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Last Updated : May 21, 2016 04:05 PM IST | Source: CNBC-TV18

With Rs 5.6L cr projects, Prabhu's Railways is gathering steam

The Ministry will cross the budgeted figure of Rs 1.21 lakh crore in the next year, says the Railway Minister Suresh Prabhu.

While last year for railways was a year of contemplation, this year will be of consolidation and working at an accelerated pace, says the Railway Minister Suresh Prabhu adding that “The train is now moving in the right direction.”

The Ministry over last year removed constraints over issues of raising funds, pinpointing hurdles and finding probable solutions for them.

Prabhu, in an interview with CNBC-TV18’s Shereen Bhan, says that the railways is
now ready with projects worth Rs 5.6 lakh crore.

“We (railways) expect to spend more than the budgeted Rs 1.21 lakh crore in next year,” he says. The ministry expects to spend about Rs 3 lakh crore to procure raw materials in next three years.

Over next five years, exponential rise in budgeted capex plan is expected. Also, this year the Ministry expects schemes for redevelopment of 10 stations to pass through.

A number of countries like Japan, France and Korea have shown interest in aiding the station redevelopment process, which will be taken up by the Ministry, he adds.

The Ministry’s ambitious bullet trains project will see light in 2023. Discussions and talks are underway with the Japanese government for same.

On land monetisation, Prabhu says that monestising land next to tracks is difficult and encroachment continues to be a major issue.

The Ministry expects to list all companies at some point of time. The plan is also to create a holding company, concept of which will be presented to Cabinet in next few months.

Below is the verbatim transcript of Suresh Prabhu's interview with Shereen Bhan on CNBC-TV18.

Q: Let me start by asking you about what you would put down as the key achievement for your ministry. I have got pages and pages of achievements that you have put out, but let me ask you to identify for us the key achievement, there are stuff across sanitation, cleanliness, infrastructure, PPP but a single biggest achievement that you would put down?

A: First, I would consider it has as you correctly said there are several, but I am saying the journey has begun, so the train is definitely moving, moving at a good speed and moving in the right direction, so that’s the biggest achievement because for long time, we have been seeing that the problems of railways were well known, but you are always handicapped by the fact that we didn’t want to address the problem by saying that these are the constraints, so we said okay we will stay in the red lines, we will go beyond the constraints and address them.

One is example is raising resources for the railways, second is increase the speed of implementation because we can always implement the project in 20 years or you can do it 3-4 years and that’s what we have started doing as the speed has increased to almost 7.8 kilometres a day from something half of that.

It will go about 19 kilometres a day in the next year, that has happened because of multiple factors one is because the delegation. Second, now we are ready with about Rs 5.6 lakh crore of projects which were not there last year.

When I said 77 projects were announced, I was sticking my neck out because they were the projects which are necessary for the railway as you will recall I became minister only in month of November and then I had to present a budget in February, so by the time I realised what the problems of the railways were, then having identified those, realising that we need to invest there, but no project report ready but still I put it there, parliament approved it.

We got the DPR ready, then we got all the necessary sanctions made and then it is there, so this year is not the case. This year we are ready with the projects, we are ready with funds, we are ready with delegated powers to the people.

We also have the confidence in the organisation that they can do it because they already spent quite a bit of it this year, so I am saying the next year will be better than this year. The year after next will be far, far better in fact, I gave this figure to Rajya Sabha the other day. In next 3 years time the amount of money that we will be spending on buying material steel, cement and other stuff will be few lakh crore. For example we just gave a biggest order ever to the wagon manufacturers.

Now the wagon manufacture order is only in our books, they in turn will by steel, they in turn will create employment. We are going to lay tracks as I said at 19 kilometres a day over a period of time, would mean that that much steel will be necessary, that much concrete sleepers will be necessary, that kind of cement will be necessary so you can imagine the exponential growth that is going to happen in the future.

So this year was a break from the past, this year was a beginning of a process. This year is a confidence building measure. This year was a capacity building measure and this year is a beginning, the journey has begun long way to go.

Q: The journey has begun long way to go, you gave me several figures and let me pick up of Rs 5.6 lakh crore that’s identified project pipeline that you are working with. How soon can we expect implementation on that Rs 5.6 lakh crore project pipeline?

