Indian Railways, CIL to collaborate for additional coal transport capacity

14th February 2013 By: Ajoy K Das - Creamer Media Correspondent

KOLKATA ( - The government-owned and -operated Indian Railways and coal miner Coal India Limited (CIL) would collaborate on beefing-up coal transportation infrastructure within the country with the coal miner investing $1.39-billion on new railway linkages.

Indian Railways had often been at the receiving end of criticism from the end-user regarding coal shortages, according to an official in the Railways Ministry.

Thermal power plants complain of coal shortages at their stockyards while CIL, which accounted for over 80% of domestic supplies, claimed that there were no coal shortages at pit-heads, but said that railways did not have adequate transportation capacities, the official said.

Against this background, a collaboration between Indian Railways and CIL was a logical move forward, using the miner’s large free cash reserves of $1.9-billion. While coal transportation was a profitable revenue stream for Indian Railways, it lacked the financial muscle for capital expenditure, the official added.

At a meeting between officials of CIL and Indian Railways earlier this month, it was decided that rail linkage projects would initially be started in the eastern and central Indian provinces of Jharkhand, Orissa and Chattisgarh with large coal reserves holding the potential to add 300-million tons of coal to CIL’s current yearly production levels of 464-million.

The preliminary discussions envisaged setting-up a special purpose vehicle (SPV) with majority stakes held by CIL and Indian Railways, and minority equity participation by coal-bearing provinces where linkages would be set up. The final contours of the SPV were expected to ready by the end of February.

According to a rough estimate by the Railways Ministry, if the planned new freight network in coal-bearing provinces was implemented effectively, and within fixed timelines, incremental coal-freight handling capacity had the potential to add an additional $1.8-billion in revenue to the railways total revenue earnings.

Coal transportation accounts for around 42% of Indian Railways total freight earnings. The extension of coal handling capacity in collaboration with CIL was also a long-term strategy to compensate for the loss of freight following a sharp fall in iron-ore production.

Between April 2012 and January 2013, railway freight earnings was estimated at $13-billion against a target of  $16.5-billion.