Tata Steel Ltd. on Friday became the the first company to sign a long-term tariff contract with the Indian Railways which will give the steelmaker the benefit of lower freight costs.
The contract may hold for a period of three to five years, Tata Steel said in a media statement on Friday. The pact will give the steelmaker preferential treatment for supply of wagons in return for generating additional traffic volumes and revenue for the Railways at a pre-determined price. Discounts will range between 1.5 percent and 35 percent depending on incremental growth in freight revenue generated by Tata Steel for Indian Railways.
The company must offer at least one million tonne freight traffic every year under the contract.
The long-term tariff contract policy was announced by Railway Minister Suresh Prabhu, in the Railway Budget 2016 and came into effect in March this year. The policy is aimed at increasing Railways’ share in India’s total freight traffic, which Prabhu said has “reduced substantially”.
Indian Railways earns two-thirds of its revenue from freight only, and primarily from the transport of eight commodities, Prabhu had said in a media statement in March.
In the wake of global slowdown, transportation sector is the biggest sufferer. It has affected Railway’s freight earnings.
Suresh Prabhu, Railway Minister in March
The discount in the freight rates will be given as a refund in 45 days.
Tata Steel said that it has already “heavily invested” in improving its rail infrastructure and material handling system which will bring down wagon turnaround time and reduce detention of railway rakes.
The contract will not include the transport of commodities like coal, iron ore, military traffic, container traffic and automobile traffic. The target customers of the Railways’ policy are from the cement, fertilisers and steel industries, the media statement in March had said.