IRSDC MD Lohia defends 'user fee' for stations, says infrastructure can only be developed if passengers pay

Railway stations bring to mind squalor, filth, surging crowds and a stampede-like situation every time a train approaches the platform. This is the image the Indian Railways wants to shed as it embarks on an ambitious drive to rope in private players to redevelop stations. Clean toilets and swanky platforms will require a “nominal” user fee, which is facing opposition from employee unions as well as some MPs. As the government decides on the quantum of the fee, Indian Railway Stations Development Corporation (IRSDC) managing director and CEO Sanjeev Kumar Lohia tells Moneycontrol in an interview that an infrastructure project can only be developed if the user pays. Edited excerpts:

A brief timeline of initiatives to redevelop railway stations—which were chosen and why?

We started with Habibganj (Bhopal), the first-ever PPP project in station redevelopment, which was awarded in 2016. We had been given five stations on a pilot basis –Anand Vihar, Bijwasan, Chandigarh, Shivaji Nagar (Pune) and Habibganj. All were at different stages of development.  

Anand Vihar and Bijwasan had land issues; Shivaji Nagar had some other issues, including encroachment, while Chandigarh had viability issues since revenue was dependent only on real estate and the initial lease period was 45 years. For residential land use, lease periods in India are usually at least 80-90 years. Habibganj was also on a 45-year lease but this project had no issues of land and was located in one of the poshest areas of Bhopal. Also, the station was not in a very crowded area, so doing redevelopment work was easier and the potential for real estate development was higher. Road connectivity to the station on both sides was also good. The project is on schedule to be completed by December 2020. This will be the first station project where people can see what a redeveloped station actually means. People believe façade improvement is redevelopment that is not the case. A redeveloped station would provide segregation of arriving and departing passengers, seamless connectivity of various modes of transport, transformation of the station area into a city centre where transportation is one of the functions it would serve. It will be divyang (disabled) friendly and congestion-free, with a comfortable concourse above the tracks/ platforms to reduce the waiting crowds at platforms.

What do private parties bring to the table? Isn't the annual capex of the railways enough for station redevelopment?

The vested interest of the private sector is in having efficiencies in expenditure, look and feel of projects, in getting passengers to spend more time at stations and increasing revenue. Jo Dikhta hai who bikta hai. Passengers spending more time at stations enhance commercial viability through increased sales on the premises. When government takes up these projects, the focus may not be the same. Take the case of private airports in India like Delhi and Mumbai, which can be proudly claimed as one of the best in the world. Small but important things like toilets do not smell at these airports, there are good waiting areas for the passengers. As per our current estimate, total investment needed for the redevelopment of 123 stations along with real-estate development is Rs 50,000 crore. New Delhi Railway Station (NDLS) needs an investment of Rs 1,000 crore on improving transport infrastructure alone within the total redevelopment cost of Rs 5,000 crore; CSMT (Chhatrapati Shivaji Maharaj Terminus) needs an investment of Rs 1,642 crore, Habibganj was only Rs 100 crore (not including commercial development), Nagpur is about Rs 400 crore. The private sector is needed for station redevelopment to bring in both, efficiencies as well as huge capital investment.

What has been done to make station redevelopment attractive for bidders?

Whatever stakeholders had asked for, the government under the leadership of Prime Minister and Railway Minister has facilitated. We are offering a lease for up to 99 years, mixed land use and multiple sub-leases. The government has approved IRSDC as the nodal agency for station redevelopment in the country. Furthermore, to address the concerns on clearances, IRSDC is already established to offer a single-window clearance in terms of approval of the master plan and building plans under section 11 of the Railway Act, 1989. No change in land use is required pan-India. Also, railway station development projects now do not need prior environment clearance from the ministry of environment and forests. They have been provided infrastructure status and we have been provided them the freedom to adopt any of the development modes – PPP, EPC, a combination of these two, modified bid challenge method, self-development or even standalone facility management without large scale private investment.

What is the combined footfall of the stations to be redeveloped and on what basis were these stations picked?

