Railway minister P.K. Bansal has kicked off a process that, if carried through to fruition, could give the power sector a significant boost by removing perennial bottlenecks in fuel supplies through the building of crucial last-mile links connecting points of supply and demand.
The initiative is also aimed at easing traffic congestion at India’s clogged ports where cargo shipments are held up as they can’t be moved in or out of the facilities fast enough.
The move comes after Bansal emphasized public private partnerships (PPPs) in his budget speech on 26 February, which followed a revamp of the policy in December.
Since then, the ministry has granted approvals for more than two-thirds of the investment expected to be raised through last-mile connectivity projects in the 12th Plan period (2012-17), marking a dramatic change as the railway ministry has had little success before this in wooing private investors.
The Plan envisages an ambitious Rs.1 trillion of investment in Indian Railways through the PPP route.
“Private sector is taking heart from the favourable winds that seem to be coming from the railway ministry that is now welcoming private sector participation where earlier there was some resistance,” said Vinayak Chatterjee, chairman and managing director, Feedback Infrastructure Services Pvt. Ltd, an infrastructure consultant. “The private industry is reading the smoke signals from the railway ministry on softening their stance and the realization that private sector participation is important. So, the hope is that projects will sail through.”
The railways has given in-principle approval for more than Rs.6,000 crore of such projects linking ports and coal and iron ore mines, according to a ministry official. Such approval allows contractors to begin construction, the person said.
In his budget speech, Bansal had said, “An investment of up to Rs.9,000 crore is expected (for 12th Plan period) under these projects, including Rs.3,800 crore for port connectivity projects, Rs.4,000 crore for coal mine connectivity and Rs.800 crore for iron ore mines connectivity improvements.”
This is expected to lead to additional transport capacity, an increase in railways’ share of freight traffic and better rail infrastructure, besides faster movement of coal and iron ore.
“We welcome the new policy,” said S.K. Mohapatra, the chief executive officer of Dhamra Port Co. Ltd, an equal joint venture between Larsen and Toubro Ltd and Tata Steel Ltd. “But, it will depend on how the policy is interpreted and implemented by the railways.”
Mohapatra said the rail link to Dhamra Port was first approved under an earlier policy which was not implemented.
Indian Railways moves 52% of the coal that is mined in the country—a share that’s expected to rise to 58% in 2016-17. India has a power generation capacity of 205,340.26 megawatts (MW), of which 56.7%, or 116,333.38 MW, is coal-based. The shortage of last-mile rail links has slowed the movement of coal from fields to consumption points such as power generation plants.
Abhaya Agarwal, partner, infrastructure advisory at Ernst and Young, welcomed the development, while pointing out that the success of the initiatives would depend on how well they are followed through to implementation.
“The role of the new participative model is high in generating this interest from the private sector,” Agarwal said. “Operationalizing this model, developing standard documents and getting all clearances in place will now be crucial.”
The renewed interest in railway projects has been enabled by the revamp of the participative policy model by Indian Railways, enabling partnerships with ports, large mines, industry and investors for rail connectivity and capacity augmentation.
The new policy was approved by the Cabinet Committee on Infrastructure in December 2012 and sought to address concerns of private investors such as ownership of the line and repayment on investment mainly through freight apportionment.
“The new policy has been favourably received by the industry. The railway ministry has been proactively approaching investors after it was formulated. Under this policy, construction has been made bankable and has triggered investor interest in railway projects,” said the official cited above.
The railways has given in-principle approval for Rs.3,087 crore of port connectivity projects that would ease traffic congestion.
These include Dhamra
(Rs.760 crore) and Astranga (Rs.700 crore) in Orissa; Dighi (Rs.360 crore) in Maharashtra and Palanpur-Samakhiali in Gujarat (Rs.1,267 crore), the official said.
“The railway board has given in-principle approval to four port connectivity projects already. The players can acquire land and begin construction. Dhamra port project is already under way,” the official said.
The ministry has also received proposals from ports such as Rewas (Maharashtra) and Jaigad (Maharashtra) for similar connectivity projects that could be worth more than Rs.900 crore, which will take the ministry closer to its full target of around Rs.3,800 crore for the segment, he said.
“The proposals include both private line models and joint venture models. We are actively looking at expediting the approvals,” the official added. Hazira port in Gujarat is also expected to send a proposal for rail-line connectivity.
Under coal mine connectivity projects, the ministry is considering a proposal by Adani Group for building a private line at the Parsa-Kanta coal mines in Chhattisgarh at a project cost of Rs.900 crore, the official told Mint. This will also be counted as a PPP project under the railways participative policy.
“From this year onwards, we will begin accounting for private investment that doesn’t come under PPP like small and long sidings etc.,” said the official cited above.
Some of the PPP projects were unveiled before the budget—the ministry had announced the award of projects worth Rs.1,200 crore in Chhattisgarh and Gujarat in February.
The ministry expects to raise Rs.4,000 crore from coal mine connectivity projects under PPP.
The official cited above listed a project by KSK Mahanadi in Chhattisgarh that involves private investment of around Rs.800 crore to connect the Gare Palma coal mines with KSK’s power plant.
Iron ore connectivity projects include a Rs.900 crore one at Kirandul mines in Karnataka to be funded by NMDC Ltd.
This “alone will take care of the (Rs.800 crore) investment estimate from iron ore connectivity projects”, the official said.
The project has been approved under the memorandum of understanding (MoU) signed by the Indian Railways and the ministry of steel. NMDC is expected to conduct a survey soon and the project should start this year, the official said.
Other projects include Karaikal port in Puducherry (Rs.400-450 crore) and one headed by Madras Cements Ltd along with two makers of the building material (Rs.100-150 crore) for last-mile connectivity in Andhra Pradesh.