Home » We have evolved many business policies for private investment

We have evolved many business policies for private investment

We have evolved many business policies for private investment

The Railways has been the most sluggish among infrastructure sectors in operationalisating private participation and corporatisation of its activities. In his chat with the affable Bharatsinh Solanki, Union Minister of State for Railways, Shashidhar Nanjundaiah recognises that the corridors of power may have woken up to a realisation of the opportunities that lie in development and commerce.

What is the status of the Dedicated Freight Corridor (DFC)?
Survey is almost done and land acquisition has been already started and completed in parts of Gujarat and Rajasthan. It needs to be initiated in Maharashtra. However, it is very much on track.

By when do you expect this to be operational?
Although the Vision 2020 document says the DFC (both the Eastern and Western Corridors) will be operational before 2020, it will be in operation 2-3 years before 2020. Land acquisition will be completed within two years.

The comparative cost of the Western to Eastern Corridors in comparison will be around 60:40.

The Vision 2020 mentions wagons and equipment. Wagon shortage or unavailability has been hampering the railway freight activity. By when can we see some improvement?
There is a little waiting period involved during the peak season. But Railways have not failed to pick up the business offered to it from any quarter. As on date, there are about 4,000 50-wagon freight trains in operation, carrying about 2.2 million tonnes of freight per day. As you are aware, we are investing in many more new wagon factories, both by own enterprise as well as under the PPP mode. Thereby we have 16,500 new wagons in 2010 – 2011, and by 2011-2012 that number will be 18,000. The demand has been increasing because this is the cheapest most economical way of transportation. With many ports coming up along the coast, it is necessary to have dedicated freight lines separated from passenger tracks. Port and industrial connectivity will be priority.

By 2017, freight carrying capacity will be three times what is today, after these both corridors will be operational by 2017 – 2018.

There is a substantial need for additional wagons over Indian Railways in the coming years. For addressing the growing need of additional wagons, Hon’ble Minister of Railways, during her Railway Budget 2010-11 speech, announced setting up of five state-of-the-art wagon manufacturing factories through JV/PPP mode at Secunderabad, Barddhaman, Bhubaneshwar/Kalahandi, Guwahati and Haldia. While wagon factories at Guwahati and Haldia have been sanctioned, wagon factory at Kazipet (in place of Secunderabad) is under process for sanction in the ensuing Railway Budget.

Discussions are on with Government of Orissa for finalisation of site in the state of Orissa. MoU has been signed between RITES, a PSU under Ministry of Railways and SAIL, a PSU under Ministry of Steel for setting up a wagon manufacturing unit of annual production capacity of 1,200 wagons at Kulti in West Bengal.

Infrastructure sectors depend especially on the railways to provide connectivity. Can the railways take more proactive measures towards port and industrial connectivity?
Keeping in mind the needs of the infrastructure sector, railways have come out with a number of policies to enable private sector participation in capacity creation and rail connectivity projects. Two of the policies have been issued by the planning directorate, brief details of which are given below:

The first policy is the new Railways’ Infrastructure for Industrial Initiative (R3i) was formulated to facilitate rail connectivity to ports and industrial hubs through private participation. This policy is primarily to attract private sector participation in rail connectivity projects so that additional rail transport capacity can be created. It also aims at making rail option more competitive for prospective customers by allowing them to get a share in the freight revenues generated through freight traffic moving via new line. The policy has four models any one of which can be selected by the interested private party. The models are as follows:

  • Cost sharing-freight rebate model

  • Full contribution apportioned earning model

  • SPV model and

  • Private line model

The policy is applicable only to lines that are more than 20 km in length and not to lines connecting coal and iron-ore mines directly or indirectly. The investment by the private sector ranges from 50 to 100 per cent depending on the model chosen as also the returns to the investor.

The response to the policy has been encouraging. Proposals have been received for connectivity to Dighi, Rewas, Dhamra, Jaigarh, Astranga and Hazira ports. These projects are being examined and will be processed in due course.

The second policy, issued in February this year, is the policy for Rail Connectivity to Coal and Iron Ore Mines (R2CI). The objective of this policy is to facilitate and provide incentives to customers to invest in rail connectivity for coal or iron ore blocks, which was not provided in the R3i policy. Under the policy only those new line proposals which are 20 km or more in length (excluding length of siding which may take off from this line) shall be eligible under this policy. This policy has two models, one of which can be chosen by the interested private party. The models are as follow:

  • Capital cost model

  • SPV model

Under this policy, party constructs the line and hands over to the Railways. Railways returns the original capital cost without interest through a surcharge on freight. Railway shall also undertake maintenance. The policy has just been issued and response is awaited.

