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Two companies bid to operate private trains; IRCTC may win three clusters

The absence of a regulator, payment of haulage charges in addition to sharing revenue, and curbs on route flexibility are among the likely reasons that kept bidders away from the Indian Railways’ ambitious plan

July 26, 2021 / 06:30 PM IST

The Indian Railways’ ambitious plan to get private companies to operate trains on some congested routes may have thrown up a surprise.

There were only two bidders although more than a dozen contenders were in the fray at last count, according to people aware of the matter.

Of the two bidders, the Indian Railway Catering & Tourism Corporation may be the winner because it quoted a higher revenue share figure. The other bidder was Megha Engineering & Infrastructures.

However, since IRCTC is majority-owned by the government, its likely win raises a question mark over private participation in train operations.

Of the 12 clusters put up for bidding, only three saw any bid at all, the people aware of the matter said. The Indian Railways had received 120 requests for qualification from 15 bidders in October last year. At that time, not a single cluster had received less than nine requests for qualification. Among the contenders were L&T Infrastructure Development Projects, GMR Highways and BHEL.


Now, the winning bids will be decided based on the quantum of revenue share an entity proposes to share with the Indian Railways.

One person indicated that IRCTC quoted a 15 percent revenue share for one cluster and 18 percent for another. Hyderabad-based Megha bid for two clusters offering a little more than 2 percent revenue share for one and less than 1 percent for the other.

Spokespersons for the two bidders were not reachable.

An Indian Railways spokesperson said it was “not appropriate to comment if the commercial process is on.”

It is almost certain that a new tender will be put out to get bids for the nine train clusters that did not receive a single bid this time.

Earlier, the ministry said that it had “received bids from both private and public sectors to operate 29 pairs of trains with around 40 modern rakes, entailing an investment of around Rs 7,200 crore. The Ministry of Railways will expeditiously complete the evaluation and decide the bids.”

The Indian Railways decided to allow private companies to operate trains for the first time in 2019. Under the public-private partnership model, the selected bidders would be awarded congested routes divided into 12 clusters to operate 151 modern trains on 140 origin-destination pairs of routes.

The total investment envisaged for such train operations was pegged at about Rs 30,000 crore. This PPP model for private train operations was seen as a test case for further opening up by the national transporter.

According to Manish Agarwal, former partner, leader - capital projects & infrastructure, at PwC, if IRCTC gets to operate private trains it would defeat the very purpose of PPP.

“IRCTC could potentially raise capital from banks/investors and the Indian Railways may see that as success. But the real value-add was more than capital,” Agarwal said.

“It is unfortunate to see such a poor participation,” said Harsh Dhingra, former chief country representative of Bombardier in India, and presently a consultant with one of the prospective bidders for private trains. “Intent and wish of the Indian Railways were excellent but the bidding process should have been better, with proper, extensive engagement with private players to bring in conditions which are win-win for both parties.”

Prospective bidders had been raising many issues, said Sudhanshu Mani, former GM at the Integral Coach Factory Chennai and a consultant with another prospective bidder.

The operator had to use the Indian Railways’ infrastructure and operating staff but would be liable for penalties for loss of punctuality and other performance indicators. The absence of an independent regulator was a serious dampener, he said.

There were also issues like inflexibility in operators choosing origin and destination stations, timings and extent of coverage of prescribed trains. They were unhappy about the revenue-sharing model when a haulage charge also needed to be paid.

“These issues can be addressed in a spirit of win-win instead of dumping all the risk on the operator,” Mani said.

Agarwal pointed out that for the bidders’ risk to be “bankable,” the railways must provide a clear mechanism for scheduling trains while also creating a technical regulator, akin to the Directorate General for Civil Aviation. There should be a mechanism to prevent premium trains operated by the Indian Railways from offering fares below cost. Bidders should also not be asked to pay haulage charges or the sum should be reduced.
Sindhu Bhattacharya is a journalist based in Delhi who writes on a range of topics in business and economy.
first published: Jul 26, 2021 06:24 pm

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