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New Opportunities in Nepal’s Railway Transport

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New Opportunities in Nepal’s Railway Transport

--BY Omprakash Khanal

On September 15, a cargo train carrying 90 containers arrived at the Birgunj Dry Port. The train which transported the consignments from the Haldia Port in West Bengal belonged to Hind Terminals Pvt Ltd, an Indian cargo train operator. This was the first time that a train operated by a private Indian cargo train company had entered Nepal since the beginning of the Nepal-India railway service in 2004.

On the same day that the train arrived at the Birgunj Inland Clearance Depot (ICD), the Container Corporation of India Limited (CONCOR), an Indian government-owned railway services company, published a notice about the reduction in freight rates by up to 37 percent. It is important to note that CONCOR, which has held a monopoly in Nepal-India cargo train services since 2004, reduced charges for transporting containers from the three Indian ports of Kolkata, Haldia and Vigaz (Vishakhapatnam) to Birgunj.

All of this was made possible by the amendment made to the Nepal-India Railway Service Agreement which aims to facilitate the entry of Indian private railway companies in railway services for Nepal. It has been expected that Nepal's international trade will benefit from the new arrangements that will foster competition among the Indian railway service providers along with procedural improvements made at ports in India.

After the amendment, freight charges for transporting 20-foot containers carrying goods up to 31 metric tonnes from Kolkata Port to Birgunj Dry Port via railway has come down to INR 39,856 from INR 61,466. Similarly, freight charges for 40-foot containers with storage capacity of 30 metric tonnes is now INR 58,008 which was INR 85,198 before the amendment. Similarly, fares for transporting containers from Haldia to Birgunj have been reduced by up to 31 percent.

In the meantime, CONCOR has slashed fares for transporting goods from Vigaz to Birgunj in 20-foot containers having 31 metric tonnes capacity to INR 55,000 from INR 75,900. Similarly, Nepali importers now have to pay INR 77,000 to import up to 40 metric tonnes of goods in 40-foot containers which was INR 102,100 before.

However, CONCOR's slashing of freight charges is being seen as a strategic move to keep its monopoly in railway cargo services in Nepal and take the first-mover advantage. Importers suspect that the reduction in fares by CONCOR on the same day the train of Hind Terminals entered Nepal was likely done to stop competition. After the amendment in the Nepal-India Railway Services Agreement, three other Indian companies have shown interest in providing railway freight services to Nepali importers.

CONCOR, which has enjoyed a monopoly for over one and a half decades in operating railway cargo services to Nepal, used to set the freight rates arbitrarily. CONCOR was the main joint venture partner in the Himalayan Terminal, a Nepal-India JV that operated the Birgunj ICD from 2014 to 2020; it is said that transportation of goods to Nepal is a major source of income for the company.

Realising this income opportunity, Pristine Valley Dryport Pvt Ltd in August 2020 won the contract for the operation of the Birgunj ICD making it the first time that a private company was awarded the management of the dry port. Pristine Logistics Infra Projects, the Indian JV partner in the Pristine Valley Dryport, is also preparing to compete in railway freight transportation of goods from Indian ports to Birgunj ICD.

Other railway companies participating in the bidding for freight services have also quoted their rates based on the charges of CONCOR. "CONCOR's move has left other companies confused at the moment. We are in a wait-and-see state after CONCOR's reduced freight charges,” said a senior official of a company participating in the bidding process under the condition of anonymity.

The JM Baxi Group, one of the leading shipping services companies in India, has also started preparing to provide railway shipment services for its clients in Nepal. Former Joint Secretary of Commerce Rabi Shankar Sanju says that the government of Nepal should work on operating rail transport services in partnership with other companies. "If the government operates the railway for the transport of cargoes, the base of competition will be strong. I think the Nepal Transit and Warehousing Company Limited (NTWCL) can be the best option in this regard as it is registered in both Nepal and India," he said.

Currently, there are 15 private railway transport companies operating in India. According to Eshor Raj Poudel, Nepal's Consul General in Kolkata, the amendments to the Nepal-India Railway Services Agreement have opened the doors for the companies to operate railway freights in Nepal. "We need to focus on capitalising on the opportunities created by this competition," he mentioned.

Ek Narayan Aryal, former consul general in Kolkata, also thinks that the competition between railway companies has presented big opportunities for Nepal to reduce import/export costs by expanding infrastructure and creating a competitive environment in Nepal's foreign trade. During his tenure in Kolkata Aryal, who is currently serving as Secretary at the Ministry of Federal Affairs and General Administration, was active in the drive to remove the burdensome paperwork and other procedures for Nepali importers at port customs in India and increasing competition in transportation.

Aryal is of the view that Nepal's foreign trade can be made more competitive if the existing railway service infrastructure in Birgunj is expanded to other customs points and once Nepal Railways brings its railway into operation.

Former Joint Secretary (Commerce) Rabi Shankar Sainju also agrees with Aryal. "The scope of competition should be widened by making the railway service available at dry ports in Biratnagar and Bhairahawa," he suggested.

Ashok Kumar Temani, coordinator of Transport and Transit Committee of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Province 2, believes that the competition between Indian companies has increased after the amendments in the Nepal-India Railway Services Agreement. "However, the Nepali private sector should also be involved in the transportation of goods to make the transit transport more competitive," he said.

According to Temani, the benefits from the reduction of freight charges by CONCOR to cargo transport in Nepal should be assured. "Nepali importers do not have direct contact with CONCOR at present. This has created confusion as the shipping companies only take the responsibility to transport goods to Birgunj. There is a dilemma as the importers get concessions of the reduced fares from CONCOR from the shipping companies," he said.

Sainju thinks that importers themselves need to be aware in order to take advantage of the improvements in foreign trade infrastructure, processes and competition. "Importers have to choose between competing shipping companies. Even if the government works on the procedural and infrastructural improvements, the benefits of the competition can only be realised from the B2B process. Many of our importers are not aware of this,” he said. He suggested that the government should also facilitate transit transport service providers.

Businesspersons feel that domestic production is losing competitiveness due to high transportation costs. But they are also hopeful that the competition in the transportation of goods will improve in the coming days. "Most of the containers that come to Nepal via railway now return empty to India. If we can send our products on the container, it can further reduce transportation costs," said Pradeep Kumar Kedia, director of Kedia Organization.

According to Temani, the government should encourage local companies by formulating laws, rules and regulations related to logistics to make transportation competitive and sustainable. Stakeholders view that the cost of foreign trade can be reduced by facilitating the registration of foreign shipping companies in Nepal and expanding the necessary physical infrastructure in transport.

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