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IRFC to float Rs 3,400-cr bonds despite high lease rentals

Our Bureau

NEW DELHI, Feb. 25

THE Railway Minister, Ms. Mamata Banerjee, has opted to raise a record Rs. 3,400 crores of borrowings through bonds floated by the Indian Railway Finance Corporation (IRFC) during the coming fiscal. This is notwithstanding the Railways having to shell ou t Rs. 2,780 crores as lease rentals to the IRFC in 2000-01, which will account for 9.9 per cent of the former's total working expenses.

Rail Ministry officials say that the higher borrowings are justified given the softening of interest rates in recent months, which would give the IRFC substantial leeway to avail of cheap funds, which would be passed on to the Railways in the form of low er lease charges. But analysts point out that the decision by the Railways to defer dividend payments to the tune of Rs. 1,500 crores payable in 2000-01 for the future will send wrong signals to the market, thereby impacting on the borrowing costs.

The budgeted lease rentals of Rs. 2,780 crores to be paid to the IRFC would account for almost 82 per cent of the Railway's total borrowing target of Rs. 3,400 crores for 2000-01, thereby indicative of a looming debt trap. In fact, it is this possibility that has also prompted the Railways to go slow on the much-touted Build-Own-Lease-Transfer (BOLT) and Own Your Wagon (OYW) schemes.

While BOLT helped finance investments worth Rs 144 crores in 1996-97 and Rs 322.69 crores in 1997-98, this figure has fallen to Rs. 83 crores in 1998-99 and a mere Rs. 29.20 crores in 1999-2000. The cutback in equally sharp in the case of OYW, with inves tments amounting to Rs 285 crores in 1996-97 and Rs 236.24 crores in 1997-98, but only 192.85 crores in 1998-99 and Rs. 135 crores in 1999-2000. For the coming fiscal, the Railways have targeted investments of Rs. 168 crores from BOLT and Rs. 100 crores from OYW. This is in contrast to the initial assessment putting BOLT's investment potential at over Rs 5,000 crores.

The reduced reliance on BOLT _ which involves private investment in rolling stock and rail works (gauge conversion, doubling, signaling and computerisation) subject to their transfer to the Railways on expiry of the lease period _ is said to be mainly du e to the reluctance of private parties to invest in long-gestation projects.

According to the Ministry, more than 80 per cent of investment under BOLT have involved the more lucrative business of procuring rolling stock and leasing it out to the IR. This is no different from what the IRFC has anyway been doing for the Railways ov er the years, with the sole difference being that here it is not a PSU owned by the Railways (IRFC), but a private party that is the lessor.

``It does not make sense in replicating what the IRFC is already doing. What we would like is private investment in long-gestation works such as construction of new lines through the BOLT route,'' the sources pointed out, adding that even the few who wan ted to invest under the scheme tended to inflate capital costs, leading to an increase in lease rentals.

As the Table shows, lease rentals under the BOLT scheme is expected to touch Rs 234 crores in 1999-2000, which is more than even the proposed investment of Rs 168 crores for the year. Considering that the total lease charges payable by the Railways to bo th the IRFC and private parties is budgeted at Rs. 3,014 crores in the ensuing fiscal _ 10.72 per cent of its entire ordinary working expenses _ aggravating the problem on account of BOLT is the last thing that it would want.

As for the poor performance of the OYW, the sources attributed the continued slack demand for rail wagons, which has made private parties reluctant to buy wagons to supplement the Railway's efforts. ``When the Railways themselves are not able to use thei r existing wagon capacity, why should the private sector add to the idle capacity?'', the sources quipped.