Costly fuel gives railways the blues

MUMBAI: With diesel prices heading north, the Indian Railways (IR) is beginning to feel the pinch, thanks to inflated fuel bills. The railways will have to run up fuel expenditure 4-5% higher than last year’s. In absolute terms, the average cost of high-speed diesel (HSD) consumed by the IR has moved up by almost Re 1 from Rs 26.9 in ’05-06 to roughly Rs 28 now, leading to an increase of about Rs 250-350 crore in the fuel expenditure bill, said a senior railway ministry official.

The IR is likely to shell out close to Rs 5,350 crore towards buying HSD, up from last year’s bill of around Rs 5,000 crore. However, the annual contracts signed by the IR with oil firms had saved it from the impact of a major hike in fuel prices, railway officials maintained.

Under the existing contract, the IR is paying Rs 1,125.27 per kilolitre (KL) as against Rs 1,035.27 per KL last year. However, the annual contracts have left oil firms such as Indian Oil (IOC) in a quandary, since it means a losing proposition for them. “It is only on account of the commitment that we are charging such a discounted price,” said an IOC official.

Meanwhile, the IR seems to have initiated some measures to enhance performance internally to meet the rising costs. These include increasing the loading capacity of wagons by 10-11%, apart from adding more wagons and going in for faster electrification of existing diesel routes. The railways has also announced a rebate of 30% on freight charges as a bait for more trade through rail and thus counter the ballooning expenditure bill on the fuel front.

On the flip side, road sector may take a major brunt of the fuel price hike since the players are not insulated by long-term contracts, unlike the IR. Industry officials said more shippers may soon come back to the railways, which would remain cost-competitive to road sector.