KOLKATA (miningweekly.com) – Falling appetite for coal among bulk consumers has started to take its toll on the freight volumes and revenue earnings of government-owned and -operated Indian Railways (IR).

With coal accounting for about 50% of IR’s total freight traffic, the fall in coal transportation has brought a new challenge for government: Either hike freight rates to fund capital expenditure (capex), but risk further erosion in freight competitiveness, or lower freight rates at the cost of fresh capital funding.

The government will have to take a decision at the forthcoming national Budget on February 1. Significantly, this will be the first time the Indian government will place an integrated national and railway budget before Parliament, jettisoning an independent IR budget, a British colonial era practice since 1924.

According to a selection of officials at IR governing body, the Railway Board, the government has little leeway but to hike coal freight rates to augment revenue to fund capex.

Official government data shows that, from April to December, coal freight handled by IR decreased by 50-million tons and, hence, in the full year, the transporter is unlikely to reach its aggregate freight target of 1.16-billion tons. This will have an estimated revenue impact of $1-billion.

At start of the 2016/17 financial year, IR had planned 253 coal-carrying freight train movements a day, but during the nine-month period, movement only averaged 210 freight train movements a day.

Falling coal imports have also taken a toll, with IR only moving 25 coal-carrying freight trains a day in the nine months to December, rather than the expected 80 a day.

According to an IR official, one of the major reasons for the shortfall in coal freight was the high stocks of dry fuel at thermal power stations, estimated at 33 days. At the same time, as thermal power plants and Coal India Limited are signing up for new coal linkage agreements, coal is being supplied from the mine located closest to the thermal power plant, thereby reducing the transportation mileage for IR, including the increased use of roadways to carry coal to thermal power plants.