The Indian Railways transports as many passengers as the population of Australia daily. The majority of these are concentrated in metropolitan cities such as Delhi, Mumbai, Kolkata and Chennai. The suburban passengers in these cities are about 100 lakh per day. M/s BCG were appointed as strategic advisers for the station development programme. They studied all 400 major stations that have passenger earnings of more than Rs 8 crore per annum (A and A1 category stations) and identified stations among those that have better commercial viability and availability of land for taking up redevelopment first. 

The entire station redevelopment programme is supposed to be cash neutral to the IR and as of now, 50 stations are targeted to be bid out by March 2021. These 50 stations account for almost a quarter of the total footfalls across the IR each day.

What were the considerations while drawing bidding parameters for CSMT, a heritage station and the busiest in the country?

CSMT is a heritage station and our prime consideration was restoring and enhancing this heritage. Late additions like the extra floor in the divisional railway manager’s office, the new reservation complex and some more railway offices are not part of that heritage tag and these will be taken out. 

Vehicular traffic, which runs just in front of the station, will go to the side so that the area becomes free for pedestrians and the station regains the look of the 1930s. We have already released the RFQ (request for quotation) for this station. A significant feature of the RFQ terms is that the technical eligibility criterion has been dropped. If a bidder has a net worth of Rs 821 crore, he can qualify at the RFQ stage. The construction experience can be acquired six months after the award of the work, in case the bidder does not have the construction experience himself. Then, the bidding parameter is an annual concession fee or annual premium. 

In the case of Habibganj, the bid parameter was an upfront fee and that station had no concept of an annual fee since there was pure land monetisation without user charges. At Habibganj, the mandatory project cost was Rs 100 crore, which included the cost of redevelopment of the station as well as rebuilding staff quarters, offices, etc for the IR in lieu of IR giving lease rights for the built-up area for 45 years, whose value was also estimated to be in the range of Rs 100 crore. So even the upfront fee paid was just a token Rs 1.36 lakh. 

For CSMT, premium payment will be finalised at the RFP stage. For this station, the developer will get three revenue streams: real estate monetisation, user charges and revenue from the station from kiosks, stalls, parking, platform tickets etc. Prima facie, our calculation shows the project is eminently viable for the bidder. We will have a rough estimate of what annual premium the IR will earn from CSMT once the government

notifies user charges.

How will the quantum of the railway station user fee be decided and what service guarantees will developers offer?

The concept of a user fee already exists across other infrastructure projects in India— airports have a user fee, highways have a toll. Any infrastructure project can only be developed if the user pays. But the clientele of airports is different, it can afford to pay a higher fee. Rail passengers will be charged a nominal amount. The prime difference between the model of user fee at airports and railway stations is this: for airports, escalation of project cost and therefore an increase in charges is permitted as the project progresses. But railway stations won’t have this system. User charges will not be determined at a later stage but will be pre-determined. They would be indexed to inflation and a formula will be given upfront for indexation. This means when inflation falls, user charges could fall too. On your point about service guarantees, mandatory services will be provided by the developer as per the concession agreement and Manual of Standards and Specifications for railway stations (MOSSR -2009). 

User charges will be passed on to developers only on completion of the redevelopment as per these standards. For example, the level of cleanliness of toilets will be the same as that of private airports.

What about employee unions and even MPs opposing the user charge?

Let me answer this with an example. At Habibganj, 34 staff quarters meant for the lowest rung of railway employees had to be demolished and rebuilt. What we have offered employees are houses built like builder apartments, so that even officers may feel happy to live in these. Each quarter now has two toilets and a modular kitchen and the staff is extremely happy. 

Employee unions should see what redevelopment of stations will bring for employees will be world-class. Amenities for passengers will also be world-class. Also, if earnings of the Indian Railways increase from revenue-sharing of station redevelopment, this will ultimately help IR employees. On MPs’ concerns, the Railway Board chairman has already said that user charges will be very nominal compared to the kind of amenities being provided.

(Sindhu Bhattacharya is a journalist based in Delhi who writes on a range of topics in business and economy.)