Coal connectivity gets special mention in India's Rail Budget

This focus is encouraging.

In its maiden Railway Budget, the newly elected Government of India (GOI) has stated that it would prioritise and set timelines for completion of ongoing projects. Notably, ‘coal connectivity’ gets a specific mention in the Railway Minister’s budget speech.

According to a research note from Nomura, the Railway Minister said: “Railways will speed up construction of critical coal connectivity lines in the Tori-Shivpur-Kathautia area, Jharsuguda-Barpalli-Sardega and Bhupdeopur-Raigarh-Mand area.

This will bring nearly 100mt of incremental traffic to the Railways and will also facilitate faster transportation of coal to power houses.”

The report noted that coal connectivity focus is encouraging and augurs particularly well for Coal India, NTPC and IPPs.

Here’s more from Nomura:

Furthermore, in the context of the power/coal sector, the FY2014-15 Railway Budget states:

[1] Progressive deployment of the PPP model in several areas including port connectivity,

[2] Freight charges will continue to be revised bi-annually to account for variation in fuel cost,

[3] Setting up of a Project Monitoring & Coordination Group (comprising officials of state governments, railways and professionals) to expedite projects at the ground level,

[4] Close monitoring of the progress on build-out of the Eastern/Western Dedicated Freight Corridors (DFCs),

[5] Target wagon procurement in FY15 is 12,857 (vs. revised target of 15,666 for FY14) and

[6] Plan to utilise roof-top spaces at railway stations and other Railway land & buildings to harness solar energy.

While an outlay for coal connectivity was mentioned in the FY2013-14 Budget Speech, there was no mention of the same in the FY14-15 interim Rail Budget speech by the previous government.

Specifically identifying build-out of the coal connectivity trunk lines in Jharkhand (Tori-Shivpur-Kathautia), Odisha (Jharsuguda-Barpalli-Sardega) and Chhattisgarh (Bhupdeopur-Raigarh-Mand) is encouraging.

In this context, as per a June 2014 media report (Press Trust of India) citing Railway documents, the revised timelines for the Jharkhand, Odisha and Chhattisgarh projects are Dec-16, Jun-16 and Sep-16, respectively.

Ceteris paribus, landed cost of coal for Railways-fed power projects would rise biannually on account of the Fuel Adjustment Component (FAC) linked freight tariff reset.

Prima facie, setting up of Project Monitoring Groups (PMGs) comprising officials of GOI, state governments and professionals to expedite progress on the ground level is a much needed step in the right direction.

We maintain that the impetus of the GOI to augment domestic coal availability augurs well for most participants in the coal/power value chain – Coal India (COAL IN, Buy), NTPC (NTPC IN, Buy) and IPPs would be the key beneficiaries.