Plan for private firms to operate trains runs late on deferred bid deadlines

A train belonging to the Indian Railways (Representative image)

The Indian Railways’ ambitious plan to allow private operators to run trains has been running late with repeated postponements of the bid deadline, which has now been set for July 23.

The decision to allow private train operators for the first time had met with an encouraging response and 15 applicants qualified for the initial request-for-quotation stage in February this year. Since then, however, the COVID-19 resurgence is one of the principal reasons for delay the process.

While prospective bidders had anyway sought more time to study the bid conditions, the alleged inflexibility of the Indian Railways in amending some of them is also being cited as a reason for the delays.

Among the issues raised by prospective bidders is the absence of a regulator, flexibility in choosing routes of operation and the limit imposed on increasing fares.

Still, more than one interested party is likely to finally put in a bid, an advisor to one prospective bidder told Moneycontrol. However, some of the 12 clusters put up for bidding may not receive a single bid, the person said, asking not to be identified.

The railways had invited bids from private parties to operate trains last year under the public-private partnership model for 12 clusters and 109 pairs of routes. These routes had higher demand than the current capacity and the Indian Railways was loath to operate more trains there.

Private sector participation would generate additional funds for the cash-strapped railways from revenue-sharing and other payables, while also expanding the rail capacity on these popular routes. The chosen private operators are expected to invest up to Rs 30,000 crore and operate 151 modern trains.

Some prospective bidders have raised concerns over the bidding process, the requirements and the expectations built into the process. The advisor said that “most of the key items of the wish-list of the prospective bidders have not been addressed.”

At the pre-bid conference for prospective bidders in January, there were almost 270 queries. An Indian Railways spokesperson did not immediately respond to queries on the status of PPP in train operations.

Missing regulator

The absence of a regulator, an issue that’s been raised many times by prospective bidders, remains unaddressed. In its reply to queries on the subject, the railways said that the “draft concession agreement clearly lays down the obligations of either party including damages for non-compliance. It also provides for a multi-layered dispute resolution mechanism through independent engineer, dispute resolution board, conciliation mechanism and arbitration.”

As of now, the railways is present in all aspects of train operations and will be seen as a competitor to any private operator since it would continue to operate trains even after some routes are privatised.

The railways also provides infrastructure such as tracks and other services and remains the adjudicator in case of any disputes. These aspects call into question the reluctance in establishing a regulator before offering routes to private parties.

Operational flexibility

Prospective bidders are concerned over the threshold of “exclusivity” of operations, or the time during which other trains will not run on their paths and nearby routes. The railways has assured exclusivity for a path to the operator from the originating railway station and all other stations within a 20 km radius within an hour of the departure of a private train. But this exclusivity doesn’t apply when capacity utilisation of the private train exceeds 90 percent.

Bidders want this 90 percent cap to be made at least 95 percent, pointing out that it would otherwise be akin to “penalising a private train operator for good performance.”

Instead, the operators want to be incentivised through flexibility to choose routes of operation “within a band of 70 to 100 percent of the prescribed routes in a cluster.”

Other operational issues for prospective bidders include the exit clauses and penalties, which they say should be tweaked because no operator would like to leave after investing in rolling stock, which cannot be salvaged easily in an exit situation.

Fares, haulage charges

One bidder pointed out that the fares of the Indian Railways are “telescopic” and this means that prospective private operators would also need to maintain a similar fare structure.

“In such a scenario, the haulage charges per km should also be made telescopic i.e., reducing as the distance travelled increases,” the person said, referring to the fee that private operators must pay for using the infrastructure of the Indian Railways.

The concession for awarding routes to private parties was designed so that a bidder offering the highest revenue share plus haulage charges (together called the premium) would be entitled to win in each cluster. Many bidders have already sought a reduction or complete waiver of haulage charges, but the Indian Railways has not agreed to either option. So now, one bidder is seeking telescopic haulage charges, making it inversely proportional to the distance travelled.

A person tracking the privatisation of train operations said many prospective bidders were concerned over a cap on the annual increase in fares, even though the rate of increase of haulage charges would be much higher each year. Whether the railways has capped annual fare increases for private trains could not be independently confirmed.

Both people cited said that three to four bidders are expected to take the plunge despite the various issues they’ve pointed out in the bid conditions.