Encouraging PPPs: Potential for private sector participation in the railway sector

Potential for private sector participation in the railway sector

India has the fourth largest railway network in the world after the US, China and Russia, which is managed and operated by the Ministry of Railways (MoR). Railway infrastructure is expected to require an investment of Rs 50 trillion between 2018 and 2030. Given that the capital expenditure outlay of Indian Railways (IR) is massive, completing all sanctioned projects would take decades. The MoR is, therefore, enabling public-private partnerships (PPPs) to unleash faster development and completion of tracks, rolling stock manufacturing, and delivery of passenger and freight services. The national transporter has also identified potential areas for private sector participation in the railway sector.

As per the National Infrastructure Pipeline, investments worth Rs 13.67 trillion are to be made in the railway sector, during the period from 2019-20 to 2024-25, to improve freight efficiency, augment the speed of trains, improve passenger amenities, enhance safety and ensure better connectivity. Of the total projects to be implemented in the sector, projects worth Rs 11.97 trillion will be executed through the engineering, procurement and construction mode, while the remaining projects, involving an investment of Rs 1.61 trillion, will be implemented on a PPP basis.

In the past three to four years, there has been increased private sector participation, with the introduction of encouraging policies and initiatives. It is now being extended to areas such as station redevelopment, sections of the dedicated freight corridors (DFCs), building private freight terminals, private train operations, etc. According to the National infrastructure Pipeline, IR has plans to privatise 500 trains by 2025. The MoR has found 102 applications eligible for private participation in passenger train services over 12 clusters comprising more than 150 origin-destination pair of trains through the introduction of 151 modern trains. The project is expected to entail private investment of Rs 300 billion. Further, the central government has increased the scope of PPP beyond operations and maintenance services in the sector.

IR has embarked upon a mega transformation journey to create world-class railway stations. Of the 600 stations identified by the railways, around 400 stations will be developed on a PPP basis, entailing an investment of Rs 1 trillion. Indian Railway Stations Development Corporation Limited is initially focusing on the redevelopment of 50 stations through the PPP mode. The revamping of stations requires a capital investment of Rs 75 billion. Habibganj is the first station to be developed on a PPP basis. Other stations that will be modernised by private players include Nagpur, Gwalior, Nellore, Amritsar, Sabarmati and Chandigarh.

DFCs are also expected to open up opportunities for private participation. IR is undertaking the development of the Sonnagar-Dankuni section (538 km) of the eastern DFC, on a PPP basis, at an estimated investment of Rs 122.18 billion. As of September 2020, 91 per cent of the land acquisition has been completed for the same. Further, the MoR plans to undertake certain sections of the proposed east-west, north-south and east coast freight corridors on a PPP basis. Meanwhile, the Bengaluru suburban rail project, to be implemented by Karnataka Rail Infrastructure Development Enterprises, includes a Rs 28.54 billion worth PPP model, for rolling stock under which 306 AC coaches will be leased for a period of 30 years. The Mumbai Rail Vikas Corporation has also initiated steps for funding two proposed projects under the Mumbai Urban Transport Project Phase 4 on a PPP basis. These are the Rs 140 billion Chhatrapati Shivaji Maharaj Terminus (CSMT)-Panvel elevated corridor project and the Rs 160 billion CSMT-Thane underground corridor. In addition, the government is taking several initiatives to attract investment in the sector from domestic as well foreign private players and other multilateral agencies. On September 22, 2020, IR sanctioned a feasibility study for seven bullet train projects, which are all open to PPP investments. IR is expected to unveil a policy soon, in a bid to enable greater private sector engagement and ownership of the entire railway track system.

In sum

IR plays a crucial role in facilitating balanced and inclusive socio-economic development of the country. Over the past one year, the national transporter has undertaken a series of measures to increase private sector participation. It is expected that private sector participation will bring increased opportunities for investment, operating efficiency, technology, capital and productive management practices to help modernise railways. It also presents investors with an unprecedented opportunity to seize the advantages and reap fruits of the ever-increasing demand for travel in India.