Unlocking Potential: Opportunities for private players in the railway sector

Opportunities for private players in the railway sector

Infrastructure projects are capital intensive with a long gestation period. Over the years, public-private partnership (PPP) has emer­ged as a resilient model to undertake infrastructure projects, as collaboration between various stakeholders helps address these bott­le­necks. In 2012, Indian Railways (IR) formulated a Partici­pative Policy to encourage investment in developing rail connectivity by associating strategic partners and other investors through PPP mode.

As of March 2022, reportedly 14 rail projects worth Rs 92.43 billion have been comple­ted in PPP mode. Another 10 projects worth Rs 194.17 billion are being implemented through PPP mode. These include coal connectivity and port connectivity projects. IR has granted in-principle approval to seven more rail projects worth Rs 139.71 billion, which are now at the developmental stage.

The national transporter will require investments worth Rs 50 trillion between 2018 and 2030 to improve infrastructure in the railway sector. To this end, it is facilitating the completion of more projects through PPP mode.

In another notable development, the eas­t­e­rn corridor’s Dankuni-Sonnagar (538 km) stretch is being planned through PPP by Dedi­ca­ted Freight Corridor Corporation of India Li­­mi­­ted. The stretch is projected to cost Rs 159.26 billion. The development of dedicated freight corridors (DFCs) will enable the railways to improve its customer orientation and meet market needs more effectively.

National Monetisation Pipeline

Launched in August 2021, the National Mone­ti­sation Pipeline has identified rail assets wor­th around Rs 1.52 trillion for monetisation over financial years 2022-25. The asset monetisation plan encompasses 400 railway stations, 90 private passenger trains, one 1,400 km long railway track, 265 railway-owned goods sheds, 741 km of Konkan Railway, four hill railways covering 244 km route, DFCs spanning 637 km, 15 railway stadiums and selected railway colonies. This plan will be executed in phases till financial year 2025. These projects will offer ample opp­ortunities to private players.

Competitive bidding

In October 2021, the Railway Board issued an order allowing public sector companies, including those under the national transporter, to compete with the private sector in the open market for rail contracts.

Under the new order, zonal railways will float tenders in the market and the contract wo­uld be awarded to the winning bidder. This pro­cess is expected to be cost and time efficient, and will help remove monopoly in the sector.

Redeveloping stations

IR has embarked on a major transformational journey to create world-class railway stations. It is undergoing a fundamental change in order to build these stations. The government has laun­ch­ed the station redevelopment programme, wh­ich targets to redevelop 400 railway stations across India for Rs 1,000 billion in PPP mode. The station re­development programme is a major element of the Smart Cities Mission, whi­ch aims to resha­pe urban development and sti­mu­late economic activity. The objective of the programme is to develop self-sustainable railway stations with high standards of safety and comfort, user-friendly passenger amenities, value-added services and improved efficiency by adopting the best technological practices and a sound financial strategy as well as optimally utilising resources. The programme offers opportunities for real estate development as well as the development of multimodal transit hubs. In October 2021, IR order­ed the dissolution of the Indian Railway Sta­tions Develo­pment Corpo­ration (IRSDC). This is in line with recommendations from the cabinet secretariat to integrate and undertake structural reforms in various bodies under the Ministry of Rail­­ways (MoR). The stations managed by IRSDC and all project-related documents will be handed over to the respective zonal railways.

The MoR has formulated various developmental schemes such as Model, Modern and Adarsh Station Schemes for upgradation or augmentation of stations. New Delhi Railway Station and Chhatrapati Shivaji Maharaj Termi­nus have been identified for development under the hy­brid build-operate-transfer model of PPP.

The ministry has identified 1,253 railway stations for development under the Adarsh Station Scheme. Of these, 1,213 railway stations have been developed and the remaining 40 stations are targeted for development in financial year 2022-23.

Other than this, a new scheme for important railway station upgrades has been laun­ched. Reconstruction, improvement or augme­ntation of the station building, congestion-free non-conflicting entry/exit to station pre­mises, segregation of passenger arrival/departure, ad­e­­quate concourse without overcrowding, in­tegration of both sides of the city wherever po­ssible, user-friendly signages, well-lit circulating area, sufficient provision for drop off, pick up, and parking are among the amenities en­­visaged under this scheme. All facilities for Divyangjans among other facilities as per re­quirement and feasibility will also be provi­ded. So far, 41 stations have been identified for major upgradation work under this scheme.

Network expansion and induction of modern rakes

In order to make capital funding accessible, bring in modern technology and improve operational efficiencies, IR has plan­ned to use the PPP model in initiatives such as network ex­pansion and induction of modern ra­kes to run passenger trains on select routes with an ob­jective to provide improved services. However, the responsibility of train operations and safety will continue to be with the national transporter.

In the case of PPP in train operations, a mechanism has been devised to enable return on investment to private players through collection of revenue and payment of haulage char­ges and revenue share to IR. In July 2021, the national transporter invited bids for private participation to induct 151 trains (rakes) over 12 clusters through PPP. As of Nov­ember end 2021, in all, five bids were received for three clusters – Cluster-2 (Mumbai-2), Clus­ter-3 (Del­hi-1) and Cluster-4 (Delhi-2); no bids were received for the remaining nine clusters.

The way forward

IR is keen to create a competitive environment for private investment. According to India In­frastructure Research, 22 PPP projects entailing an investment of about Rs 1.47 trillion, spanning more than 2,200 km, will come up in the next four-five years.

It is vital to have a pool of experienced de­velopers with the needed competence and ex­ecution capacity to enable robust private sector participation in the infrastructure sector. Risks should be allocated to parties that are most suited to handle them, and optimal risk sharing should occur between public and private sector institutions. Further, delay in project clearances has been the most common reason for stalling of many infrastructure projects. There­fore, a new mechanism needs to be devised for timely implementation of projects and for en­suring that all key clearances and approvals are in place before awarding the project.

It remains important that the centre, state and local governments, as well as the private sector, uphold the sanctity of contracts in order to encourage private sector investment. Co­n­tract provisions should be legally enforceable, requiring the parties to adhere to their obligations. In the event of inability, suitable safegua­rds should be built in the form of clearly quantified termination compensation under a variety of scenarios. Institutionalising dispute resolution mechanisms to promptly settle disputes relating to PPP projects can be a key step in addressing diminishing private sector enga­gement in infrastructure.