After he took over as railway minister, Nitish Kumar announced that Rail Bhavan was in the process of altering the build-operate-transfer scheme because it had failed to attract enough interest. The altered scheme would be announced soon, he said.
There are two reasons why the railways have not been able to announce the altered scheme so far. The problem with the current BOT scheme is related to the rate of return and the sharing of risks. Corporates feel the railways should offer more than 16 per cent return and bear the risk arising from operational hiccups in the railway system.
The railways are not keen on offering a fixed rate of return which is much higher than the cost of borrowings of the Indian Railway Finance Corporation. It is worried about falling into a debt trap because of increasing market borrowing (Rs 2,500 crore last year). In fact, its target was enhanced in mid-year from Rs 2,150 crore to Rs 2,500 crore and IRFC managed to meet the fresh target in 1997-98.
The overall economic slowdown, the reluctance in the private sector to make fresh long-term investments and the slide in its own freight business are the other reason why the railways are delaying the announcement of an amended BOT scheme.
The railway ministry has launched two projects on cost-sharing basis. One is with Gujarat Pipavav Port Ltd, a private sector port company and another with Steel Authority of India Ltd. This is a new trend that the railways are encouraging besides roping in the state governments of Maharashtra and Tamil Nadu for metropolitan transport projects in Mumbai and Chennai, respectively.
Gujarat Pipavav Port Ltd has agreed to participate in the funding of the Surendranagar-Bhavnagar-Dhola-Dhasa-Mahuva line project which will have an extension to the Pipavav port in Gujarat. The modalities of funding will be sorted out shortly, sources said. The railways have also taken up the Rs 369 crore Dalirajahara-Jagdalpur line project in collaboration with the steel ministry and the Madhya Pradesh government.
A memorandum of understanding between the three parties has been signed and the final location survey is in progress. The cost of setting up the line from Dalirajahara to Rowghat in Madhya Pradesh is being entirely borne by the steel ministry as it will be used to transport iron ore to SAIL's Bhillai Steel Plant. The steel ministry is also contributing Rs 75 crore in the remaining part of the project.
However, this investment will be adjusted in the form of freight concessions which the railways have agreed to extend to SAIL. On its part, the Madhya Pradesh government has offered land worth Rs 25 crore for the project.
The necessary clearances required for the Rs 337 crore Surendranagar-Bhavnagar-Pipavav line project in Gujarat had been obtained, Rail Bhavan sources said. The capital base and mode of financing are being structured by the Indian Railway Construction Co. The railway ministry has also begun the exercise of floating tenders for work at the project site.
The project will connect parts of Saurashtra that do not have sufficient coverage by the rail network and provide an outlet for moving goods in and out of the Pipavav port. The project involves not just connecting the port with parts of Saurashtra, it also includes setting up sidings within the port premises, sources said.
The line will also enable movement of goods from the port to other destinations like Delhi as they take off in different directions from Bhavnagar and Surendranagar, sources said. The railway ministry and the port company are in dialogue on the method of charging freight on goods carried to the Pipavav port. The port handles both bulk cargo and containers and is being expanded to increase capacity, sources said.
Market borrowings by IRFC flow into rolling stock, locomotives, coaches and wagons. Investors are assured of cash flows immediately after the commissioning of rolling stock.
All fixed assets of the railways are funded through a combination of budgetary support and internal resources. The only exceptions were the Konkan Railway Corporation, which raised funds from the market, and the proposed urban transport projects in Mumbai, Delhi and Chennai.
Rail Bhavan is not making investments in projects that do not promise suitable returns. The railway ministry has taken up a detailed exercise for scrapping a large number of projects that have been launched since 1994-95 without carrying out basic surveys and obtaining requisite clearances from different ministries and the Planning Commission.
