“Developer interests to be adequately safeguarded”

As a special purpose vehicle (SPV), the Indian Railway Stations Development Corporation (IRSDCL) is responsible for executing the largest transit-oriented development (TOD) programme globally for 600 railway stations. Sanjeev Kumar Lohia, Managing Director & CEO, IRSDCL emphasises that all care will be taken to ensure that developer interest is well-protected and that redeveloped stations become iconic symbols of the cities they serve.

RITES has reportedly set aside `2.5 billion for a 25 per cent stake in IRSDCL. Are you simultaneously in talks with other entities to raise funds for the `1 trillion redevelopment programme for 600 railway stations?
Following the discussion and consultations we had with various stakeholders, it was decided that we should take up certain stations in the engineering, procurement, construction (EPC) mode. Although the work at Habibganj station is going on very well, there were apprehensions about doing brownfield development projects on a live station with a high passenger footfall. Accordingly, this risk premium was getting discounted in the real estate. Since the sector is not in the best of health, it was decided that the Railways would put its skin in the game and get the station redevelopment rolling. Once we have good stations, the real estate price will also get a boost. Taking up station redevelopment in the EPC mode requires raising of certain funds as loans from the market. We calculated the equity contribution for 19 stations, since any loan needs it. We figured that we would require equity base of about Rs 10 billion to raise Rs 45 billion of debt from the market. IRSDCL had been in talks for the equity contribution with the Railway Board and it was decided in principle to approach RITES and Container Corporation of India (CONCOR), besides our existing promoters, Ircon International and Rail Land Development Authority (RLDA). We are already in touch with RITES, CONCOR, and Ircon for a contribution of Rs 2.5 billion each. RLDA has agreed in principle to contribute, while the RITES board has given its approval to the loan. What has also been agreed is that promoters would be given an assured return of 13–14 per cent post-tax on their equity investment. Therefore, the investment made by the Railways will only be bridge finance. We will not only repay every penny but also generate some surplus for the lender through the commercial exploitation of the land that will be undertaken in phases.

How is the response to station redevelopment under the EPC contract? Also, what made you retain commercial development of stations in the PPP model?
Essentially it is an unbundling. It is not a regular EPC. Even the developers ultimately bring in some contractor to build the station. It is in Habibganj that the developer, who also happens to be a contractor, is doing the entire redevelopment work. However, if Tata Realty comes in, it will appoint somebody else as the EPC contractor for developing a station. Therefore, we have unbundled the projects so that the PPP component remains as it is. For example, for station operation and maintenance (O&M), we will be appointing operators from the private sector.

How do you propose to safeguard developer interest?
One of the major concerns of any developer or investor is whether they would be getting all the requisite clearances on time. Therefore, approvals are a major risk. Then comes the risk of construction. One major development that we had been working on to bring the legal position clearly upfront The state holds right over those lands that come under its possession. The lands that the central government possess belong to the centre, and this is not a subject of the state. But the union land is not a state subject. There was some ambiguity there and we are now getting clarity on this. The Attorney General of India and the Ministry of Law and Justice have very clearly opined that state laws will not be applicable on the railway land since that land belongs to the union government. This is similar to the case of airport lands where the Airports Authority of India (AAI) is the planning and development authority, and defence lands where the Cantonment Board is the planning and development authority. Similarly, in case of railway lands, the Indian Railways is the planning and development authority for developing any land for commercial use under Section 11 of The Railways Act, 1989. The Railways has been doing the planning and development activities for all the functions under the said section since the first Act of 1890 was enacted, where Section 7 of the Act had the same clause. The Act was replaced by Section 11 of the Railways Act, 1989. By the Railways (Amendment) Act of 2005, the powers of railway administration have been asserted to develop any railway land for commercial use. That is one way of addressing the investor concerns.

The second concern of developers is in terms of environmental clearances. We take all approvals prior to bidding out. In fact, when the developer of the Habibganj project approached lenders for raising debt, the comment from the Indian Infrastructure Finance Company (IIFCL) was that they had never seen a better project since all the clearances were already in place. We are also working on raising an equity fund to provide developers with access to cheaper finance. Another very good development that has happened is in terms of the extension of the lease period on land from 45 to 99 years. The longer the period, the lesser is the risk for a developer. The Railway Board has allowed multiple sub-leases of the built-up area. It has allowed residential development. If it is only a single type of development, then the risk is more. But if it is a mixed-use development, the mix is left to the developer as per the market demand. In fact, the Ministry of Finance has also included station redevelopment along with commercial development under the list of infrastructure projects. That will help facilitate cheaper finance for the developer.

What has led to the extension in the proposed period of lease on a station to the developer from 45 to up to 99 years?
We had the feedback from various stakeholders. While for commercial development, the lease period of 45, 50, or 60 years is something that is accepted in the market, when it comes to residential development in India, people prefer to go for a lease period of 80 years or more. The developments we are doing around stations are transit-oriented, since the railway is a mass transit mode of transport. One of the principle elements of TOD involves the mixed use of residential and commercial projects. If you have to go for residential development, you need to have a lease period of more than 45 years. Since station redevelopment is the largest TOD project in the world, it was logical to go for a 99-year period. It was also done to get the best value for the land. If you go for a 45-year lease, you might only get 45–50 per cent of the total value of the land but if you go for a 99-year lease, you are likely to almost get its full value.

As India moves towards implementing high-speed rail mobility, it has been suggested that the stations that would be coming up along the lines must be developed as smart cities. What is your take on this aspect?
Development of only those stations that are located along the high-speed railway lines into smart cities would be a very limited thinking, because we envisage each station that we would be developing as a smart city. As far as high-speed railway is concerned, the stations will be minimum 20 to 30 kilometres apart. For instance, the Mumbai to Ahmedabad bullet train corridor would have 12 stations, three of which are common with the Indian RailwaysÂ’ present network and only nine would be new. As compared to that, the Railways has 8,613 stations. Therefore, whatever be the reach of bullet trains, those stations would be miniscule as compared to the number of stations that the Indian Railways network has. Alternatively, each station developed by us would be an iconic symbol of the city it services. It would be the nucleus of technology and innovation to the various parts of a city.

– Manish Pant