A: Once you must understand the lifecycle of project implementation in railways. First as I said, you have the lot of approval processes, also lot of technicalities go into it, for example, the project we are doing now is like doubling, the doubling project involves creating a yard plan because the train has to come there, the train has to stop there.

Also the same next track the trains are running so you have to work next to that, so therefore the project implementation has started. As I said because of the processes that we are following now because the changes that we are introducing the system, I think in next year we will be spending more than what we are estimated Rs 121,000 crore for sure.

Q: You will be spending how much more do you believe you will need to spend?

A: Rs 121,000 crore is something I have budgeted in my budget, but I think it will be definitely more than that, but also I must remind you sometime this point is lost, the capital expenditure is from the railways budget itself is not a capital expenditure railways is going to incur, these comes from various factors for example, now the high speed railway Rs 1 lakh crore project which will start 2023 is the commissioning date, so in the next 2-3 years you will see a substantial capital expenditure (Capex) to be incurred on that.

Dedicated freight corridor tenders have been issued so the capex that will really happen in the next year will be phenomenally high Rs 85,000 crore projects, then the diesel and electric locomotive manufacturing projects in Bihar Rs 40,000 crore, so all of that add up to then we started the station development.

First luckily first tender has been issued in Bhopal Habibganj that itself will now bring in the new investment opportunity like in Surat 17 or 18 companies are bidding for it.

So all these put together there will be capex coming from different streams not just from one budgetary resource alone, so all of that put together I am very sure what we had estimated for 5 years’ capex plan will probably be more over that 5 years’ period.

Q: How much more will it be?

A: I don’t know right now, but I am saying definitely it looks like see there are certain things where there are variable for example, the response for the station development which has to come from the private sector.

The new freight corridor we want to launch, they could be launched in a sense but capex may happen little later. I am very sure over a period of time, every year you will see an exponential rise, exponential rise in the capex of the railways not only coming from the one source of budget, but also from multiple streams and that added together will add to the huge growth of GDP.

As you will agree and I am sure you are better than me in that respect is that every rupee that we spent in the railways, the benefit to the economy will be 6 times higher. So whatever we spent here now it will going to have a huge employment potential as well as growth for the economy.

Q: Since we are talking about funding and we are talking about capex. The LIC memorandum of understanding (MOU) has been done with. You already got whatever the finance minister has allocated as far as the budgetary support is concerned, but outside of that the last conversation that you and I had, you said that negotiations were underway with World Bank, you were hopeful of closing that. Where do you think currently stands on talks to the World Bank are concerned?

A: As I said, LIC facility is also a standby facility. It’s like an overdraft available to you if you want to spend the money because that assurance of availability of money itself is a guarantee for implementation of a project.

Because if you don’t know when the money is going to come automatically the project implementing team feels I don’t know and this has what has happened in railways and that’s how the projects have suffered, so first guarantee of availability coming from standby facility that’s why this 5 years’ Rs 30,000 crore a year, Rs 150,000 crore. The World Bank is very willing. We had a very long discussion with them.

The facility what we are thinking about is something like not just for the railways budgetary support alone, but it could be any development project in railway. For example there is a new development and this I must say that that’s why I was saying Rs 850,000 crore may be even short because Maharashtra, the 16 state as you know agreed with us that they will work with the joint venture with us and now of this some states like Maharashtra you already identified project worth Rs 70,000-80,000 crore including Mumbai. Now this project also will go for implementation.

Now how do you get money for that, so one is the debt equity ratio has to be decided supposed it is 3:1 in that case we put in 25 percent, 12.5 percent by Maharashtra government and 12.5 percent by us. The remaining 75 percent has to come from some source so that can also come from some multilateral agencies either bilaterally or to this fund that we are thinking of creating as a World Bank that fund can invest into this project.

Then look at some of the PPP projects which are for the railways, benefit is going to come to the railways so those PPP projects also might need debt as well as equity, so those investments also comes from this fund, so the nature of the fund will undergo a little bit of a change not only for government spent projects, but projects for railways either implemented by railways themselves through joint venture companies with state government or through a public sector undertakings which is one of the important strategy for us or at the PPP project.

Q: That’s an interesting idea. I want to pick up on the status as far as freight corridor corridors are concerned because this has what got a lot of people excited and everybody was talking about the implications of these additional freight corridors that you announced in the railway budget? Where do thing currently stands, how soon can we expect forward movement, you of course already articulated the capex plan that would be required for this to get off the ground?

