Santanu Sanyal

The Birganj ICD may be critical for landlocked Nepal but not so for Concor which has 55 such depots all over India. Unless HTPL, the company that runs the ICD, starts earning profits, Concor may have to re-think its participation in the depot.

The Birganj inland container depot (ICD) in Nepal is proving to be an albatross around the neck of Container Corporation of India. The reason: The joint venture Himalayan Terminals Pvt Ltd (HTPL), that runs the ICD, runs losses, with little prospect of turning the corner in the near future.

Concor, which has 60 per cent stake in HTPL, learns much to its chagrin, that the study by RITES on traffic projections some years ago was not based on realistic estimates.

To understand the operation of the Birganj ICD, one has to first understand the intricacies of imports and exports of a landlocked, mountainous country. Nepal's imports and exports — the former are more than the latter — are routed through Kolkata port. Nepal virtually has no railway network. As a result, traditionally all imports from a third country on arrival at Kolkata port were transported to the Himalayan Kingdom by road. Rail transports some cargo, especially bulk items from India, but up to Raxaul, the last Indian Railway station on the India-Nepal border in north Bihar. From Raxaul, the consignments go by road to Nepal.

THE ICD IDEA

The need for an ICD at a suitable location in Nepal was first felt nearly 20 years ago following the rise in containerised imports from third countries. It was also thought that the commissioning of an ICD would yield several benefits to Nepal such as reduced transport cost, lower transit time, promotion of domestic transportation, modern Customs facilities and international standards of cargo handling and logistics support to trade and relocation of port operation in Nepal.

The World Bank came forward with an assistance of $10 million. Accordingly, the ICD was built at Sirsiya in Birganj which is very close to Raxaul. Raxaul and the ICD werer connected by a rail line built by India to facilitate movement of containerised cargo. A Rail Services Agreement was signed between the two countries.

Also, HTPL, the joint venture company, was formed with the participation of four firms — two Indian (including one public sector) and two Nepalese (including one government- owned), with Concor holding the majority stake in it.

REVENUES GO HAYWIRE

Today, after one-and-half years of operation of HTPL, Concor realises that several things have gone wrong right from the beginning.

The traffic forecast, as made by RITES, is removed from reality, with no attention having been paid either to local conditions or to the actual traffic trend. No wonder, HTPL's expenditure today is higher than its income.

RITES had estimated that the throughput will be 20,000 TEUs in the first year and thereafter it will grow by 10 per cent every year. That has not happened. In 2005-06, the second year of operation, (Nepal's financial year is July to June) the throughput, it is estimated, would be half the RITES estimate of more than 22,000 TEUs.

In fact, RITES had estimated that in 2013-14, the throughput would be more than 32,000 TEUs. If the present trend is any indication, it will be not more than 15,000 TEUs, according to Concor sources.

No wonder, therefore, that in the first year of operation, HTPL's revenue was Rs (Nepalese) 3.5 crore against an expenditure of Rs 7 crore. The revenue earning in 2005-06, it was hoped, would be a little more than that in 2004-05 but the recent political turmoil threw everything out of gear, also impacting earnings.

Another area of concern is the lease rental agreement between HTPL and the Nepal Government. As per the agreement, HTPL is to pay Rs 4.8 crore in the first year of operation, Rs 5.2 crore in the second, Rs 5.4 crore in the third, going up to Rs 11 crore from the fourth year on till 2013-14.

HTPL did pay the agreed amount after the first year of operation despite making losses but only after doing a lot of financial re-engineering such as forcing shareholders to cough up more money towards the equity (HTPL's authorised capital is Rs 3 crore but the subscribed capital was increased to Rs 2 crore from the original Rs 1 crore) and obtaining loan from a Nepalese bank. Yet, it continues to find the going tough.

UNREALISTIC RECOVERY

In such a situation, the recovery of investment at the rate of 12 per cent within 10 years, it is felt, is unrealistic. When the lease agreement is valid for 30 years, the payback period too should be spread over that. Concor therefore has urged the Nepalese authorities for replacement of lease rental by a profit- or revenue-sharing arrangement.

The Rail Services Agreement between the two countries too needs reworking. The agreement was to come up for a review after six months but more than a year has passed and nothing has happened. The Agreement provides that trains will be interchanged between India and Nepal 24/7. But that is not possible. The border is closed after 10 p.m., with no Customs facilities beyond 8 p.m.

The agreement allows movement of only a few types of wagons such as BCN, BCNA and BCX but not BoxN, tank wagons or reefer containers. Such restrictions must go if trade must grow between the countries.

Then there are various other problems such as imposition of VAT (making the ICD operation costlier), idling of costly reach stacker, deficiency in the infrastructure design of the ICD, absence of force majeure clause... It is also emphasised that all Nepal-bound cargo via Raxaul must necessarily be routed through the ICD.

The Birganj ICD may be critical for Nepal but not so for Concor which has 55 such depots all over India. Unless HTPL starts earning profits, Concor may have to ponder on whether or not to continue its participation in the depot.

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