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Thursday, January 31, 2008


PPPs - An Opportunity to Play Leading Role in Making Indian Railways World’s No. 1 Railway Network

In today’s globalised world, quality and capacity of our infrastructure determines whether we end up on the winning and losing sides of the global village. There is total unanimity among the policy planners in the country that removal of infrastructural constraints is the foremost challenge to be met for our country to continue its journey on the high-growth trajectory of 9% plus GDP growth p.a. Planning Commission has estimated that removal of the infrastructure backlog would require investment of more than US$400 billion and annual investment in infrastructure has to be stepped up from the present level of 4% GDP to 8%. Such huge sums are beyond the Government’s budgetary capacity. It would become even more difficult in future in view of the increasing commitments to social sector programmes like health and education and the constraints imposed by Fiscal Responsibility and Budget Management (FRBM) Act (the Act prescribes that the fiscal deficit of Central and State Governments must not exceed 9% of the GDP).

Governments both at centre and states are, therefore, looking at fresh approaches to bridge the infrastructure deficit to sustain the growth momentum. It is in this context that Public Private Partnerships (PPPs) have emerged as a serious option to leverage limited public funds to attract private investment in infrastructure. Apart from easing the pressure on public finance, PPPs also allow efficiencies of private sector to be harnessed for improved project execution and service delivery.

Like other infrastructure sectors, Indian Railways require massive investments to augment its carrying capacity and modernize its system. While impressive growth in traffic and revenue over the last three years on Indian Railways (freight and passenger traffic is growing at more than 9% and 7% year-after-year respectively) has brought applause from all quarters, it has also exposed the problems of congestion and saturation of the network especially on the high-density corridors connecting our four metropolitan cities. The XI Five Year Plan which is under finalization, has underscored the need to sustain the momentum and attain the projected traffic levels of 1100 million tones of freight and 8400 million passengers at the terminal year. Sizeable investment for expansion of network by way of new lines, doubling and gauge conversion, port connectivity works and augmentation of manufacturing capacity of rolling stock would need to be undertaken to attain these targets. The plan envisages a total investment of Rs. 2,51,000 crore. Of this, 95000 crore is to be raised through internal generation and Rs. 86000 crore has been sought by way of budgetary support (subject to approval by NDC). The rest Rs. 75000 crore is to be raised as extra budgetary resources. Of this, barring Rs. 40,000 crore to be raised by IRFC, most of the rest is to be raised through PPP.

A number of areas have been identified for PPPs.

Construction of DFC partly with PPPs. It has been planned to construct a new Dedicated Freight Corridor (DFC), initially covering about 2700 route kms. equivalent to around 5000 track kilometers at an approximate cost of Rs. 28000 crore (US$6 billion) linking the ports of western India and mineral/industrial belt of Eastern India to North India. The construction of this corridor will be implemented through an SPV (Dedicated Freight Corridor Corporation of India Limited) through a mix of Engineering Procurement and Construction (EPC) and PPP methods. Ministry of Railways is in the process of selecting a consultant to advise on the concession agreement, principles of track access charges and other financing and bidding issues. It is envisaged that PPP would bring in innovative ideas on design, construction and maintenance of railway to achieve optimal life-cycle costs, especially as the work progresses on the initial two corridors and further corridors are taken up. The concessionaire could also tap additional ancillary revenue streams through commercial exploitation of land, construction of freight terminal/logistic park/ICDs etc.

World Class Railway Stations, Passenger Amenities: Metropolitan City Railway Stations like Delhi and Mumbai need to be modernized to provide world-class passenger amenities and services to the large multitude of passengers using these stations. This is being planned through private investments. The areas around the stations and the air space above platform could be commercially developed to pay for the project. The concessionaire would be expected to construct and maintain the operational and passenger areas free of cost, share the revenue earned from the real-estate created and hand over the same after the concession period.

