Railways try to woo investors

Much like the new car models that are launched to lure buyers and increase sales, the railways too has been experimenting with new models of Public-Private-Partnership (PPP) for financing its projects for past many years, but has been dogged by poor and unimaginative marketing strategies, with the result that not much success has come its way. Now once again the Ministry of Railways has approached the Union Cabinet for approval to new variants of its PPP models to attract private investors in funding its connectivity projects. In 2010, the railways had initiated a new R3i (Railway In­frastructure Investment Initiative) policy aimed at attracting private sector participation in similar projects with a view to retaining and increasing rail share in freight traffic. This was not made applicable to lines intending to pro­vide connectivity to coal mines and iron ore mines, directly or indirectly. It did not take the railways long to discover that this policy had failed to attract sufficient investment from the private sector. Hence, the PPP structure was redesigned, and under the new proposal, the owner or concessionaire has been allowed to develop rail connectivity to ports and mines as private railway lines by acquiring land and mak­ing investments in it.

This is not the first time that the Indian Rail­ways has fallen back on a PPP, for garnering ad­ditional funds. Indeed, whenever its finances have been in the doldrums, the railways have found it convenient to use PPP as a good peg to hang its coat on. We have noticed budget documents an­nouncing new initiatives on PPP, white papers making a prominent mention of it, and fresh policy circulars getting issued to reassure all and sundry of the seriousness with which railways is pursuing this item on its agenda. The Indian Rail­ways’ Vision Paper 2020, presented to Parliament in December 2009, had highlighted PPP as a critical mission area and also gave out a long list of activities identified for execution through this medium: multi-modal logistics parks, develop­ment of world class stations, dedicated freight corridors, et al. Unfortunately, good intentions are not getting translated into action.

A few years ago, the railways had proposed a PPP model for augmenting wagon and locomo­tive manufacturing capacity. A number of re­puted international transportation companies had evinced interest in participating in these projects. However, since the railways were asked to commit to assured offtakes of locomotives and wagons from private manufacturers for at least 10 years, besides contributing towards initial working capital of these projects, this model was promptly dumped, as railways feared that it may be forced to close down its existing manufactur­ing units if private parties were allowed to set up new factories.

It is high time railways did some introspection and realised that the complex procedures and legal framework within which the Public-Pri­vate-Partnership projects are required to oper­ate in railways have not been able to incentivise the private sector in participating in such proj­ects. The procedures show a distinct bias to­wards the railways, leading to the perception that the PPP partners are not treated as equals. In the container train operations, for instance, which the railways claim to be its major PPP initiative, private players are not happy since they feel that there is no level playing field for them and the railways have been denying them their fair share in the venture. They complain of unreasonably high fees for use of terminals built on railway land, and of the differential haulage rates, which has cut into their profit margins. Moreover, frequent changes in the haulage charges and other terms and conditions make it difficult for private players to enter into long-term commitments given to their clients. This feeling of uncertainty is not conducive to a healthy business climate.

It is essential to create a proper PPP en­abling environment with streamlined proce­dures and a right mix of fiscal incentives and risk mitigation measures to attract private sector to participate in infrastructure projects. Setting up of an independent regulatory body that can enforce contracts, settle disputes and resolve the conflict of interest between rail­ways and private players can help in winning the latter’s confidence.

A probable factor causing the progress in PPP in railways remaining tardy is that whereas in ports, highways and airports the projects can, by and large, be operated and maintained indepen­dently of the existing system, it is not possible to do the same in railways, where any project has to be an extension to an existing larger railway network. As railway activities are not readily ac­cessible to the private sector, it becomes a major constraint in developing a sound PPP venture. The remedy lies in railways viewing private in­vestors as potential partners rather than as com­petitors. The former railway minister had also wanted the existing marketing schemes to be ‘reviewed thoroughly to give them greater mar­ket focus, and provide greater control to the rail-user by making him a stakeholder’.

The Planning Commission estimates that pri­vate investment mobilisation in the railways in the Eleventh Plan is likely to be only 4 per cent of the Plan outlay. This is far less than the private capital share in other sectors, such as ports 80 per cent, airports 64 per cent and roads 16 per cent. Large funds are required for investment in new projects in the Twelfth Plan period. These cannot be mobilised through budgetary support and market borrowings alone, and PPP projects can provide a shot in the arm. However, unless there is a major policy shift and railways shed its baggage of past ideology, it is unlikely that this shortfall can be met from PPP projects.

A parliamentary panel recently observed that the railways, because of the long gestation pe­riod and relatively low returns, should not bank too heavily on the PPP route but instead ex­plore other avenues for resource generation. These are valid observations, because PPP can­not be taken as the ultimate funding solution. Indeed, reliance on private participation does in no way diminish the role of the government in providing the resources and leadership nec­essary to build, operate and maintain sustain­able public infrastructure.



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