Freight corridor to get Japanese boost with L&T-Sojitz contract

With the award of a Rs 6,700-crore contract for the western arm of the Dedicated Freight Corridor (DFC) to a consortium of Larsen & Toubro and Japan's Sojitz scheduled in a week, India's railway infrastructure would see another major Japanese imprint. India has received the highest Japanese official development assistance. Also, Indian companies have received the second-highest assistance from Japan Bank for International Cooperation (JBIC), after Chinese companies.

Delhi Metro Rail Corporation (DMRC) was the first major Indian project that saw Japanese funding. Now, the Indian Railway-owned Dedicated Freight Corridor Corporation (DFCC) is set for a long-term engagement with Japan. DFCC was awaiting a clearance for the award of the 640-km Rewari-Palanpur civil contract to the consortium after a two-way contest with Ircon-Mitsui, said a government official. "Right now, DFC is one of the biggest projects Japan is focusing on. Once this is completed, everything else will take off," Tamaki Tsukada, minister (economic), Embassy of Japan, told Business Standard.

The ¥677-billion funding for the western corridor is the first loan to an Indian project under the special terms of economic partnership (STEP), which requires 30 per cent sourcing from Japan and the lead partner in all contracts to be Japanese, said R K Gupta, managing director, DFCC. In return, Japan has extended the loan at a concessional rate of 0.2 per cent to DFCC for 40 years, which includes a 10-year-monatorium on the loan repayment. (JAPANESE AID TO INDIA)

To meet the 30 per cent sourcing norm, DFCC had to purchase 200 locomotives and head-hardened rails from Japan, along with signaling and electrical equipment. This led to fears the STEP model would raise the project cost for the western corridor. "We struggled to resolve the issue and got more competition among Japanese companies through two road shows there," said Gupta. He added finally, the bids for the World Bank-funded eastern corridor became the benchmark for the western corridor.

Japan International Cooperation Agency (JICA), the Japanese government arm for providing technical and financial aid to developing countries, is also DMRC's lending agency. Loans to DMRC fall under official development assistance and have been given at interest rates of 1.2-2.4 per cent; these have a repayment period of 30 years. As much as 60 per cent of the funding for phase-I and 50 per cent for phase-II came from JICA. For the three phases of the Delhi Metro, JICA provided soft loans of ¥502.6 million.

Tsukada said Japan was also focusing on three other projects-- the seawater desalination project at Dahej, Gujarat, the model solar project in Neemrana, Rajasthan, and a gas-fired independent power producer project in Maharashtra.

Though the Delhi-Mumbai Industrial Corridor, in which Japan is a partner, faced hurdles related to land acquisition, regulatory issues and restrictions on captive power generation, Hiroshi Watanabe, president and chief executive of JBIC, said India ranked second, in terms of countries in which Japanese investors were interested, after China. "This is a very good indication. The government is committed to promoting industrial corridors in India, while Japanese companies are looking at another corridor between Chennai and Bangalore," he said.

JBIC's loans to India stand at $1.6 billion. So far, it has lent towards the creation of manufacturing capacity in the country. The power, steel, electricity and automobile sectors have received loans from JBIC.