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Success of railway asset monetisation will depend on concession agreements: Experts

While the process of allowing private companies to operate trains and redevelop railway stations has started, the Indian Railways may make quicker progress in monetising freight terminals and development of railway colonies

August 26, 2021 / 04:28 PM IST
Illustration of Indian Train (Source: ShutterStock)

Illustration of Indian Train (Source: ShutterStock)

The Indian Railways accounts for one-fourth of the Rs 6 lakh crore of assets identified in the National Monetisation Pipeline, according to estimates by Niti Aayog, the government’s think-tank. However, the success of the monetisation plan hinges on contracts and concession agreements, experts said.

The monetisation plan envisages allowing private companies to lease and operate infrastructure owned by the government across sectors. In the railways, this would include running passenger trains, redeveloping railway stations and railway colonies, operating freight terminals and railway tracks. According to the plan, private operations in rail assets would generate a little over Rs 1.5 lakh crore from FY22 to FY25.

Also Read: National Monetisation Pipeline: Timely resolve, but challenges along the way

Ajay Shukla, former member-traffic of the Indian Railways, said monetisation of railway assets has been talked about for at least 10 years.

“It refers to farming out utilised or unutilised assets to the private sector. On paper, the scheme is good. Take, for example, the land along existing railway tracks – if telecom companies want to lay cable on this land, for example, an arrangement can work to the benefit of both parties, as long as such an arrangement does not affect the working of the IR. So, the problem is not in the monetisation concept, which is very good, the problem lies in its implementation.”

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So far, public-private partnership projects in the Indian Railways haven’t exactly been successful. This was visible most recently in the plan to allow private companies to operate trains on certain routes on the basis of revenue-sharing and payment for using the Indian Railways’ infrastructure. On paper, the plan sounded good because private companies would be free to fix fares and provide amenities commensurate with them.

However, the plan, which was expected to draw private investment of Rs 70,000 crore, had only two takers because prospective bidders for train operations had concerns over various aspects, including higher premium deciding the winning bidder, haulage charges in addition to the premium, restrictions on routes and train timings and the absence of a regulator. The bidding process is now being reworked.

Attempts to let private companies redevelop railway stations have faltered similarly. Private participation for New Delhi Railway Station was first invited more than five years ago, but the conditions were unattractive. Now, after an amended concession was offered around six months ago, the request for qualifying (RFQ) process has been closed.

Most of the 123 stations identified would have been redeveloped through the PPP mode, an official closely involved with the project had explained earlier. Until last month, RFQs for only 14 stations had been floated.

Also Read: Fair play and transparency will determine success of National Monetisation Pipeline

Initially, redeveloping stations through private participation included the development of tracks and signalling along with the station areas. This holistic approach was implemented by other countries including China, although in India, it brought its own set of problems.

It would have disrupted train services for long periods at busy stations and it would have required large investments by private parties without commensurate viability prospects. Now, the concession agreements have been reworked and exclude development of tracks and signalling.

In both train operations and railway station redevelopment, the implementation of the PPP model has so far been tricky and the learning process continues.

There was also the matter of incorporating passenger fees in the station concession agreement, which the Union Cabinet had to decide. Several senior Indian Railway officials have said redeveloped stations will require passengers to shell out a “nominal” user fee for improved facilities like parking, AC waiting rooms, escalators and general upkeep.

“In the case of Indian Railways, the monetisation target may be stiff. But if Indian Railways is able to roll out even a few successful monetisation projects in various areas, it will be a big achievement for future confidence-building and doing more,” said Abhaya Agarwal, partner-infrastructure practice, at EY.

Niti Aayog estimated the monetisation value for railway station development at Rs 76,250 crore from FY22 to FY25, while for passenger train operations, the value is pegged at Rs 21,642 crore.

While private trains and railway stations are on the slow path, other monetisation opportunities could be tapped for faster results.

Experts said freight terminals could be one such area. These can be monetised either by going for a PPP arrangement or through pure licensing. In the latter, the private party would set up a logistics park and offer freight services from this park for a handling fee from the customers. The railways would get more customers, more freight and full revenue. The licensee gets siding, freight and loading charges.

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The other railway asset that can be quickly monetised is railway colonies. One expert pointed out that “densification of colonies” is already being done. This refers to building additional capacity on existing structures and can be done with or without private sector involvement.

Whether it is station redevelopment, train operations or freight terminals, the key to successfully monetising railway assets would be a properly devised PPP concession agreement, which keeps in mind returns for private parties.
Sindhu Bhattacharya is a journalist based in Delhi who writes on a range of topics in business and economy.
first published: Aug 26, 2021 04:28 pm
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