Public-private partnerships to fuel future growth of Indian Railways

The Railway Budget has laid emphasis on Public Private Partnerships (PPP) to implement initiatives such as rail connectivity for ports, station-redevelopment, rail-side logistics parks and warehousing as well as satellite terminals.

A committee appointed for the purpose of revamping the ministry’s PPP cell has submitted its report and the initiative is “under implementation,” Railway Minister Suresh Prabhu said. The cell will be strengthened as part of organisational restructuring process to improve ease of doing business with the Indian Railways, he said.

The capital expenditure for the next financial year, pegged at Rs.1.21 lakh crore, calls for abandoning the “business-as-usual approach” and continually innovating to develop new frameworks for PPP,” Prabhu said.

Abhaya Agarwal, partner and PPP leader, EY, however, said relying heavily on PPP at present may be a wrong approach as many infrastructure developers had taken on too much debt.

“We’ll have to wait for 2-3 years for the market to revive and for PPPs to take off,” Mr. Agarwal said.

Foreign investors from Spain and France were keen on dedicated freight corridors (DFC) projects provided they were structured properly in terms of financial returns and risk-allocation and mitigation, he said. Land acquisition for dedicated freight corridors could take a long time.

Jaijit Bhattacharya, partner (infrastructure and government services), KPMG in India, said “failure of PPP to deliver large infra projects was mainly due to inappropriate structuring of the concession agreement, which was heavily loaded against the concessionaire (developer).” Several Indian banks are stressed due to bad loans, he said and the February 29 Union Budget needs to take steps to de-stress banks and help them facilitate funding of large infrastructure projects.

Bhattacharya said since most PPP projects are big in nature it would keep out several capable small and medium players. The government should ensure a fair and transparent system to ensure opportunities are given to relatively unknown players too, he said.

The railway minister said his ministry would take up dedicated freight corridors and implement it in a time-bound manner through innovative financing mechanisms, including PPP.

The corridors will to cater to rapid expansion of freight business, Prabhu said. Most contracts for civil engineering works regarding the DFCs will be awarded by this March-end.

Port connectivity was important for seamless logistics to boost imports and exports, he said, and as a part of the ongoing coastal connectivity program, the government plans to undertake implementation of rail connectivity for the ports of Nargol and Hazira under the PPP model during the next financial year.

Referring to the Cabinet approval for redevelopment of 400 stations through PPP, Prabhu said on the basis of a bankable structure for private participation, the government will undertake a bidding process for a few large and medium stations during the next financial year. The government is also considering availing multilateral financial investments for the development of certain other stations and partnering with states.

As inadequate warehousing and transportation facilities have kept potential customers away from the railways, Prabhu proposed to develop rail-side logistics parks and warehousing to complete the transportation chain.

These logistic parks and warehouses would be created through public-private partnership model mode to bring the required efficiency and investment, as well as to attract greater traffic to the railways, he said.

Around 10 goods sheds will be developed by the Transport Logistics Company of India in 2016-17, he said, adding that the focus will be on providing last mile connectivity for freight business and significant reduction in logistic costs. More satellite terminals, to de-congest terminals in big cities, are being planned in PPP mode, Prabhu said. Also, the Rail Ministry will invite FM Radio stations to provide entertainment.