The Indian Railways is evaluating a new bidding process to make it easier and more attractive for private players to run passenger trains in India, after its first round of bidding attracted only two players.
Private entity Megha Engineering & Infrastructures Ltd and state-run Indian Railway Catering and Tourism Corp were the two. The bidding process had started in July. While the Indian Railways is yet to declare the results of the first round of bidding, reports suggest it may even be scrapped.
Additionally, bids were received for only three of the 12 train clusters. Among them, one saw only a single bid – by IRCTC. Megha Engineering bid for the Delhi 1 and Delhi 2 clusters.
The Ministry of Railways had, in July, rolled out bids for private sector participation in 12 clusters. The plan involved as many as 109 origin-destination pairs and a 35-year concession period was to be provided to winning bidders on a revenue-basis model.
What can the Railways do to attract more players?
It is considering reducing the haulage charges for private train operators after a period of time, a senior government official told Moneycontrol.
The Ministry of Railways is also considering incentives for private train operators, if they use locally made coaches and engines.
"A proposal is being considered where private train operators will either be given tax rebates or a subsidy to use locally made coaches and engines on the trains they want to operate," a senior official in the Ministry of Railways told Moneycontrol.
Industry participants expect the railways to ease the terms of the revenue-sharing agreement in the bidding norms as well as set up a regulator for the railway industry, in order to avoid monopolisation of passenger traffic and routes.
“The Indian Railways cannot be both a competitor and a regulator. There is, no doubt, the need for a technical regulator. Even though the railways kept emphasising on fair regulation, there has to be a contractual commitment for a project to be financed,” a senior official of potential bidder said.
Furthermore, market experts said that in order to make private train operations more attractive, the government should follow the route taken in the aviation sector and de-regulate the market, opening them up to private players.
"The government, instead of bidding out train operations on particular routes, can even look to bid out slots and timing to private players. This will certainly increase participation from the industry," a market expert from Goldman Sachs said.
He added that a lot of skepticism around operating private trains currently exists as not many companies are showing interest. Also, COVID-19 has hit the financial matrices of many companies.
Challenges in the current bidding system
The initial proposal of the railways in 2020 to allow private parties to operate trains saw 15 applicants qualifying for the bids.
Since then, the bid deadline was repeatedly postponed with the resurgence of COVID-19, and prospective bidders have been seeking more time to study the bid conditions.
According to government officials, some of the likely reasons that kept bidders away include tariff competition with the Indian Railways, absence of a regulator, haulage charges payment, in addition to revenue-sharing as well as curbs on route flexibility.
Furthermore, the railways' two-stage competitive bidding process, comprising Request for Qualification and Request for Proposal, was also seen as a hurdle for private players looking to participate in the bids, market experts and industry participants told Moneycontrol.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