A: We have some tentative work started. I don’t think this project will be started this year it is not possible, but the necessary work to make it happen in the next few years time will be started this year substantially, because a lot of planning is required, but this is a very critical backbone infrastructure necessary for many things to happen like “Make in India” what is Make in India is going to happen is we will be actually manufacturing lot of manufactured goods in India. To make that happen we need lot of movement of raw material from the source or from the port to the manufacturing plant. Once you are manufacturing we will have to also take it away from that to the market or to the port again for the export. So all of this is required lot of movement of goods and material, for that we need backbone infrastructure. If you move all of that by road implications of greenhouse emission will be phenomenal, it will be costly so to make it environment friendly, to make it cost effective and also make it that it will have some assurance when it will going to reach you. Today, if you are moving the same freight not on a dedicated corridor but on a passenger corridor also which is used for dual use, then in that case there is no guarantee that goods will reach at time and now in Japan we talk about just in time inventory and here we don’t know, not just in time but we know no time. How can it be, so therefore that again is necessary so this critical part of infrastructure necessary for Make in India for increasing our base of manufacturing is this freight corridor, so what I am saying is this year I don’t think we will start the work but we will actually start preparation to launch this projects in the next few years time.

Q: Dr Panagariya has been going back and forth between Japan and India on the high speed project. I understand that a significant amount of the negotiations that are perhaps spending rest on the Make in India component of the deal. What can we expect then, how soon will we cross the ice?

A: See what we are created is institutionalised structure that Panagariya being a vice chairman of NITI Aayog and therefore in a bit of neutral body, also the finance ministry, the ministry of industry of promotion I think and railways they together are actually talking to the ministry in Japan. The idea is that of course broad agreement has already been reached but there are fine tuning. Japan has already agreed and I must compliment them that good part of that will be manufactured in India. They also agreed that the principal contractors will be also Indian in a substantive way. This is little bit a far more improvement then a model that we adopted earlier even for dedicated freight corridor which also is a gigantic project. This is a significant improvement over what has been agreed by the Japanese as a model in the past. This is a very good development, very progressive development, we are moving ahead with this. The target is that we should try to run the train by 2023.


Q: So there is still a long way of as far as 2023 is concerned, so let me come down to now more immediate concerns and that continues to be on what happens as far as the freight side and you express your inability to try and up the freight rate in your budget and you are hoping that you will be able to do that of course a lot of it will also depend on the state of the economy. What’s your sense today because we are now at least when you talk to people in the cement sector, you talk to people in the steel sector they are seeing signs of a revival there, what’s your own sense as far as freight is concerned?

A: You are absolutely right. This is complete externality to the railways. The railway is a transporter, so what railway should do is to keep itself ready to handle a traffic that were never the case in the past. In the past all our customers were complaining that we have to chase you for getting wagons, today is the exactly opposite. We have created a customer service manager for each of the industry so therefore our people are going and meeting them and telling them and finding out from them what is that they need. It probably for the first time they reduce the freight rate not increased it at all and based on the discussion that we had with the industry that we increase the volume so we reduce the freight little bit, so over a period of time railways will also benefit, they will also benefit because more volumes will come to us, they will also pay little less for that so therefore their bottom line will also improve and if a customers are not making profit we can also not make profit so this is very necessary. First time, we have created 1.2 billion tonnes of cargo handling capacities ready with the railways which we did it not this year last year itself, because when we have said why should people chase us we should be ready with it. Last year we could not use it fully because the movement of some of the core sector commodities didn’t happen as much as we wanted, but this year again we have been talking to a major customer that’s coal, more than 50 percent of the cargo comes from only one segment and coal we are ready to handle as much as they want us to pick up and handle. In fact, this year again we handled whatever they wanted, therefore there is a huge stock available with the power companies, the coal companies also could mine out more because they have to be transported. So this is something which are ready with it, so what we can do is to be ready with the capacity and is a first time that a capacity is ready ahead of the demand coming up. I am sure the market is picking up, things should improve.

Q: What kind of a volume uptick are you working with at this point in time, the visibility that you have today?

