New PPP model COT (Complete,
Operate and Transfer) for IR
Uday
Shankar Jha
As Prime Minister Narendra Modi said the Indian Railways is in such piquant
situation that it is not in a position to meet the increasing need of Indian
people for passenger and freight traffic. People do not get confirmed tickets and
the have to travel on roof or in general class. In freight segment business community
do not find the IR service as reliable and easily available. They have to shift
to the roadways to avail timely and easy service, despite being very costly.
The IR has not made any substantial capacity addition after independence. Nor
it has any successful model of attracting investment to meet the increasing
demand even under PPP. As per the budget
declaration of 2014-15, in the last 30 years, 676 projects were sanctioned
worth ` 157883 crores. Out of which only 317 projects have been completed. Remaining
359 projects need ` 182000 crores at one go. However in present scenario this is not a
distinct possibility. As announced by the Railway Minister in the Parliament,
for the completion of such projects fund to the tune of ` 50,000 crores per year is required for the next 10 years. Thus, one
can see that there is a huge gap between what is available as surplus and what
is actually required.
As these projects are as old as
30-40 years initiated long back and a substantial expenditure has already been done with no proper results as such projects are not completed to
the last mile. Hence no benefit can be taken out of these projects. Besides, IR has blocked huge fund with no outcome.
Most of these projects have been started in the economically backwards areas
for social welfare. Whatever the official stand of IR regarding ROR be, it is
quite probable that many of these projects either have very low or negative ROR
for initial few years till some big industries are established in those areas
and starts transporting their raw material or finished products thus generating
freight traffic. Furthermore, there are many projects which have been initiated
with some political motives and compulsion like a branch line in isolated
section where no through traffic is plying. Hence IR need to prioritize the project which it wants to be completed on
priority and to leave the project to be completed by the state government or any other agencies like defense etc. who can fulfill their
development targets.
The IR is facing an acute financial crisis particularly after
2011-12 and the internal fund generation is decreasing substantially. In near future IR would not be in a position
to finance high priority projects. In such situation, IR will need to develop
some model for financing high value return project through unconventional
means.
As a public policy, IR like any other government agency has accepted
PPP after 2000. However the experience
till now indicates that PPP is not a successful model for project
implementation. Till now there are only four projects which have been successfully
implemented (see annexure I) whereas there are only three projects which are under implementation (see
annexure II) and twelve projects under pipeline (see annexure III). It would be
interesting to know why so poor response of the private sector towards the IR.
Whereas in other sector like Highways, Ports and Shipping there have been warm
responses. In the IR there are serious short comings in the model agreement
itself. The private players severely complain about one sided nature of the
terms and condition of the agreement which have been designed favoring Railways.
There are clauses in the main agreement and concession agreement which are
contradictory and conflicting in nature. These clauses are selectively utilized
for the disadvantages of the investor.
In such situation, the private players are not coming forward to
become a partner with Railways. And some
of the private players which have ventured in the Railways have experienced the
loss very badly as they were not able to make meaningful profit. Due to this situation,
IR has failed to draw attention to the private parties. Hence it is a high time
that IR review its PPP model in detail.
Normally in PPP, the private sector brings necessary finance to
build the project under take design and construction and also operation and
maintenance for some profit through collection of user charges, levies of toll
as per agreed principle. The government may also provide VGF (Viability Gap
Funding) scheme or annual charge depending upon the terms and condition. There
are various models of PPP like BOT, BLT, DBFOT, OMT, BOO, annuity based BOT etc.
What ails PPP in Railways?
Among several other reasons, one of the prime
reasons is inaccurate preparation of estimation as well as ROR calculation of
any ensuing projects. Despite very strict guidelines while preparing the
project the expenditure on any new project is shown comparatively less and many
allied activities which are essentially part of main activities are shown
separate and unrelated. In the real sense
such activities are essential for successful and meaningful completion of
works. At the same time the ROR is highly inflated and shown much higher by
taking only positive figure. In reality
the situation in the market is not always in the favor of IR and even the road
sector is giving tough competition. Further there is always a phase of boom and
sluggishness in the market and the capitalistic economy works on fluctuation
i.e. up and down of the economy. It is quite possible
year together the economy may remain sluggish either in a particular country,
sector, region etc. And the related transportation may not pick up as projected
in the justification of the project. Thirdly, the financial background of the
investing company is equally important in the initial year particularly if the
response of market may not be very encouraging. If the transport sector has not responded
positively as the given traffic may not materialize in such situation, investor
may not positively gain and would have to lose profit for so many years. In
such situation, if financial position of the company is sound and robust then
it can bear the losses relatively in easy manner for the years together.
