Increasing Interest: PPPs in railways gain momentum

PPPs in railways gain momentum

Despite the slow uptake of the public private partnership (PPP) model in the railway sector, the past few years have marked several milestones in PPP-based rail projects. In 2015-16, Indian Railways (IR) generated private investments to the tune of

Rs 150 billion, the highest ever achieved till date. During the year, the rail connectivity to Tuna port was commissioned and, for the first time, the Ministry of Railways (MoR) launched three annuity projects – the Bhadrak-Nergundi, Nagpur-Wardha and Kazipet-Vijayawada third line projects. Rail connectivity to Jaigarh, Dighi, Rewas and Paradip ports is currently under way, while connectivity to two new ports, Nargol and Hazira, is in the pipeline under the PPP mode.

However, despite the progress, PPPs in the sector still suffer from several challenges. Going forward, changes in the MoR’s approach towards these projects will be key in increasing the participation of private players.

Areas of PPP intervention

In recent years, the MoR has introduced a number of policy initiatives in an attempt to boost private sector participation. Further, IR’s push to introduce new projects with attractive proposals for private players has been effective in roping them in.

The new Station Redevelopment Programme, which is expected to be undertaken with private sector participation, is being accorded high priority by the government. Under this programme, around 400 Category A and A1 stations have been chosen for redevelopment on an “as is where is” basis, while offering a transparent bidding system, expedited clearances and policy support to private players and inviting them to implement their own designs and business ideas. At present, 13 stations  – Anand Vihar (Delhi), Bijwasan (Haryana), Chandigarh (Haryana and Punjab), Gandhinagar and Surat (Gujarat), Habibganj and Gwalior (Madhya Pradesh), Shivaji Nagar and Nagpur (Maharashtra), SAS Nagar and Amritsar (Punjab), Gandhinagar (Rajasthan) and Baiyyappanahalli (Karnataka) have been entrusted to Indian Railway Stations Development Corporation Limited for redevelopment under the PPP mode.

IR has also floated an expression of interest for designing, building, commissioning, operating, running and maintaining a levitation-based train system on a PPP basis. The railway route for the project has not yet been defined at this early stage of the project, since the initial thrust is going to be on developing and implementing a cost-effective technology solution. Further, a 538 km segment of the Eastern Dedicated Freight Corridor (DFC) between Dankuni and Sonnagar has been planned for development under the PPP mode, at an estimated cost of Rs 160 billion. Under Phase I, the Dankuni-Gomoh section covering 282 km will be developed and is expected to cost Rs 45 billion. Besides, in Rail Budget 2016-17, the MoR has proposed to take up the North-South, East-West and East Coast DFCs using innovative financing mechanisms, including PPPs, in addition to the Western and Eastern DFCs that are already under implementation.

IR has also proposed to set up solar energy projects on rooftops and on IR land through PPPs. It has set a target of sourcing about 1,000 MW of solar power (as a part of the Solar Mission of Indian Railways) and about 200 MW of wind power, based on techno-commercial assessments, by 2020.

Key challenges

Overall, despite recent initiatives, PPPs in the sector still face several challenges. The most critical of these is the inappropriate structuring of concession agreements, which has in most cases worked against the developer. Moreover, the MoR’s case-by-case approach towards PPP projects has further deterred private participation. This approach has led to time overruns due to the involvement of time-consuming negotiations and the finalisation of individual concession agreements. Although some headway has been made with the introduction of PPP cells across zonal railways, their operational capacity is limited.

Another major problem has been IR’s inability to identify projects where earnings can be gauged to enable viability gap funding. As a result, not many build-operate-transfer projects are being executed. Moreover, faulty calculations in estimating project costs have been another area of concern for private players. Recovering dues with retrospective effect has been yet another issue. Besides, the absence of a regulatory authority, uneven risk sharing and policy uncertainty are other factors that have discouraged private participation.

The way forward

Going forward, IR plans to continue to provide an enabling environment for private participation through the introduction of various attractive implementation models. A committee has also been appointed for revamping the MoR’s PPP cell as part of the organisational restructuring process to improve the ease of doing business. With time, addressing issues such as time overruns, uneven risk sharing, poor project identification and cost estimation, and other operational issues will be vital for successfully implementing PPP projects. While station redevelopment is an example of such an attempt, extending the same across all other rail projects will prove to be highly effective in attracting private participation.