Rlys changes standards for new projects, to assess economic and social benefits

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By Sagar Mohod

In a major shift in policy, the Board of Railways said that now economic returns alongside social benefits would guide the decision on future projects. In particular, the guiding principle on approvals of new lines, doubling or gauge conversion projects were guided solely by economic returns. The nation’s lifeline avoided projects where the rate of return was projected as negative. The basic idea was that it doesn’t make sense to pour money into non-remunerative projects given the heavy capital needed for any railroad-related project.

However, sometimes social factors have to be considered as the railway plays an important role in improving the community. As for the rate of return, it also depends on the assured possibility of huge cargo transport whenever was not possible. Thus, the Council notified the new criteria where it rejected the age-old norms governing the sanctioning of new railway projects.

Brijesh Kumar, Additional Member, Works, Railway Board, cited the report provided by the Multidisciplinary Committee which went into detail on the sanctioning process, particularly on new railway lines, expansion projects and conversion distance, etc. Accepting the committee’s recommendation, now the project evaluation would be done on two points, the first economic internal rate of return (EIRR) and the second and most important modified economic internal rate of return (MEIRR). The rationale given for switching to the new standard is that “it would effectively capture the impact of the economic and social network on any project intervention in a comprehensive manner,” the circular states.

Further, it is mentioned that MEIRR can be worked at different levels depending on the impact it creates at different levels, i.e. zonal or national level. Various attributes of the MEIRR should be considered and a broad comparison of benefits to society vis-à-vis value creation should be made when finalizing a project.

The railway was forced to adopt the new policy as the social cost far outweighs the economic factors, as the benefits to society as a whole are immense. It is to be hoped that the new thinking will also stop the railways’ current tendency to view its vast network only in terms of profit. In the past, several surveys to explore the possibility of new routes did not reach the planning stage because the return rate was negative. This has deprived many backward regions of rail connectivity which can reverse the situation of the region, and the same is well established with the connection of the hilly region in the northeast with the rest of India.

A simple document describes the new approach to be taken when examining the feasibility of the railway project.

The first is financial analysis where it should be converted into economic cost minus taxes, subsidies, interest payment, etc. These are categories under the life cycle economic cost. The second head concerns life cycle economic benefits which are subdivided into economic approach and network approach.

In the economic approach, considerations should be derived by comparing user benefits with project and non-project scenarios. This in turn includes travel time (VOT) savings, vehicle operating cost (VOC) savings, savings from improved safety, savings from reduced pollution, savings resulting from reduced road stress, fuel savings and economic impact, road infrastructure savings and direct employment. , Under the network approach, benefits arising after comparison at local, zonal and national levels with and without project scenarios. Factors to consider include decongestion of the rail network, cost savings from reduced journey delays, increased rail throughput, environmental and social impact on the network, and impact modal shift, etc.

After weighing all the above factors, modified economic analysis parameters must be calculated.

For the same, the modified economic internal rate of return (at local, project and national level) and the modified economic net present value (at local, project and national level) would be determined. At the end, the sensitivity analysis should be done and this would determine the final decision on whether to approve the new railway project.

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