Consultation with Industry on Public Private Partnership (PPP) Policy

In yet another landmark initiative undertaken by Ministry of Railways to attract private participation in various railway projects, an Interactive Workshop was held here today by the Railways with the representatives of Chambers of Commerce & Industry to obtain their feed back on a number of policy initiatives involving private participation which have recently been formulated. The formulation of the policies by Ministry of Railways comes up following the historical and unprecedented pre-budget interaction with trade and industry representatives held by Minister of Railways Mamata Banerjee on 6th Feb. this year. The historical February interaction saw Railway Minister and the entire Railway Board in a direct two-way dialogue with the captains of the trade and industry. Today’s workshop has been organized against the backdrop of Railway Minister’s ardent desire to involve all the stake-holders in an honest dialogue as an integral part of the formulation of major policy initiatives of Indian Railways.

In his address, Shri S.S.Khurana, Chairman, Railway Board recalled that the theme of the pre budget interaction of the Railway Minister was to underscore the fact that a range of exciting opportunities for public private partnership in the Railways exists and to tap these opportunities, focused attention was needed in two areas, namely structuring of projects and schemes to make them attractive and procedural simplification. Shri Khurana thanked the industry participants for their enthusiastic response and also highlighted the importance that the Ministry attaches to consultation process involving users and stake holders in formulating Private Participation initiatives so as to make them attractive and acceptable.

The workshop was attended by around 150 Industry delegates representing CII, FICCI, ASSOCHAM, Cement Manufacturers Association (CMA), Fertilizers Association of India, Society of India Automobile Manufacturers, Association of Container Operators, Federation of Indian Mineral Industry and National Highway Builders Federation. The top echelons of the Ministry of Railways including the Chairman, the Members of Railway Board and Dr.Amit Mitra, Chairman, of the Expert Committee participated in the workshop and responded to the comments and suggestions of the participants.

Several policy initiatives were announced in the Minister’s Budget speech following her pre-budget interaction in February 2010. Several of these initiatives have now crystalised into draft policies. Four such policies, viz., a New policy for port connectivity and other connectivity works (named New R3i policy-Railways’ Infrastructure for Industry Initiative), private freight terminal policy, special freight train operation scheme and policy on auto and ancillary hubs were recently uploaded on the Ministry’s website for consultation and the delegates had been invited in this workshop to provide their feedback on these policies so that their suggestions could be considered before their notification.

Salient features of these policies were presented and a number of useful suggestions to make the policies attractive and viable were received in the course of the interaction. This would help in giving finishing touch to the polices so that the final notified polices would be able to achieve their intended purpose of kindling adequate investor interest and speeding up the process of augmentation of terminal/line capacity and rolling stock.

A number of useful suggestions from the industry delegates were also received in respect of the polices/projects currently under consideration in the Ministry namely, construction of segments of DFC, newline/doubling and gauge conversion projects, connectivity projects to link coal and iron ore mines, setting up of bottling plants for clean drinking water, construction of multi-level parking complexes at stations and laying of Optic Fibre Cables.

Railways draft policy to encourage pvt investment

The railway ministry has launched a major initiative to encourage private investments in infrastructure projects. A detailed policy has been drafted in this regard.

A senior ministry official said, “Due to a resource crunch in the railways, we are looking at alternative sources of funding for developing infrastructure projects. We are going to hold discussions on the draft policies with the Chambers of Commerce and Industry on Saturday to gauge the response of private players on such initiatives.”

The draft policy deals with constructing railway tracks, developing private freight terminals, automobile and ancillary hubs and private operation of special freight trains on the network.

To increase rail share in freight traffic, for instance, the ministry has evolved a policy to build rail connectivity projects spanning over 20 km with private sector participation. The minimum rate of return for such projects has been determined at 14 per cent.

One of the models being considered is the ‘cost-sharing freight rebate scheme’ under which the private players will share the cost of developing the new line and get a discount of 10-12 per cent on incremental traffic transported on the network. Besides, new lines can also be constructed under ‘full contribution apportioned earning mode’, SPV model and private line model.

“In the full contribution model the private entity in the project will finance the building of the rail link, and in return receive apportioned earnings for a period of 25 years,” said the official.

To increase the modal share of railways in automobile transportation, the ministry had announced the setting up of 10 auto hubs at Santragachi, Shalimar, Siliguri, Ranchi, Guwahati, Patna and Hosur among other places last November. The proposed policy says railways will make surplus land available to private players on license for a period of three years, to be extended every year thereafter. The private party in turn will be responsible for setting up facilities on the land.

Another official said, “Private players can recover costs by charging automobile customers for the services at the hub. However, the hub has to be built and made operational within a year of handing over of the land otherwise the license will be made null.” The hubs will not only serve as centres for transport of auto traffic, but also house aggregation facilities and serve as distribution points to immediate catchment areas.

Railways expects to earn around Rs 1000 crore per annum from the automobile hubs, he added. At present less than two per cent of automobiles manufactured in the country are transported through the railways. The railway hopes to increase such traffic to 15 per cent by 2015-16.