A: I feel aluminium industry is doing better but volumes are not as large. The power industry, the coal demand from the power industry will rise only when the power consumption will rise. Hopefully, that again depends upon the overall industrial pick up for the demand. I think that also is picking up slowly. Also the cement and steel will depend upon again the growth in the demand that pick up so in a way railways will also create demand for them. Because when we start putting up new lines and everything the more cement will be necessary. So railway is going to benefit by doing that because then our customers also will also start transporting more from us. This core sectors are necessary but we have decided to change the strategy. We don’t want to be dependent only on these bulk commodities, that’s too dangerous and too risky for a one customer approach so same way which will not have only few commodities centric strategy. We are trying to diversify the freight basket, we are also trying to increase our volume in some of the key areas like parcel business, but it takes time, see these all are structural issues. With the organisation as large as railways cannot be changed overnight, but beginning has happened, the member railway board on my direction has met each and every industry personally. There have been individual meetings taking place at the level of general managers. The targets have been given to general managers to DRMs very specifically. They have been monitored on a weekly basis. We are trying to take corrective step if necessary. For example, there was a port congestion charge so we reduced it. There was a heavy season charge we removed it. We have taken number of such measures, the benefit of that I hope the volumes have to come up but we have done that and this is actually for the longstanding realisation for everybody that this freight and fare imbalance cross-subsidisation has to go down. The cross-subsidisation process has started with the freight coming down not increasing so therefore we are not unduly burdening the real income giver to us that’s the cargo. We are actually working on that and hope in the next few years time, this year again I hope that we be able to meet our target which depends on the economy picking up of course and I am also sure that as we diversify the commodity which will take time but over a period of time that will also will benefit. We have started another thing not to just depend on the revenues coming only from two sources freight and fare. We have created a directorate, non-rail fare revenue directorate. This will be creating revenue stream from various sectors and as we have seen in case of Japan, the non-fare rail revenue is as high as 30 percent, in India it is hardly anything, so that again is necessary for long term stability of railways finances.

Q: It is very miniscule at this point in time what you get by way of advertising and so on and so forth. So, what can be the realistic expectation? You spoke about it in Budget but what is the realistic expectation as you look at what has been rolled out today?

A: There has been estimation, again you must also understand the budget for advertisement depends upon the bottom lines of the company. So, even advertisement expenditure is directly related as you know even in media business you see that. So profitability has to rise. We are also helping them partly by reducing their cost of freight operation. However, if the profitability rises they will be advertising more but advertising potential is good. We also want to tap all other avenues. So, there is clear cut directorate which has been created for the first time. This again I am not very sure, full benefit will happen this year. It will take time because of structural issues but the beginning had to be made. I know somebody else will say that I did it after few years but I must make a beginning, I am doing it in the interest of railways not to take credit for myself.

Q: Let me ask you also since we are talking about revenue optimisation and ideas to generate more revenues. On the land monetisation front as well as and also the target that you have set out as far as development or re-development of these railway stations are concerned what is again the realistic targets I mean yes you have given a number but what you believe can be done in this financial year?

A: This financial year, I am very sure at least - if not more - 10 must go on stream because already one has already been avoided Bhopal-Habibganj and Surat etc bidding has already happened. In most of the other stations because it is delegated to general managers, they have had a pre-bidding conference. There has been a very complex process that people are trying to understand what it is, the interest has to be generated, the economy also pick up, builders are starved for funds. So, all of that should get cleared. But this year not less than ten should go but all others would have advanced to some extent. So, as you can see the first year will be, if you call it as first year next year will be more, third year will be far more. So, as we go people understand the process, people understand the implication of it, the economy also grows. So, people have more money available to them. The banking system also decides to finance it because that is important.

Coming back to the point that you raised earlier the fund that we are thinking of creating could also be used for redevelopment of this. I will also tell you another model that we are trying to work on. I have been talking to the states for joint venture companies. So, I have been telling the states why don't you also become partner for station development. Let me tell you the advantage, Delhi, I talk to Delhi Chief Minister, Maharashtra Chief Minister, most of them, Gujarat. Most of the permissions necessary for redevelopment of stations will be with the state government and with the municipal government. So, what is that we can do sitting in Delhi without making them as partners and therefore one of the reasons why it has not taken off as much faster is because of this. So, if you make state governments partner that is another dimension to station development.

Q: More states are under the BJP's rule today. So, surely you can push them a little, nudge them, prod the to move forward.

