KOLKATA (miningweekly.com) – The cascading impact of surplus coal and dwindling demand has started to pinch Indian Railways (IR) as freight transport of the commodity accounts for about 45% of the government-owned and -operated transporter’s business.

In response to the coal downturn, IR is working towards offering discounted long-term freight contracts to large coal consumers, an approach the government transporter has been averse to until recently.

A working paper dealing with falling coal freight revenues is expected to be finalised over the next few months and will offer thermal power plants, and the steel and cement sectors ten-year contracts for coal transportation at concessional freight charges, a government official familiar with the situation has said.

During the April to June quarter, IR reported a decline of 1.6% in total freight carried to 532-million tons, with coal freight decreasing by 4%. In terms of revenue, IR lost 14% from the coal sector.

The official said that the target of total freight achieving 4% volume growth to 1.15-billion tons, and 5% revenue growth, seemed to be fading against the current trend in coal freight.

With coal production falling and offtake of pit-head stocks remaining low, IR is also facing weaker demand for coal rakes. In August 2016, Coal India Limited (CIL) was hit by the sharpest drop in production in several months, down 10.4% to 32.4-million tons, which, in turn, impacted on demand for rakes.

In its demand projections to IR for April to August, CIL sought 245 rakes a day, but only used 213 rakes a day, according to railways officials, who pointed out that this had resulted in a significant idling of assets of IR.

However, certain government officials have expressed doubts about the appetite for long-term freight contracts from bulk coal consumers, as they will have to commit to minimum volumes over the contract period, while demand for the product remains sluggish.

For example, it was pointed out that the plant load factor (PLF) of thermal power plants remained low, averaging 60% during April to August, down from a shade above 63% during the corresponding period of the previous year. At a time when the PLF was seen to be falling, analysts are saying that power producers will be severely restricted by committing to minimum offtake agreements and, as such, committing to long-term transport agreements with IR.