Indian Railways’ initiative to ease infrastructure bottlenecks by connecting inland cargo lines and ports through public-private-partnership (PPP) projects has run into rough weather for many operators.
Companies were set up as special purpose vehicles (SPVs) to implement the projects after the policy came up in early 2000. But firms that overestimated traffic projections are now facing difficult times.
The blueprint of the projects makes it interesting only for parties with strategic interests to participate in the PPPs. Strategic partners are those who would want to use the infrastructure to transport cargo — such as the ministry of railways, the ports or state governments and their entities.
The PPP model adopted by the railways in port connectivity does not enthuse investors, as there is a cap of 14 per cent on the rate of returns they can get. (STUCK IN LIMBO)
Nor have interest rates helped encourage participation. “The rates have been rising since early March 2010 and ideally the rate of return should have been at least linked to the cost of money,” said a railway official. More, projects facing time and cost overruns cannot qualify for viability gap funding (VGF), making it unexciting for operators. Under VGF, the government funds a part of the project, to attract operators. “The railway ministry’s PPP guidelines in port connectivity projects do not follow the PPP guidelines of the ministry of finance, which offers VGF,” said a railway official.
On ground
The projects in Pipavav, Kutch and Hassan-Mangalore are fully operational. Kutch Railway Company Ltd (KRCL) serves the Kandla and Mundra ports, the fastest growing in Gujarat. KRCL is an SPV formed by Rail Vikas Nigam Ltd, the Gujarat government, the Kandla Port Trust and Gujarat Adani Port Ltd. KRCL had a loading of 23.2 million tonnes in 2010-11 and an operating ratio (percentage of expenditure out of internal earnings) of 51 per cent.
A senior railway official said: “The Kutch, Pipavav and Bharuch ports are primarily catering to imported coal for thermal power generation, fertilisers and so on, which are relatively insulated from market turbulence. There is a strong likelihood that these ports will do well in the near future.”
Another operational SPV is Pipavav Rail Corporation Ltd (PRCL), formed by Gujarat Pipavav Port Ltd and the Railways. Gujarat Pipavav made a traffic guarantee of three mt to the corporation from the third year of operations, 2003-04.
The parent was to pay a penalty if the promised traffic did not arrive. At least three mt of traffic was promised from 2005-06, which PRCL met only in 2009-10. PRCL has received as penalty Rs 105 crore, helping it survive.
The company still complains of high operation and maintenance charges and backlog in payment of dues from the railways, said an official.
The Angul-Sukinda PPP in Orissa has experienced cost and time overruns, and is struggling with hurdles such as land acquisitions. Haridaspur-Paradeep is also grappling with land acquisition problems. The projects in Orissa had linked profitability to traffic from steel plants that were to come up in the vicinity.
Other issues
Poor road connectivity has compounded logistic problems. The Bharuch-Dahej rail line in Gujarat was planned to cater to the upcoming port at Dahej, around which will come the Petroleum, Chemical and Petrochemical Investment Region and a Special Economic Zone. But there aren’t enough units to generate the projected traffic of five mt.
On the other hand, the Hassan-Mangalore line in Karnataka and the Obulavaripalle-Krishnapatnam line in Andhra Pradesh cannot complain of lack of traffic. But the projects have been hit by another hurdle, the ban on mining by the Supreme Court.
A railway official said: “The initial expectations of traffic were based on export of iron ore. At the time the projections were made, lots of iron ore was exported to China. It was expected the traffic will increase in the coming years.”
The SPVs made to implement these projects do not have any grouse at the railways’ handling of the operations on these lines. But, some of the SPVs are demanding that the responsibility of maintaining the newly built infrastructure, such as tracks and fixed installations, be transferred to them. Their contention is that this will bring cheaper labour. The railways are willing to consider such an arrangement, whereby it inspects the facilities to ensure safety of passengers using these lines.
A senior railway official said: “The railways are brainstorming to bring changes to the PPP model. Yet, with all government bodies being under the Comptroller and Auditor General’s radar, officials in the ministry tend to adopt defensive strategies.” Making the policies too liberal and favouring private parties can be counterproductive because the ministry is under constant scrutiny.
