Rail freight corridor runs into rough patch

The Rs 27,000-crore dedicated freight corridor project has run into rough weather due to a tussle between the finance and railway ministries over the funding pattern for the proposed special purpose vehicle. On Thursday, the Cabinet decided to refer the matter to a group of ministers.

Sources said the decision was taken after the Planning Commission and the finance ministry raised objections to the financing plan suggested by the railways.

They said the quantum of private sector investment to be allowed in the SPV was at the heart of the difference between the two ministries.

The ministries and the Planning Commission are soon expected to debate the various funding options for the formation of the SPV through which the dedicated freight corridor will be constructed.

Sources said the finance ministry felt the SPV should be formed under a public private partnership, with a significant share of the investment coming from the private sector.

However, the railways were of the view that it would rather dominate the SPV with its own money and some additional equity from user industries in the public sector. The railways also preferred a blend of own equity, market borrowing and "" to a lesser extent "" private financing initiatives.

The railways' argument was that if the SPV was dominated by private financing, the cost of the project would shoot up significantly, which would force the ministry to hike its haulage charges.

High haulage charges would defeat the very objective of the project, which was to make the freight sector more competitive with regard to the road sector.

The railway ministry felt that it had sufficient surplus "" thanks to the Rs 13,000-crore internal generation that was achieved last fiscal "" to fund the project to a significant extent.

However, the finance ministry had apparently contended that the railways had too many pending infrastructure projects to be able to spare funds for the dedicated freight corridor.

Sources said Railway Minister Lalu Prasad would strongly take up the arguments put forward by his ministry once he returned from his foreign tour tomorrow.