Fresh interest in rail PPP projects

Last Updated: Wed, Feb 13, 2013 06:25 hrs

With the railways showing a renewed focus on private partnership, Jindal, Adani and a consortium of cement companies (UltraTech, Prism and Madras Cement) have shown interest in port connectivity projects.

In a meeting between the Railway Board and investors on Saturday, around 50 companies with 100 delegates were present. Apart from private investors, railway public sector undertakings such as Ircon, Rites and Rail Vikas Nigam Ltd were present.

The railways expect to raise around Rs 5,000 crore from investment in port connectivity over the next five years. To begin with, they expect investment worth Rs 3,800 crore from the private sector for six projects, with the cabinet approving the participative models of rail connectivity.

The projects approved by the Cabinet are Dighi (50 km), Rewas (23.9 km), Jaigarh (35 km), Dhamra (64 km), Astaranga (80 km) and Hazira (47 km). While there was no set policy for port connectivity projects undertaken through private investment earlier in Kutch and Pipavav, the models approved for first-mile and last-mile connectivity now are private line, joint venture, customer-funded, and build, operate and transfer (BOT) projects.

A senior railways ministry official told Business Standard: "With the agreements for five models in the policy getting ready in another two to three months, we expect to achieve around 75 per cent of the Rs 5,000-crore target from port connectivity projects in the 12th Plan. In addition, we are hopeful of attracting more private investments, as stakeholders have been kept in the loop during the process of formation of this policy."

The railways have tried to address the bottlenecks in the earlier Railways' Infrastructure for Industry Initiative (R3i) policy from two angles - bringing a required change in participative models and expediting decision-making, the official said.

According to the private line model, 95 per cent of the net apportioned revenue will be shared with the private party, after deducting the operation and maintenance costs. Earlier, 95 per cent was shared over the gross revenue. There would be no takeover of private infrastructure by the railways, according to the new model.

"We did not get much response from the earlier PPP (public-private partnership) policy and although there was response from strategic investors like ports, they had no option," said an official.

However, the railways found it tough to attract investments in joint ventures and customer-funded models, as these models had bankability issues --lenders had questioned the revenue stream of projects under these models.

The new joint venture model for first- and last-mile connectivity has removed the cap of a 14 per cent rate of return on investment.

"With the minimum concession period of 25 years, extendable up to 35 years, it is expected that banks will be comfortable in lending money to these projects, such as new line and gauge conversion," said the official. "The surety of revenue stream will also definitely attract the private party. Earlier, capping of the returns to 14 per cent and minimum traffic guarantee by the private party being compulsory were big deterrents for the latter."

In a customer-funded model, the railways will pay up to seven per cent of the amount invested through freight rebates till the project beneficiary recovers the investment with interest, at a rate equal to the prevailing rate of dividend payable by the railways to the general exchequer at the time of signing the agreement. Earlier, the railways were giving a return of 10-12 per cent only on incremental outward traffic.

The ministry has also addressed the concern on expediting the decision-making process, so that it does not need to approach the cabinet for approval of minor changes in the policy. The railways ministry is now empowered to take specific projects by adopting appropriate models with the approval of the railway board in case of a non-government private model, connectivity funded by user investment and joint venture of sanctioned projects.

As the private party concerned will be investing, the approval of the railway board will suffice to cut the long process of approvals by the minister or the cabinet, according to an official.

The ministry will also set up an empowered committee under the railway board chairman, to address case-by-case concerns of the projects. It will be authorised to tinker with specific issues, without altering the basic policy framework.

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