Private investors in the country's largest employer can hope to see opportunities in new areas such as improvement of railway stations, writes Kumar Ramesh.
The Indian Railways is the world's fourth largest freight carrier, controlled by a single management. The Indian Railways operates around 14,000 trains everyday, out of which 8,900 are passenger trains and 5,100 are freight trains. The railway sector plays a critiÂcal role in transportation and comprises a major share in total transport of freight and passengers within the country. The total bulk freight movement in the railways is around 32 percent, whereas the passenger movement is only 20 percent. The container traffic in India by rail in 2005-06 was around 13.5 million tonne, which is expected to have crossed 26 million tonne in 2010-11. The Indian Railways account for about 2.3 per cent of India's GDP and employs about 1.5 million people.
Current Size of the Industry
The Indian railways generated a cash surplus, before dividend, of around Rs 25,000 crore and net revenues of Rs 19,932 crore in 2007-08. It has recorded impressive growth rates, in the physical and financial front. The Indian railways has set a target of Rs 31,988 crore in cash surplus for the current fiscal 2010-11 in order to continue its growth momentum. The operating ratio has improved significantly, from 96 percent in 2000-01, to more than 77 per cent in 2010-11. The railway sector comprises of two main segments, freight and passenger, with freight accounting for 67 percent of total revenues. The revenues generated from the freight and passenger segments for the year 2007-08 are Rs 47,743 crore and Rs 20,075 crore respectively.
The return on capital invested in the railways reached a record 21 per cent for the first time in Indian History in 2008.
Policies & Regulatory Framework
- The Railway Board manages and handles operations, policies and regulations pertaining to the Indian Railways and is supervised by the Ministry of Railways.
- The Indian Railways has set up several public sector undertakings, for dealing with different operational aspects, such as RITES (consultancy services), IRCON (construction), IRFC (Finance), Concor (cargo) and RailTel (Telecom).
- The Indian Railways's strategy to encourage private participation in the sector is to leverage private capita, through PPPs, to the maximum extent, and to expect improvement in efficiency and reduction in costs.
- The PPP appraisal committee and procedures are handled by the planning commission.
- The Viability Gap Funding Norms & project devÂelopment assistance are handled by the Ministry of Finance
- The Model concession agreement, model RFQ and model RFP documents are handled by the adminiÂstrative department of the Indian Railways.
Past Implementation and models adopted
The most preferred model among PPPs in the Indian Railways is BOT because, it is more investor friendly The role of the financier is recognised; and comfort is provided to the financier through a tripartite arrangement between the railways, concessionaire, and financier; which is completely absent in the BOOT scheme. The BOT scheme is also successful because it provides substantial investment opportunities for private agencies in infrastructural projects.
Total Investment in Infrastructure
The total investment in railway infrastructure during the 11th Five Year Plan (2007-08 to 2011-12) is estiÂmated at Rs 261,808 crore. The majority of the investÂment proposed is from the central sector (76.95 per cent), the private sector with 19.23 per cent and the state sector with 3.82 per cent.
The following are the investment opportunities available for private participation:
- World-class railway stations, passenger amenities and commercial utilisation of land
- Operation of container trains and construction of private sidings, inland container depots (ICD), rail side warehouses and logistics parks
- Wagon investment scheme
- Rail Land Development Authority for replacing old railway quarters through PPP
- Construction of Dedicated Freight Corridor (Delhi-Mumbai and Delhi-Howrah)
- K-RIDE Rail Infrastructure Development (KarnÂataka) Limited
- High Speed Passenger Rail Corridors
The Railway Plan is financed through five different sources:
(i) Capital from the General Exchequer;
(ii) Internal Generation;
(iii) Railway Safety Fund (Railway's share out of diesel cess);
(iv) Special Railway Safety Fund; and
(v) Market Borrowings.
Segmentation of total investment by the following:
Gross Budgetary Support (GBS), the components of GBS are broadly contributed as follows:
- Capital from the General Exchequer
- Contribution for the special railway safety fund
- Diesel Cess for railway safety fund
The capital from the General Exchequer will account to 94 per cent (Rs
73,830 crore), contribution for the special railway safety fund will be
Rs 785 crore and Rs 3,927 crore from diesel cess for railway safety fund.