Ample Opportunities: PPP projects in railways

PPP projects in railways

The uptake of the public-private partnership (PPP) model in the railway sector is still at a nascent stage. Although the government has always had the intention of roping in the private sector and has even introduced a number of policies to support private participation, the experience thus far has been limited to only a few customers.

According to the Ministry of Railways (MoR), investments to the tune of over Rs 150 billion have been made in railway PPP projects so far. The first project was undertaken in 2002 with the setting up of Pipavav Rail Corporation Limited for undertaking the Surendranagar-Pipavav gauge conversion project. Later in 2012, a Policy for Participative Models for Rail Connectivity and Capacity Augmentation Projects was introduced. The policy provides for five models of project implementation. Three of these (non-governmental private line, joint venture and customer-funded models) involve the participation of strategic investors/customers and the other two (build-operate-transfer and annuity models) are pure PPP models.

Between 2002 and 2012, PPP projects with an investment of Rs 23 billion were undertaken. After 2012, proposals worth Rs 100 billion have been received and are under implementation, while another Rs 30 billion worth of PPP projects have been approved in principle. To date, the PPP model has been taken up by the MoR on a case-by-case basis. This approach has led to time overruns due to negotiation and finalisation of concession agreements on an individual basis. At the same time the operational capacity of the PPP Cell at the central level is limited.

The year 2015, however, marked a milestone in PPP-based railway projects with the completion of the 17 km broad gauge line from Gandhidham to Tuna-Tekra port. This is the first project of Indian Railways (IR) under the non-government railway (NGR) model. In addition, the private freight terminal scheme was liberalised with the objective of stimulating the development of privately owned terminals and the participation of logistics service providers. At present, there are 13 projects worth Rs 138 billion that are under implementation in the PPP mode. Of these, five projects pertain to port connectivity and two to locomotive factories. Other projects involve works related to gauge conversion, line doubling, electrification and perishable cargo centres.  Most of these projects are expected to be commissioned within the next two-three years.

Upcoming opportunities

Projects under the Participative Policy: According to the information furnished by the MoR (August 2015), there are six port connectivity projects worth Rs 30.78 billion that have been given in-principle approval. These projects entail the construction of new lines totalling over 207 km in length. These lines will connect existing port facilities to the railway network. Except for the Hamrapur-Rewas port (new line) project, all the others are planned to be implemented under the Non-Government Railway Policy, 2012. In addition, three projects at an estimated cost of Rs 8 billion are at the initial stages of development. These projects are under the customer-funding model.

Projects under the FDI policy: The MoR has identified 26 projects worth Rs 905 billion under the foreign direct investment (FDI) policy. The implementation of these projects will depend upon financial viability and bankability with permissible viability gap funding (20 per cent of the cost of the project or as modified from time to time). The Talcher-Sambalpur line doubling project (174 km) is already under construction under this policy.

Station redevelopment: The ministry is also planning to offer A 1 and A category stations (about 400) located in metros, major cities, pilgrimage centres and important tourist destinations for redevelopment on an “as is where is” basis in the PPP mode. The entire cost of station redevelopment is to be met by leveraging the commercial development of land and airspace in and around the station. The first attempt is at the Habibganj station. To implement the projects, the cabinet approved a variant of the Swiss Challenge model in July 2015.

Other areas: The Delhi-Chandigarh-Amritsar high speed rail (HSR) corridor project is one of the mega projects to be taken up in the PPP mode. In addition, other areas that have been identified for private sector participation include passenger and freight terminals, passenger corridors, bio-toilets, use of renewable energy sources and technical solutions.

Challenges remain

PPP in the railway sector is fraught with a number of issues. Lack of clarity on the policy front, IR’s dual role (as operator as well as regulator), lopsided risk sharing, poor project identification and lengthy approval processes are some of the key problem areas that need to be addressed in a bid to generate interest among private players. Policy action to address these issues is required on an immediate basis.