Similarly, for freight traffic the railways plans to provide integrated logistics solutions by engaging private players in developing and operating freight terminals. The operators can use the terminals for 20 years. The licence can be extended by another 10 years.

The terminal management company (TMC) will have to pay freight charges to the railways but can charge for value-added services from customers. The TMC can handle the bookings and delivery for all commodities except outbound coal, coke and iron ore.

The draft policy also has a ‘special freight train operation’ scheme that would allow private operators to invest in wagons and use the railway network for a period of 20 years. They can charge consumers for the services they offer.

Private investment in railways projects were mooted to be around 19 per cent between 2007-12. Till date, only Rs 2000 crore has been reliased from the sector against a target of over Rs 50000 crore.

ACC looking at PPP model for railway wagons

Mumbai: India’s largest cement producer ACC Ltd wants to buy railway wagons and would like to have an arrangement with the railways to run them.

The proposal comes after a temporary shutdown of three of its plants in Jharkhand and Rajasthan in the quarter ended 31 March due to a shortage of wagons, managing director Sumit Banerjee told reporters after the company’s annual general meeting on Thursday.

“We expect these problems to remain at least this month,” Banerjee said. “There is no short-term solution to this problem, but if we can have a PPP (public private partnership) model in wagons, it can also help to increase investments in an area where there have been none for years.”

ACC already owns wagons that transport cement to its Kalamboli terminal in Navi Mumbai from its plant in Wadi in Karnataka.

Published in: on April 11, 2010 at 2:07 pm  Leave a Comment  
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Railways eye ppp for swanky stations

The humble railway stations of India, most unassuming and reflective of their grey colonial roots, are set for a scrub. The state-run Indian Railways will partner private companies to co-brand select stations, to start with, under a new “adopt-a-station” policy.

It will facilitate passengers to view their favourite programmes on Rail TV — an infotainment channel to be on offer in all key trains as well as stations. It will also offer a rail magazine for the avid reader on the lines of in-flight magazines and the icing on the cake will be a railway royalty card for frequent travellers on suburban trains — similar to frequent flier programme — to avail of special discounts at station outlets, or get bargain tickets.

These are part of Railway Minister Mamata Banerjee’s blueprint aimed at increasing non-core revenues of one of the world’s oldest and largest rail networks, through a public-private partnership (PPP). Its target: a whopping 10-fold increase in advertising revenues to over Rs 1,000 crore for 2010-11, from an estimated Rs 125 crore this financial year. A part of the new strategy is expected to be announced in the Railway Budget. A special department to focus on generating the non-core revenue is also being created.

The Railways have over 7,500 stations across the country. As many as 11,000 passenger trains and over 6,000 goods trains crisscross the nation every day, which sources say, “can be leveraged well for their advertising potential”. The non-core revenues constitute 3 per cent of Railways’ total projected revenue of Rs 90,626 crore for 2009-10. The advertising revenue target for this year was pegged at Rs 360 crore.

According to internal studies, the Railways have utilised only 8 per cent of their potential from non-core businesses. In contrast, the Delhi airport alone expects to earn around Rs 100 crore annually from advertising. Banerjee, who has appointed ad man Suhel Seth to put together a plan, has started work on centralising information on inventory (space) that the Railways have across the country under member (traffic). Currently, advertising space is sold in an ad hoc manner by station managers. There are five members — traffic, engineering, electrical, staff and mechanical — under the Railway chairman to look after the entire operations.

Once ready, the Railways will appoint the top three media buying houses to sell the space on its behalf.

Also, to ensure a company can track the impact of its advertisement on consumers and effectively market its products, the Railways will invite a research agency to create a Railways Measurement Index (like TRP for television) and work on a comprehensive demographic profiling at key stations — collecting details like age and profession, among others, of passengers.

Says Suhel Seth: “There are 17 million footfalls that the Railways get every day. We will leverage this footfall and convert it into revenue for them. The model will ensure that the Railways do not have to spend anything, but earn through a revenue-sharing model from the private sector.”

The Railways will put together a tourism board, too, which will focus on opportunities to enhance revenue from tourist destinations. The logic: Eighty per cent of the destinations presented in Incredible India! campaign can be accessed by a rail network and a comprehensive policy is needed with the tourism department to develop the reach. Also on the anvil is a plan to sell passenger data for marketing purposes.

Seth says they are looking at various modules of advertising. For instance, companies could adopt the entire station and use the space inside and outside of it to advertise. The pantry cars could be sponsored by an FMCG company in food business. Companies could also be given an offer to create a brand wrapper around a cargo train. Sampling of products like tea, biscuits and food items could be taken up in trains.

