Govt likely to lower rail freight rates for coastal shipping of coal

Proposal aimed to ease pressure on rail network, improve coal dispatch during peak demand summer months

The Centre may lower railway freight rates for thermal coal transported via coastal shipping, by changing the formula for price calculation under the rail-sea-rail (RSR) mode, Business Standard has learnt. With the peak coal demand months around the corner, the Centre is aiming to increase coal dispatch while reducing pressure on the railway network, and keep the cost of sea-borne coal under control.

This also comes after Finance Minister Nirmala Sitharaman indicated in her 2023-24 Union budget speech that coastal shipping would be promoted. Following this, the ministries of railways and shipping are soon scheduled to have a high-level stakeholder meeting to decide the framework to bring in 'telescopic freight' rates for coastal shipping of coal.

Though still in the works, sources said the Centre is pushing to enforce the new policy ahead of the impending peak power consumption season, as it wants to avoid a repeat of the coal demand-supply crisis of last year.

'Telescopic freight' would mean treating the trip from the coal mine to the port and from the destination port to the power house as one consignment, so that the final freight cost is brought down. At present, freight is charged separately for rail transport from mine to port, and from destination port to the power houses, making it much more expensive.

The policy seems to be facing some resistance from the ministry of railways, which would face a loss in revenue if it charges telescopic rates for rail transport in coastal shipping. Business Standard had reported that last year, NITI Aayog had asked the railways to consider lowering freight charges for transportation of coal.

Sources said that the national transporter is not keen on any proposal to lower the base freight rate, as coal transportation is the bread and butter of railways, and accounts for over half of the nearly Rs 1.65 trillion (FY23 estimates) of goods revenue for railways.

“The initial discussion between railways and other stakeholder ministries is in the context of coal since there is an urgent need to promote coastal shipping ahead of peak power demand, but the wider aim is to have telescopic rates for commodities such as fertilisers and steel as well,” an official said.

While the Centre has identified coastal shipping as the keystone in its larger vision to bring down the cost of logistics, the situation on-ground presents a different picture. Recently, Punjab Chief Minister Bhagwant Mann expressed his opposition to a mandatory RSR condition for transportation of domestic thermal coal imposed by the Union power ministry.

He said that coastal shipping is in fact costlier than just using railways and will cause significant financial burden on the state. Power generation companies in the state already continue to financially struggle, and sources said that other states in northern India are also facing a similar issue, albeit not as severely.

The Centre has reportedly agreed to waive the condition off for Punjab now. Experts suggest that lower freight rates in RSR mode could go a long way towards easing this financial pressure on states, as there is no doubt about the need to find alternate ways to transport coal.

The Centre has been working on a coal logistics policy to avert the annual affair of a coal crisis, partly caused by a complete choking of railway networks during peak power demand. Under the energy corridor programme of the railways, it is working on projects worth over Rs 94,000 crore to build coal-linked corridors to ports and other transport hotspots to ease coal movement.

The Centre also wants to crowd in private investments in infrastructure as part of its Rs 111-trillion National Infrastructure Pipeline. In that context, another reason the telescopic rates proposal is being considered is to make coastal shipping attractive for private players. The ministry of ports, shipping, and waterways (MoPSW) has been tasked to identify such projects for the upcoming fiscal year.

“Currently, there is little interest in coastal shipping from the private sector and one of the sore points is financial viability, due to the cost, since RSR is currently costlier than all-rail. Currently, MoPSW is looking at projects which can attract private interest through viability gap funding (VGF),” another official said.