Railways to take on petroleum pipelines

Ministry mulling 35% cut in freight rates for petroleum products

The Railways is exploring the option of reducing freight rates for transporting diesel and other petroleum products by over 30 per cent. This could deal a blow to pipeline traffic, where the rates are benchmarked against freight rates.

"The Railways wants to regain its marketshare in the transportation of petroleum oil and lubricants (POL) by offering more competitive rates," a ministry official said. Over the past few years, pipelines have emerged as a cheaper, and hence preferred, option for carrying petroleum products.

But the ministry seems divided over the issue. Sources in the Rail Bhawan said while Railway Minister Lalu Prasad was in favour of such a reduction, the Railway Board members were not convinced.

The officials said an internal study by the ministry had revealed that pipelines were viable as long as the charges were up to 70 per cent of the railway freight.

"The Railways plans to reduce its freight rates by about 35 per cent, which would make the pipelines uneconomical," the official said.

This could spell trouble for not only the existing pipelines but also the new pipeline projects that are being planned.

Of the 33 tariff classes, where the freight rates increase as one goes up the classes, petroleum products lie in the topmost bracket. The freight in this class is 150 per cent higher than the base class of 100.

Over the years, POL cargo carried by the Railways has been falling consistently. Compared to the traffic of 35.62 million tonnes in 2001-02, the amount of POL cargo transported by the Railways fell to 32.5 million tonnes in 2003-04. The Railways expects the traffic to fall to 32 million tonnes during the current year.

In 2004-05, the Railways expects to earn Rs 2,465 crore by transporting POL, which forms 8.57 per cent of the targeted total freight earnings. In 2001-02, the share of POL in total freight earnings stood at 11.04 per cent.

An attempt is also being made to streamline the tariff structure, by raising the rates for subsidised commodities and lowering the freights for those that are overcharged, the official said.

The Railways recently raised the freights for commodities like coal, iron ore, cement and manganese ore by 3-7.7 per cent.