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Government inches closer to leasing out 100 train routes to private players

The proposal is set to be taken up at this month’s sitting of the government’s Public Private Partnership Appraisal Committee (PPPAC) scheduled next week.

Written by Avishek G Dastidar | New Delhi | Updated: December 13, 2019 8:32:18 am
Indian Railways, private players in Railways, long train routes in India, Piyush goyal, private train operators, liberalisation of indian railways, private players indian railways, indian express Sources said the biggest point of contention is the amount Railways would charge private operators as “haulage charge” or track-access charge.

The government has inched closer to inviting investments worth about Rs 22,500 crore in rolling stock as part of its plan to lease out at least 100 train routes to private players to run 150 passenger trains. The proposal is set to be taken up at this month’s sitting of the government’s Public Private Partnership Appraisal Committee (PPPAC) scheduled next week.

After the intervention of the Empowered Group of Secretaries headed by NITI CEO Amitabh Kant, the Railway Board was able to finalise the proposal after processing multiple views on how to bring in private investment in passenger operations.

Sources said the biggest point of contention is the amount Railways would charge private operators as “haulage charge” or track-access charge. While one section of policymakers is learnt to have favoured keeping the haulage charge low in order to make the business model attractive, another section has internally expressed that this might not be in the best interests of Railways financially.

Explained

A natural policy shift

Just like sectors like aviation and telecom, the entry of private players in passenger train operations was inevitable. This government has finally taken up the project with seriousness. Once Dedicated Freight Corridors become operational in 2021, around 70 per cent of the freight traffic would shift, freeing up capacity in the conventional rail network. With the government looking at private capital to supplement its long-term infrastructure building exercise, bringing in private companies for future demand and modernisation is seen as a natural policy shift.

Though India’s first “private train”, the IRCTC-run Tejas Express, enjoys certain concessions, this is because it is a government enterprise and part of trial for a new business model, a section of policymakers has said in internal deliberations. Officials warning of Railway finances say the same arrangement cannot be offered to private players. Since Railways maintains its books through what is known as the fully-distributed cost accounting system, getting an exact cost of running trains is problematic, sources said.

The private companies will bid based on their Gross Revenue Share (fare and non-fare) — or the amount of revenue they will share with the Railways — over and above the haulage charges they pay.

As per the current proposal, the haulage charges will include the cost of using railway terminals, the traction cost (electricity), physical transportation of the train, track maintenance, signalling and overheads at the rate of about 25 per cent. Sources said there have been deliberations on whether this rate is appropriate from a business model point of view. The private players would be able to transport parcels as well on their trains and decide their own fares and stoppages.

The plan envisages that train routes would be given out for about 35 years to the qualifying players, each of whom has to have net worth of at least Rs 450 crore and business or investments in railway infrastructure worth around Rs 2,700 crore in the past five years. In terms of the number of rakes, 150 trains represent just about 5 per cent of total Railway passenger operation capacity.

The Railways is expecting the bidders to include tour operators, companies working in the rail sector, travel firms, rolling stock companies as well as airline operators. Each will be allowed to bid for at least 12 trains and a maximum of 30, so as to ensure competition. Each private train is to be made of at least 16 world-class standard coaches. The firms could lease the rolling stock if they don’t own it.

The figure of Rs 22,500 crore for investment has been extrapolated from the tentative cost of high-end coaches globally.

The Railways is calculating that once Dedicated Freight Corridors become operational in 2021, around 70 per cent of the freight traffic would shift, freeing up a lot of capacity in the conventional rail network, and that private players will bring in the investment to introduce trains with higher speeds to cater to the demand.

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