A: One thing is the political dimension. The other part is that if you make the partner they also realise that they are also going to benefit from it, so, they will do it. The third one, one is pure PPP, second as I said PPP with financing from the fund. Third state government's partnership and fourth which is country to country. Country like Korea, country like China, country like Japan, even Germany and France to some extent they are all saying that they are interested to help us with redevelopment of stations. So, there we will do agreement not with any private company but with government to government which is already there, the protocol has already been made. So, we can take it forward. So, there will be four different schemes through which station developments will happen.

Q: So, you are saying at least 10 should go through in this financial year?

A: I think so.

Q: Land monetisation, any forward movement on that?

A: That is a little more complex issue because most of the land that railway has contrary to the belief is largely on the side of the track and because tracks are so large, you see one of the largest networks in the world it looks like it is a huge land. But that land to monetise next to the track how do you do it because trains are running there. And either side of the track we should try to keep it vacant. So, that is one part.

However, wherever it is available, that is why we said we are starting private railway siding, we can think about making warehouses, we are starting to think about starting private freight terminals. So all of that we want to monetise in this way. Some small part of land still could be left. We should first remove encroachment of that because though on the paper it is available to you it is virtually not in your hands. That again is an issue I need to talk to the state government, we will have to make a policy. To re-house some of the some of the slum dwellers because you evict them, take them away is something which is impractical.

So, therefore we really need to work out with the policy, that is not just railways only as an entity. Central government as a whole may have to think about a policy to redevelop the land which is currently occupied, encroached by slum.

Q: Let me ask you about railway development authority and where things stand on that because this is again one of the ideas that you presented in the Budget. How much work is do now?

A: As far as we are concerned we had invited     lot of suggestions, all that is over. It is now with the legal people, we will have to only decide one thing whether we should take a legislative approach or we should take an administrative approach to create one. So, that process the experts on law will give us an opinion, then we will go ahead with that.

Q: So, you are still awaiting opinion on whether you should take this to parliament?

A: Only thing just to avoid any more delays because if you go through one process and get stuck then you cannot withdraw it either. So, we are thinking about most expeditious and most practical way of taking it out.

Q: IRCTC, when you first did our interview, when you took over you talked about the possibility of an eventful listing for instance of the IRCTC and you asked the question why can't that be something that we work towards. Where do you think it is at?

A: We will have to over a period of time list all the companies and I will just give - if you give me one or two minutes, if we spend this huge capex only departmentally there is no valuation benefit that comes to the railways. But just imagine we use some of these PSUs like RVNL or IRCON, they actually incur the capex. Because of the volume going up also their bottom-line improving the valuation of those companies will improve considerably. So, if you divest part of their equity, once its valuation has increased considerably the benefit of that will come to you in a very substantive way. So, by doing that whatever debt we are talking about we will be able to liquidate all the debt with a small divestment coming out because we borrowed, we could spend more. Because we could spend more the valuation went up. Because the valuation went up part of the divestment money can be used as liquidation of loans. So, loan people feel is a problem, it is not really. Because of that the capex is improved. Capex is improved the viability of railways improved and also because of all this the ability of railways to pay more to the borrower has also increased considerably.

Coming to the point of listing we have already said in the Budget speech is to create a holding company. So, all the different companies in the railway family will be held by this holding company. That is a good time to actually go in for a listing. So, SBI Cap is helping us prepare a complete concept for it. We have requested them to do that. It is more or less ready.

Q: What is the timeline?

A: This holding company is something which we will have to go to the cabinet for approval. Once that is done we will take it forward.

Q: Are you expecting to do that over the next few weeks, months?

A: Few months for sure, definitely.

Q: You believe that the holding companies structure should be in place within this financial year?

A: As I said this is a concept, has to be approved by the much bigger government entities, finance ministry, the cabinet eventually but it is a concept we are trying to move forward.

Q: What is the immediate priority? You talked about the next few years but what is the immediate priority at this point in time?

A: This year is the year of moving on, last year was the beginning. This year is a period of accelerating the pace; this is a year of consolidation. This is also a year of taking some of these critical structural measures. Like you said development authority is a structural measure, delegations done in last year we want to institutionalise it, we want to create memorandum of understanding (MoU) with all the zones we did two zones last year.

We want to bring in more transparency into operations. We want to also bring in this cost functional entities together so we have created two directorates but we will create about more task forces, all of that should happen this year. Also accelerate the pace of implementation. This again will happen and you will see tangible results of that this year. So, all of that put together is a year of moving on, the year of consolidation, year of thinking ahead without forgetting where we started.

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First Published on May 20, 2016 07:54 pm
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