The Railways owns more than 10 lakh acres of land. There was an announcement that some of the land will be utilised under PPP mode. Can you explain? Would it be feasible, for example, to lease or sell such land for industrial/ infrastructure use?
Although the land in acreage is huge, most of it is a strip along the railway lines, not rectangular or square or kind of a land which can be much utilised directly for other activities. Railways itself requires land for expansion for their workshop, for their maintenance or new track and all other things. Given the projected growth, we will need the land for more tracks along the existing ones. Most of the sizable land we acquire is given to the Rail Land Development Corporation (RLDC) for public amenities.

Our future expansion will also include vertical growth. Multifunctional projects will come up at railway stations so that the platforms would be at the lower level but the different level of passenger services, amenities as you would find at the airports will be available, restaurants and other things also would be available on multi-level construction.

I was coming to the point that like ports, is it possible that the acquired rail land is actually owned by the government and leased for private participation, such as industrial activities?
RLDC has been given 3,760 acres for commercial development and other use.

Any specifics on what kind of commercial activity will be permitted?
We are working on that, so we decided it will come to a team, and once they decide, the Rail Board will approve finally on what activities will be taken.

These could also include industrial activity?
Sure, industrial activity is a possibility.

What are the Railways’ plans, and what investments are being made, in automating its safety systems, such as anti-collision devices (ACDs), which has met with success in some of the zones?
There is no specific head of allocation called safety. Budgetary allocation for safety related activities is made for plan as well as non-plan expenditure called ordinary working expenses in Railways. Safety related work includes maintenance of track and bridges, locomotives, coaches and wagons, signals, overhead equipment, road over bridges and under bridges, limited height subways, bridges, manning of level crossings track renewal, upgradation of signal technology, upgradation of maintenance workshops, installation of safety devices such as Anti Collision Devices, Vigilance Control Devices, Train Protection and Warning System.

The budgetary allocations along with utilisation under different Demands for Grants primarily relating to safety for the last three years and the current year are as follows:

Rail Industrial Parks that were announced in the Budget for ancillary units was an interesting idea because manufacturing can then stay in, or come to, India, although the tenders can be still global. Would you please explain how these Industrial Parks will work?
Although it is preliminary, we have decided to set up industrial manufacturing of high volumes such as safety and other vital components. The Parks will be specific area kept for railway-specific component manufacturing. Selection could be made out of items like UIC vestibules, rubber metallic components, injection moulded items, elastomeric pads, high capacity draft gear, PU side bearers, air suspension for commuter trains, composition brake blocks etc.

Output of these ancillary units will be consumed by the Railways, observing the established principles of ancilliarisation. We intend to seek participation by the world’s leading industries and setup units under JV or other suitable business models to produce selected niche railway products conforming to world standards. This would be done without any burden on Indian Railways, who will simply act as a facilitator with technical specifications and assured off-take. Nitty-gritty will be worked out shortly to take the matter forward in a transparent and fair manner.

Can you shed some light on how private sector can invest in this JV?
This is a new beginning, with big resource mobilisation needed, so we cannot do with a single partner. This goes for all our PPP plans. The bidding documentation has also been taking little more time because we are doing this for the first time and would like to have the interest of the railway and the government to be safeguarded. We form a Special Vehicle Purpose (SPV), which can speed up the process.

But what is the status public-private partnerships (PPPs) in railways? Why has it not taken off in spite of meetings and efforts?
PPP projects, by their very nature, require time to develop and appraise. Feasibility studies have to be carried out, bidding documents and legal agreements have to be drafted, consultation with bidders has to be undertaken. In the Railways, we have an additional issue to address. Given that the core operation of the Railways is and will continue to be with Indian Railways, the interface issues that may arise for the private sector have to be carefully assessed and addressed.

A number of initiatives have been taken in the Railways for PPP and some of them have been very successful. Container operation was thrown open to the private sector way back in 2006, and 16 operators including Concor have already obtained licence under the scheme. A number of business-oriented policies have been evolved to encourage private investment in the specified areas of infrastructure, rolling stock or service provision, namely R3i, private freight terminal (PFT), special freight train operators (SFTO), automobile freight train operators (AFTO), automobile and ancillary hubs, Kisan Vision (cold chain), new catering policy, and rail connectivity to coal and iron ore mines (R2CI).

These policies have evoked positive response for the private sector. In addition, Ministry of Railways have also considered the PPP route for setting up factories for rolling stock/components, etc. Dankuni-Sonnagar sector of Eastern Dedicated Freight Corridor has been identified for execution through PPP route.

One area where we have encountered some difficulty and delay is development of world-class stations. This is because redevelopment of existing stations requires a very close interaction with the state authorities and their willingness to invest in infrastructure around the station and to relax planning and floor area guidelines. We are also working on these issues.

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