Otherwise the company may become bankrupt, as seen in the case of Pipavav Rail Corporation
Limited (PRCL) in Gujarat. On the other hand, the project of Kutch Rail
Corporation (KRCL) becomes successful because it was capturing the profits of
two ports viz. Kandla and Mundra Ports. Further there was one of the new
emerging port was Mundra Port where new traffic were being generated. Since
Adani was one of the participating companies of KRCL, so it becomes very handy
for the prosperous growth of KRCL. Furthermore, it may be noted that out of 4
successful PPP projects, three are located in Gujarat i.e. Suredra Nagar to
Pipavaa by PRCL, Palanpur to Gandhidham connecting Mundra and Kandla port by
KRCL and Bharuch to Dahej port by Bharuch Dahej Rail Corporation Limited (BDRCL)
are located in Gujarat which is otherwise known as investor friendly state with
positive attitude for private investment. Despite Railway being the department
of GOI the acceptability of PPP project has been much easier here than in other
states.
In such situation COT model can prove to be a boon for the IR as this
model may be very attractive for the private investor to venture in the
partially completed projects. Here an attempt has been made to evaluate some
sample projects of IR which can be taken under COT (Complete, Operate and
Transfer). Private players may be asked to complete the partially or incomplete
portion of the project and to make the entire project fully functional so that
all the stated benefits are actually derived after the completion. In absence of such completion, it would not be
possible to get clear cut benefits. It should be the responsibility of the IR
to share the benefits with the party so that they get their investment back as
well as moderate return out of their investment.
As an experimental case, the IR should initially identify such
projects case by case and offer for EOI (Expression of Interest). In
this, different parties should be called and given an opportunity to understand
the present status of the project including complete and incomplete portion of
the project, the probable liability and responsibility, available projected
opportunity, likely goods and passenger traffic, apportioned earnings for
running such traffic etc. The company should be asked to present their profit
sharing model which should include both investment and expected profit. They
should also clearly define the different penal provisions for delayed
implementation, incomplete implementation or any other accidental activities.
Once IR gets the EOI, then a committee nominated by Railway Board may
evaluate the whole project and may define terms and condition of model agreement.
On the basis of this, the tender would be invited and would be given to the
best suited, eligible party for completing the project in a minimum time, with
maximum investment and maximum share to the
IR. An additional percentage of profit sharing may
be given for early completion of the project to the party. Such project should be awarded
to the party on the principle of allocation of tender for which terms and
condition may jointly be framed after calling EOI.
There are several sections in IR which are highly congested and
different trains particularly the money earning freight trains have to wait
hours together for path. In such section no meaningful investment has been done
to remove the bottlenecks and to complete the projects early. In absence of
such investment, the IR is suffering huge detention of locomotives, loaded
freight trains and empty wagon rakes along with crew (loco pilot, Assistant
Loco pilot and guard) etc. This group has identified
the priority area of increasing the speed of goods trains. Despite proclamation
of average speed of BG 25 KMPH; the latest FOIS figure indicates that the
average speed is 18 KMPH only. It is very significant to increase the average
speed of good train as this will reduce the time of turnaround making an
additional gain of extra rake and loco. Hence the team has taken the sample
case of such incomplete projects by which the speed of goods train can be
increased. To validate the argument the
group has selected two projects as a sample case in which the IR is likely to
gain substantially in day to day operations.
The first case taken under the study is “Provision of third line between ADI and VATVA”. The project was
identified for completion in the year 2012-13 with an expenditure of ` 34 crores. However, the fund allocated was only ` 1 crore which is mere a notional allocation and no meaningful work
started. Presently, there is a Diesel Shed and a Goods yard at Vatva. Every day
there are 90 goods train and 20 light engines which ply in this section
normally taking more than 1 hour 15 minutes to traverse the distance of 7 km
only. If a third line is constructed
then it would take approx. 37 minutes to cover the section. Thus, a gain of 38 minutes to 90 loaded and
empty trains are likely to take place. The total time saving for freight trains
would be 3420 minutes i.e. 57 hours for one train and loco detention saving
would be 740 minutes i.e. 12.33 hrs. This
is a substantial saving. Hence this group feels that IR should opt for this
innovative mode of financing to invest the entire amount in one year and
complete the project by offering the project under COT.