Altogether, 22 stations have been identified in the first stage. CST Mumbai (Carnac Bunder), Pune, Howrah (Kolkata), Lucknow, New Delhi, Anand Vihar and Bijwasan at Delhi, Amritsar, Chandigarh, Varanasi, Chennai, Thiruvananthapuram, Secunderabad, Ahmedabad, Patna, Bhubaneshwar, Mathura, Bangalore, Jaipur, Gaya, Agra and Bhopal. The process for the pilot project for New Delhi Station has been initiated. Development of other stations and green field passenger terminals would be taken up in a phased manner in due course.

Commercial Utilization of Surplus Land: Indian Railways has approximately 43,000 hectares of vacant land. These are mostly alongside the track in longitudinal strips, around railway stations and in railway colonies. Land in metro cities and other important cities/towns do offer the potential for commercial development to generate a steady stream of non-fare revenue. An authority, namely, Rail Land Development Authority (RLDA) has been set up under the Railway (Amendment) Act 2005 to pursue this objective.

Setting up of SPVs for Manufacturing of Locomotives/Coaches/Wagons: With sustained economic growth and the resultant demand for rail transport, the requirement of rolling stock has increased manifold. The requirement of coaches/Electrical Multiple Units is projected at 22689 vehicle units for the XI Five Year Plan. The gap between the requirement and the combined capacity of the two existing Projection Units at Integral Coach Factory, Perambur and Rail Coach Factory, Kapurthala (which is around 2500 per annum) is planned to be bridged by augmenting the existing capacity of these Production Units and setting up a new manufacturing unit through a JV under PPP.

Similarly, the requirement of Electric and Diesel Locomotives has been projected at 1800 each during the XI Five Year Plan i.e. 360 locos per year. The existing in-house capacity for the manufacture of these locomotives is 150 per annum and can be augmented to 200 locos each per annum for Electric and for Diesel. The gap between the requirement and capacity is planned to be bridged by setting up two locomotive manufacturing units one each for diesel and electric locomotives through Public Private Partnerships.

Other PPP Opportunities

Operation of container trains and Construction of Private sidings, ICDs and rail side warehouses:

Private operators have been allowed to operate Container Services on Indian Railways. Agreements setting out the terms of such operation have been signed with 15 private operators.

Areas like freight terminals, multi modal Logistics Park, warehouses, ICDs etc. also offer promising possibilities for private investment. Railways could provide land on lease to the private firm for such projects under mutually agreed terms of concession. In addition, Ministry of Railways intends to partner with State Governments, private logistics operators and infrastructure providers to establish multi modal logistic parks equipped with rail sidings with sheds, large inland container depots, warehouses for storage, office buildings for logistics operators, highway connectivity, and assembly units for processing imported raw materials for export. Such parks could either be built independently at strategic locations or could be built in Special Economic Zones (SEZs).

Port connectivity works and other infrastructure projects through Rail Vikas Nigam Limited (RVNL):

RVNL has been mandated to undertake capacity augmentation works and port connectivity projects by establishing Special Purpose Vehicles (SPVs). Some of the projects undertaken or under consideration of RVNL include Palampur-Gandhidham gauge conversion project (Linking Kandla and Mundhra ports to North India), Haridaspur – Paradeep New Line (linking iron ore mines of Orissa and Jharkhand to Paradeep port), Obulavaripalli-Krishnapatnam – New Line Project linking the Krishnapatnam port of Andhra Pradesh, Bharuch-dahej and Surat-Hazira projects in the State of Gujarat.

Catering Services, Budget Hotels and Food Plazas:

Indian Railway Catering and Tourism Corporation (IRCTC) has been mandated to develop catering services, budget hotels and food plazas at major stations through involvement of private entrepreneurs.

IRCTC is commissioning new Food Plazas in Railway premises with private participation with license period of nine years and provision of extension of three years. Already 40 such Food Plazas have been commissioned.

Apart from the above, new services for the luxury tourism segment on the pattern of ‘Palace on Wheel’ in partnership with other interested State Governments/hospitality industry are also being contemplated.

Public-private partnerships are an opportunity to meet India’s investment needs that can be translated into a win-win situation for all. The railways have put together an ambitious plan for development and modernization which will require an investment of 3 lakh crore rupees in the next five years – of which 40 percent is expected to be generated through PPPs.

Chairman, Railway Board and also for International Union of Railways (UIC)

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