Sources:
Projects Monitor (22 Feb 2010): http://bit.ly/dCj5IV
Financial Express (15 Apr 2010): http://bit.ly/a1M4IJ
DNA India (4 May 2010): http://bit.ly/btEZ3D
The railway ministry, which till recently used to be on the sidelines when it came to PPP, has jumped on the bandwagon with 37 projects covering 3867km. The estimated investment for these projects is around Rs. 14,300 cr.
Sources from the railway ministry say the estimated rate of return for these projects is expected to range from 7% to 47%. While this is a very wide range, this includes 19 projects that are classified as 'socially desirable'. This means that these projects will be taken up for their social impact, rather than the financial viability of these projects. How exactly the Indian Railways is going to rope in the private sector for these projects is still a big question.
The projects involve doubling of existing lines, gauge conversion and new lines. Officials say that such initiatives aim at supporting the Vision 20-20 statement tabled by the Rail Minister Smt. Mamata Banerjee in December 2009.
As per plans, more than 30,000 km of route would be of double/ multiple lines, compared with 18,000 km now. Of this, more than 6000 km would be quadrupled lines with segregation of passenger and freight services into separate double-line corridors, with the aim of increasing the share in freight movement to at least 50% compared with 35% now. The ministry also plans to complete additional electrification of 14,000 km in 10 years.
Perhaps with this in mind, the Indian Railways recently announced two draft models for PPP based railway infrastructure development. Both the models would be SPV based, but with different revenue-sharing patterns and land acqisition methods.
By one financing model proposed in the ministry’s draft policy, the Railways will contribute 26% equity in the SPV. The land will be acquired by zonal railway at SPV’s cost but its ownership will vest with the Railways. In return to laying the rail lines, the SPV will get a share in the revenue for 25 years. For project related traffic, the SPV will get 95% of freight apportionment less maintenance cost for the first 10 years and 90% of freight allotment less maintenance cost for next 15 years. Of non-project related traffic, the company will receive 80% of the freight traffic after deducting the maintenance cost for 25 years.
The second model is what is called the ‘private line model’. Here, the private players will lay down new lines on their own land and will share the revenue for 30 years with IR, after which the ownership of the line and land will go to the Railways.
Only new line proposals covering more than 20km, and a minimum rate of return of 14% would be eligible for consideration under this policy. It is also mentioned that the policy would not be applicable to lines intending to provide connectivity to coal mines and iron ore mines directly or indirectly.
Indian Railways has also prepared a draft policy on allowing private players set up freight terminals. As per the draft, providers of logistics services with a minimum of three years’ experience and a minimum net worth of Rs 10 crore at the end of the previous financial year will be allowed to set up such terminals.
As per the draft, the terminal management company would also be entitled to handle third-party cargo against payment of applicable charges including terminal charges, wharfage charges and charges for other value-added services. Depending on market conditions, the company would be free to fix tariff for such services.
While it has been argued that the PPP model is not viable for Indian Railways, especially for projects such as line laying, the model has been steadily gaining favour with railway infrastructure development model overseas. The Finnish Transport Agency, on the 19th of May, is due to present a 76.5km track project to be implemented under the PPP model with a total construction cost of € 263m (http://bit.ly/bZdD8L).
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