We don´t have a benchmark. The government will have to start setting it

Sandeep Upadhyay, MD & CEO, Centrum Infrastructure Advisory, says the key to the success of the Indian Railways´ proposed revamp will be its execution strategy.

How do you view the recent mega-plans of the Indian Railways?
It seems the government has a few mega projects in hand. These really need to stand the test of time, and how the rollout is going to happen is going to be the single biggest challenge. The numbers are too big. They should get real in terms of achieving these numbers. They need firmed-up, tried and tested rollout plans. Compared to the road sector, in railways, you don´t have an era where India ever prospered in terms of getting their capex strategy right or their overall strategy right. This is definitely much more interesting because we don´t really have a benchmark that has been set. The government will have to start setting it.

The numbers are big, yes, but the projects and equipment sure are expensive…
One is not contesting the numbers, but the roll-out plan. The cost estimation is not haywire. The second part is identifying the means of finance and who will fund these projects. The third aspect is how do you roll out these projects. Are these projects all going to come on cash contracts? Are all these contractors going to be Indians or do we need technology partners? There is no wherewithal that we have for an ambitious project like the bullet train so I am referring to the rollout plan and this is where the government should be placing its major emphasis.

Are the indications thus far encouraging with the collaborations taken up?
They are at a very initial stage. A bullet train between Ahmedabad and Mumbai is a very ambitious project. We need that kind of project and should India, as an emerging nation, aspire to such projects? Definitely, yes, because you can´t have a waiting period of another 5-10 years to conceptualise these projects as they will have a long gestation period. However, you have to make these projects bankable.

I don´t think these can come on a PPP kind of framework where a private developer is appointed and in 20 years, recovers the cost and makes 15-16 per cent regulated returns.

I think there has been a good start. However, there are certain things that must be prioritised in terms of what needs to be done immediately. Some railway connectivity projects are already there. The second part is how to take it to the next level with more capex. Capex can be split into two parts. One is where you can do capex that can make your existing systems more efficient. The second part is working on aspirational projects like the bullet train, Mumbai Trans-Harbour Link, the new airport in Mumbai, etc.

This is where the government needs to prioritise. This is going to be an important call for the government to take, specifically in the Indian Railways which already has a vast network. If they can just do that immediate capex in terms of increasing efficiency levels, it will go a long way in helping passengers feel the respite.

What are your points of concern here?
If you see sectors which have evolved over time, they have seen growth based on the model on which the projects were rolled out. The model has to pick up the parameters based on the current situation and this situation is going to keep changing. If you speak to any of the banks and talk of any PPP project, in the current context, you will find it very difficult. Neither are the banks willing to support, nor are developers willing to take that kind of risk. There is a high degree of resistance because of the macro environment. You have to go back to your EPC or conventional cash contract model. If the numbers the government has given are the kinds of numbers we are looking at for the next fiv EPCe years, then one has to really look threadbare as to which are these projects, how are they going to be sustainable and what is going to be their rollout plan. Is it going to be EPC? Right now, they have just said PPP. We don´t know the details beyond this.

On the other hand, we have seen the plight of metro projects already. From day one, the Delhi Metro Rail Corporation chief was saying metro projects are not going to be sustainable on a PPP model. We have three PPP metro projects in India. The Andheri-Ghatkopar line that you see in Mumbai and the Delhi airport project were both awarded to Reliance and the third was shelved. In Delhi, we know of the arbitration and the subsequent termination of contract. We all know it has not been successful. The Andheri-Ghatkopar line has been running. However, we know it is nowhere near the projections that were made. The learning for us is that railways (and this not just an Indian phenomenon), especially urban connectivity projects, are not going to be easy. PPP has to be iterated in its definition while attempting these large projects. There is a Kelkar Committee Report which is a very progressive report and I think the application of some of their recommendations will be very helpful for executing some of these large projects.

If you have seen the evolution of the road sector in the last two-two and a half years, they have repeatedly come out with bids on a BOT concept and there has been a complete collapse in terms of people buying into those. They are all coming on an annuity or EPC model, which are fully funded by the government. Also, there is a new concept called the hybrid plan. All these models also have to be thought of while thinking of projects in the railways. The dynamics are going to be very different. As I said earlier, generally, the macro-environment is not very supportive.

What about the multilateral funding agencies?
They are one of the most prudent options for these projects. I think what they have managed for the bullet train is exactly what we need. This is what is needed to fetch the sovereign funds, the multinational funds, pension funds, the likes of JICA, World Bank, ADB. These are the ones you have to basically get for most of these projects. They will essentially be driving the capex, apart from one or two such agencies in India although we don´t like to call LIC a sovereign fund.

The other kind of association we are seeing is at the government level. For instance, SNCF, the French national railway is also working jointly with IR. Your comments. These are the initiatives that are required and this is the right way to go about it. This is what will actually get the capex cycle going. A G2G project is always going to create more impetus. It will speed up execution for the simple reason that the reach of the private sector is limited with regard to financing. If you expect private players to come and drive this, it will be difficult. It is always better at this stage for the government to take ownership. It is something that we have learned over time across sectors and why I keep referring to roads is because it is one of the most matured sectors that we have seen evolve with respect to PPP. There is a lot of learning from that sector and the government should see how they can draw an analogy with the railways.

There is also the challenge of managing such a large and complex organisation. What are your concerns on that front?
The efficiency level with which they operate at a human index level can grow multi-fold. I think you and I as consumers of that service can´t agree more than this. This certainly is one of the biggest challenges that the Indian Railways will continue to have. It is a humongous organisation. Getting them to work together for a common goal is not going to be easy. What can be done is mechanisation with the support of IT and I don´t know to what extent one can start privatising in that direction. There are some initial talks that are ongoing to evaluate the components that can probably be hived off or privatised from an efficiency viewpoint.

The functions with user interface are certainly the ones that the government is very vocal about. Even in the budget, the Honourable Minister has all kinds of suggestions for taking the user experience to the next level. I think today we will probably rate them three or four out of 10. This has to dramatically improve to at least six or seven and that is what the government is striving for. Given the revenues have been at a constant level, they have lost a lot of traffic to air and the roads network has also increased.

The experience has to improve, otherwise over time, they will start losing out. However, there is no reason to lose hope. The Railway Minister Suresh Prabhu is one of the best people to spearhead such a sector, given his background.