investment in the railways sector, RBI has said.

The deterioration in the internal resources of railways in 1997-98 would stem from a steep fall in net surplus and the resulting lower provision to the capital fund, as also the projected lower order of accumulation to the depreciation reserve fund.

According to the bank this has been primarily the result of a large growth in working expenses of the order of 19.9 per cent due to an additional provision of Rs 3,500 crore on account of the pay commission recommendations.

At the same time, gross traffic receipts would grow at an impressive rate of 13.9 per cent as compared with 9.1 per cent in 1996-97 mainly due to the proposed upward revision in freight and passenger fares.

In recent years, faced with resource shortfalls, increasing reliance has been placed on freight and fare revisions to finance the railway plan outlay. The additional resource mobilisation in the last three budgets including the current one aggregated Rs 3,477 crore.

However, high reliance on additional resources mobilisation to garner resources for investment has an obvious limitation since it provides impetus to inflationary pressures and creates other distortions in the economy, RBI has said.

The bank has said that the structural weaknesses of the railways are manifest in the high operating ratio. Between 1993-94 and 1996-97 the operating ratio has grown by 3.4 percentage points.

The working expenses grew at a faster rate than the gross traffic receipts stemming mainly from the annual average growth in ordinary working expenses by 11.2 per cent during this period.

This trend must be reversed if the railways has to strengthen their financial health and generate adequate internal resources for financing the growing investment needs in this critical infrastructure sector, the bank has said.