Private trains: Now, a single bidder can win all 12 train clusters

Indian Railways (IR) seems to have relaxed an earlier condition, which capped the number of train clusters a single bidder can win, in a likely attempt to make the entire process more attractive and get maximum participation.

IR recently invited private parties to operate select trains for 109 pairs of routes. These are routes that have higher demand than current capacity and where IR is loath to operate more trains. The train pairs have been divided into 12 clusters, and with the participation of the private sector, IR is looking to generate some additional funds while expanding the current capacity on these popular routes.

This journey that IR has embarked on will see the entry of the private sector into what was hitherto a public sector monopoly. The novel experiment has several firsts: private operators can fix fares and even charge for ‘ancillary’ services such as food, bedding and Wi-Fi (as airlines do).

The concession will be awarded for 35 years and the criterion for the winner in each cluster would be the highest share of gross revenue being offered.

Train speeds have been fixed and penalties have been prescribed for delays and for falling behind on other operational parameters. 

Cluster cap

When the initial norms for private train operations were laid out in July, IR had specified that a single bidder cannot win more than three clusters. In each cluster, the bidder offering the maximum share of gross revenue would be declared the winner.

Barely two months down the line, the cap on the number of clusters seems to have been eased. This has become clear after IR replied to queries from potential bidders late last month.

When a potential bidder sought to know whether certain amendments to the RFQ allow a single bidder to win more than three clusters, IR said this “understanding is correct”. When this bidder further asked whether a bidding consortium can win all 12 clusters, IR once again said that this “understanding is correct”.

As per the original terms, the highest bidder — whoever offered the maximum share in gross revenue to IR — was to be the selected bidder for each cluster. But the remaining bidders for each cluster were to be kept in reserve and could be invited to match the bid submitted by the highest bidder, in case the latter were to withdraw or was disqualified for any reason.

Limited interest?

A cap on the number of clusters per bidder would have been instrumental in keeping any future allegations of monopoly at bay. One of the potential bidders, who participated in the two pre-bid meetings held till now, said that the cap on clusters has perhaps been relaxed to make the process more attractive. “There seems to be limited interest from prospective bidders (in the entire process) so the first priority for IR could be to start the process… they can always provide opportunities for new companies in future,” this bidder said, asking not to be identified.

He also pointed out that the number of clusters per bidder would be more than three only when a cluster remains without bids and the change in bid conditions could be an endeavour to get interest for all clusters.

Queries sent to an IR spokesperson remained unanswered. To another bidder’s query on what happens if only one bid is received for a cluster, IR has said it will “decide based on reasonability of bid received”.

Withdrawal penalty:

Meanwhile, in reply to another query from the same bidder, IR made it clear that the norms for withdrawal from the bid remain unchanged.

Another clause, which could have significant impact on private train operations, is the establishment of a regulator for fare disputes. While bidders have been asking for an independent regulatory authority, IR continues to pooh-pooh the need for any such authority. Responding to a bidder’s query on this issue, IR has once again said that in the private train project, the concessionaire will have the right to determine the fare/any other charges to be paid by users.

“In effect, the fare is completely market driven. The concession agreement would clearly lay 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. In sum, there is negligible role of a regulator. In future, there may be a sectoral regulator for railways who may look into larger issues,” IR said in its response. 

Net worth

One bidder sought a relaxation in the net-worth norms for a private entity to become eligible, saying the RFQ required the applicant to have a net worth of approximately 50 percent of the total project cost of the preceding financial year. Pointing out that such a requirement was “on the higher side” as compared to other infrastructure RFPs, where it is 20 percent of the project cost, this bidder wanted it lowered to 30-35 percent of the project cost.

Another bidder cited the provision in the RFQ that allows leasing of trains to press for the net worth criterion to be diluted to 25 percent of the project cost.

IR, however, said no change was being contemplated in the criterion. 

Revenue share

One bidder wanted the haulage charge to be excluded from calculation of gross revenue, saying it was a fee.

There was also a suggestion that the station user fee and all indirect taxes that the concessionaire will pay should also be excluded from gross revenue. IR declined both requests.

The calculation of gross revenue is critical to the viability of a bidder since the percentage it will offer IR will determine who wins a cluster. In addition, the percentage will remain unchanged throughout the concession period of 35 years.