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In a meeting between the Railway Board and investors last Saturday, around 45 to 50 companies with 100 delegates were present. Apart from the private investors, even railway Pubic Sector Undertakings (PSUs) like IRCON, RITES and RVNL were present during the meeting.
The railway expects to raise around Rs 5,000 crore from the investment in port connectivity projects over the next five years. To begin with , the railway expects investment worth Rs 3,800 crore from the private sector for six port connectivity projects, with the Cabinet approving the participative models of rail connectivity.
The port 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 project 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 railway 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% 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 required change in the participative models and expediting the decision-making process, the official said.
According to the private line model, 95% of the net apportioned revenue will be shared with the private party, after deducting the operation and maintenance costs. Earlier, 95% 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 other 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 of the first- and last-mile connectivity projects has removed the cap of 14% 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 definitely attract the private party also. Earlier, capping of the returns to 14% and minimum traffic guarantee by the private party being compulsory were big deterrents for private parties.”
In a customer-funded model, the railways will pay up to seven% 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 general exchequer at the time of signing the agreement. Earlier, the railways was giving a return of 10-12% 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 Cabinet decision has empowered the Ministry of Railways to execute specific projects by adopting appropriate models with the approval of the railway board in case of 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 down 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 with the basic framework of the policy.