IR to take up innovative aproaches in advertising

In an important move to facilitate further exploration and formulation of innovative techniques for generating additional funds, Ministry of Railways has decided to induct a renowned specialist in advertising field, Shri Suhel Seth as a member of the existing Expert Committee on Railways, chaired by Dr. Amit Mitra, Secretary General FICCI, for providing new approaches in the area of advertising. Shri Suhel Seth will chair a Sub-Committee of the Expert Committee to provide new thinking and innovative approaches in the areas of advertising for generating significant additional quantum of resources by the Railways by appropriately leveraging railway infrastructure, beyond the current earnings from this source. The Expert Committee on Railways has been set up for developing business models and innovative funding through PPP instruments on Railways. The main objectives of the Expert Committee include developing structures that maximize the role of public-private partnerships (PPPs); Developing innovative funding techniques through Public Private Partnership (PPP) instruments; Identifying economically unviable, but socially desirable projects for implementing them through innovative funding; Initiating policies that would ensure time-bound creation of world class infrastructure delivering services matching international standards; and Monitoring progress of key infrastructure projects to ensure that established targets are realized.

‘Rail Business’ to fill knowledge gap

India’s railway sector — complete with government and private railway systems, their subsidiaries, vendors and customers — though quite large, is devoid of any publication devoted exclusively to discuss the issues relevant to the sector. There is one publication by the Railway Ministry. But as it happens in such publications, the focus is more on the ministers and the honchos in the ministry. The recent publication of Rail Business with focus almost entirely on the country’s railway sector, it is hoped, will fill the gap, more so because a retired General Manager of the Indian Railways, Mr V.K. Raina, is the driving force behind it.

The articles, some contributed by retired railway officials, many of them were Mr Raina’s colleagues, are interesting because they throw up some issues critical for the railways. For example, a retired Member (Traffic) has discussed the challenges ahead as the Indian Railways targets higher growth. The infrastructure expert of Ernst and Young has analysed the railway PPP model. A Tata Steel executive has written on logistics challenges facing a major steel plant. There is a piece on the legendary Karnail Singh who made a difference in the Railways. There are also articles on R&D, designs, wagons, locomotives, Duronto and environment issues, among others. We’ve no doubt the publication, if it maintains the standard, will click.

Published in: on January 24, 2010 at 2:03 pm  Leave a Comment  
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Reforms can increase industry participation in railway projects

Mumbai: Indian Railways, which runs one of the world’s largest rail networks, needs to implement a number of structural reforms to be able to draw more domestic and international participation in its projects, global audit firm Ernst and Young (E&Y) has said in a report.

Strategy change: Indian Railways constitutes an indispensable part of the logistics infrastructure, transporting at least 40% of the country’s land freight and 20% of domestic land passenger traffic. Rajkumar / Mint

In a study titled A Journey’s Chronicle: The Changing Landscape of Indian Railways, E&Y said state-owned Indian Railways requires an effective institutional framework and clarity on regulatory aspects when it considers participation of private firms in its projects.

“During the bidding process for the modernization process of New Delhi railway station, confusion arose as a result of the different model concession agreements presented by the Planning Commission and the Indian Railways,” E&Y said in the study released in July.

“Such situations increase the sector’s risk perception among investors. The Indian Railways’ policy should also clearly lay down the preferred strategy for all eventualities, such as single bids or conflicts of interest,” the report added.

Because of a controversy on the conflict of interest clause, the first tender was scrapped. The railway ministry floated a fresh tender for the project, which is still being processed.

Indian Railways constitutes an indispensable part of India’s logistics infrastructure, transporting at least 40% of the country’s land freight traffic and 20% of domestic land passenger traffic. It is the world’s fourth largest freight carrier, transporting at least 2 million tonnes of freight daily.

E&Y suggested the integration of partnerships by the private sector into the planning process by disaggregating the planned investment into sub-sectors and subsequently into projects. Systematic project preparation should follow, it said.

“As of now, there is no clarity on various railway projects,” said an executive with a Bangalore-based infrastructure company that is in talks with foreign firms to modernize the New Delhi railway station. “We are still keen on railway station modernization projects. That is going to the future. But lack of clarity in terms and conditions are discouraging us and our partners.” The official declined to be named.

A standard contractual framework, laid down after considerable debate and incorporating the feedback of all key stakeholders, is a key ingredient in successful implementation of private firms partnering the railways on various projects, E&Y said.

“A contractual structure of this nature should allocate risks to parties that are best placed to handle them and have an equitable risk-reward sharing framework. Such frameworks enable investors to evaluate risks and accordingly decide whether and how to participate in the bidding process for both current and future projects,” it said.

The absence of such an approach could result in roadblocks, as in the case of the New Delhi railway station project where 13 consortiums were disqualified from the bidding process due to cross-holdings. A well-defined contractual structure, however, would warrant high interest for the New Delhi station modernization project and the 49 other similar projects that are to follow, E&Y said.

Overall, India plans to develop 375 stations as model stations that will offer facilities such as drinking water, adequate toilets, catering services, waiting rooms, dormitories and better signage.

Another negative is employee productivity at Indian Railways, which is among the lowest in the world. As Indian Railways is the largest employer in the world, low productivity would impact the sector significantly, the firm said. Labour costs account for almost 45% of Indian Railways’ expenditure.

Spanning 63,273km, the Indian Railways network is the second largest rail system in the world under a single management and the fourth largest overall after the US, China and Russia.