Promoting PPPs: IR expands scope for private participation

IR expands scope for private participation

In a bid to modernise the railway sector, Indian Railways (IR) has recently turned towards enhancing the role of public-private partnerships (PPPs) through the introduction of encouraging policies and initiatives. Although the experience with PPPs has been mixed so far, IR is continuing to tap new areas for private participation. A case in point is the recently launched Station Redevelopment Programme, which involves the redevelopment of 23 stations on a PPP basis. Besides, other areas identified for PPPs include dedicated freight corridors, solar power projects for railways, levitation-based train systems, private freight terminals and catering services, among others.

Experience so far

PPPs in the sector have been quite limited so far, owing to the inherent nature of projects, in that they are highly capital intensive and have long gestation periods that pose serious risk to investors. Further, the case-by-case approach adopted by the Ministry of Railways (MoR) towards the finalisation of concession agreements have been time-consuming and costly, rendering the projects unattractive.

For instance, after its launch in February 2018, Phase I of the Station Redevelopment Programme witnessed a lukewarm response from private players. Policy uncertainty, operational issues and lack of clarity were some of the issues that were identified. The MoR has now decided to bring about some changes such as an increase in the lease period from 45 to 99 years; permission to developers to give multiple subleases rather than just one; the introduction of a new single-stage, single-parameter bid process as opposed to the Swiss Challenge bidding process; and the provision of detailed project reports by IR to private players to implement projects on a turnkey basis.

Another segment that was opened to private investment in 2015 was freight terminals. As of April 2017, 94 proposals had been received, of which 47 terminals were notified and declared functional. Besides, the participation of private players as container train operators (CTOs) has also been significant. While rakes are owned by the CTOs, IR hauls the rakes and claims haulage charges. So far, 18 public and private companies have been licensed to run container trains on the IR network.

The MoR has further allowed private participation in the establishment and operations of computerised passenger reservation system-cum unreserved ticketing system terminals at centres called Yatri Ticket Suvidha Kendras (YTSKs). As of July 2017, 188 YTSKs were operationalised.

A key deterrent to private participation has been IR’s inability to effectively identify projects and estimate earnings to ascertain the viability gap funding for projects. Another

lacuna is that the sector lacks an independent regulator, responsible for ensuring a level playing field for various stakeholders.

Upcoming investment opportunities

As per India Infrastructure Research, an ambitious pipeline of projects entailing a total investment of over Rs 4.65 trillion has been envisaged through PPPs, of which dedicated freight corridors (DFCs) account for the largest share in investment at about 76 per cent, followed by the Station Redevelopment Programme at 21 per cent.

With respect to DFCs, three new corridors have been planned for implementation on a PPP basis. These are the 2,328 km East-West Corridor at an estimated cost of $22.1 billion, the 2,327 km North-South Corridor at an estimated cost of $22.9 billion, and the 1,114 km East Coast Corridor at an estimated cost of $10.25 billion. Currently, the feasibility studies for these are under way.

Further, around Rs 875 billion worth of opportunities in station redevelopment and commercial development around stations has been anticipated under IR’s Station Redevelopment Programme. This estimate does not take into account the 12 stations that are currently under various stages of implementation. Also, around 1 GW of solar power capacity has been planned for creation on a PPP basis by 2021.

Meanwhile, IR has floated an expression of interest for designing, building, commissioning, operating and maintaining a levitation-based train system on a PPP basis. The new Catering Policy, 2017, has also mandated that the Indian Railway Catering and Tourism Corporation (IRCTC) unbundle catering services on trains and set up new kitchens on a PPP basis, while upgrading the existing ones. IRCTC has further been mandated to set up Rail Neer packaged drinking water plants, for which the PPP route has been identified as one of the modes of implementation.

The road ahead

To ensure that the sector is attractive to private players, the MoR is currently in the process of constituting a rail development authority, which will play a key role in ensuring a level playing field and securing the interest of various stakeholders. Further, to provide an enabling environment, the MoR has set up a Transformation Cell aimed at implementing 55 strategic initiatives, including those related to PPPs. However, several issues will need to be addressed going forward, including those related to unattractive concession agreements and uneven risk distribution, which have in most cases worked against developers.