Similarly, another project taken under consideration is “Gauge Conversion of Miya Gaon and Samlaya
via Dabhoi”. This work was identified in the year 2011-12
with a cost of ` 438 crores. However till
March’14, only 7 crores have been spent and another 1 crore has been allotted
in 2014-15. In view of such meager
allocation, this project is not likely to be completed in another decade at
this rate. Presently approximately 40 goods train has to wait in Vadodara yard
for average one hour for want of path. If this line is converted, then all the
trains are likely to gain and a saving of 1 hour in each case would be made despite
the fact that 15 trains have to cover 22.75 km extra. The net gain of saving
out of this conversion could be identified as 40 hours of locomotive and 40hrs of
full goods rake in addition to clear path to 120 mail express and passenger
trains. Hence this is another fit case for COT.
The benefits of COT scheme would be many. The IR will get an
opportunity of early completion of high yielding projects. This will give a substantial
boast in terms of additional capacity leading to higher freight loading, and transportation of freight and passenger traffic.
Further, IR will get a reliable service partner who can remain for a long time with
IR as here the project would become a WIN-WIN situation for both the party.
Furthermore in this, the terms and condition for PPP would be based on level
playing field where both partner would play on equal terms where no partner can
dominate over other. Particularly the
complain of the government dominance
over public private partner would not be there and at the same time private
partner would not be able to short charge government
badly.
Such PPP model would give an opportunity for the growth of various
private players who can come forward to become partners with IR or government
for different government infrastructure projects. This would also help in capacity
creation as the systemization of the contract for PPP would provide an
opportunity of growth of niche in market which is waiting for a right
opportunity and right terms and condition to operate in a market. Presently
many companies shy away to interact with the IR, as the rules are very
complicated and one sided. Henceforth, there would be no such complaints. If
this model becomes successful it will give boast to GDP of nation. Presently
the logistic cost of India is 13% against 4% in developed world. This is
primarily due to bottleneck condition in infrastructure activities i.e. rail
and road transportation, power etc. Once with this model if the problem is
solved the stunting nature of infrastructure would also be removed leading to the
robust growth in infrastructure.
To conclude, as Prime Minister Narendra Modi said instead of 3P
(PPP) the IR needs 4P. Now it is People Public Private Partnership in which the
role of people is equally important to decide the future progress as they are
the ultimate users, that is the way in which the IR should also pursue to get
the proper benefit of PPP.
Annexure-I
PPP implemented
1 Surendra Nagar
- Pipava Rail connectivity project 373 Mar-03
2 Hassan - Manglore
port connectivity project 293 May-06
3 Gandhidham -
Palanpur port connectivity project 500 Nov-06
4 Bharauch -
Dahej 395 Mar-12
Total - Ministry of Railways (4 Railway Projects)
1,561 Crores
Annexure-II
PPP under implementation
1 Haridaspur -
Paradeep port connectivity (New Line) 1,186 Dec-07
2 Obulavaripalle
- Krishnapattam (New Line) 1,203 Nov-07
3 Anugul -
Sukinda 1,052 May-10
Total - Ministry of Railways (3 Railway Projects)
3,441 Crores
Annexure-III
PPP under pipelines
1 Elevated Rail
Corridor in Mumbai (Churchgate - Virar) 20,000
2. Redevelopment
of Stations at 8 locations (Mumbai CST, Bijwasan, New
Delhi,
Chandigarh, Habib Ganj, Anand Vihar, Mumbai Central and Pune
(Shivaji Nagar) 7,500
3 Sonenagar -
Dankuni Dedicated Freight Corridor project 1,700
4 Other Port
Connectivity projects at 10 locations 5,000
5 Logistics Park
at 8 locations JNPT, Sanand, Rewari, Dadri, Manesar- Bawal, Pithampur (Indore),
Karla (Nasik, Pune), Dholera 7,000
6 Loco and coach
manufacturing unit, Madhepura 2,500
7 Loco and coach
manufacturing unit, Marhowra 2,050
8 Loco and coach
manufacturing unit, Palakaad 550
9 Captive Power
Generation by Windmills 1,800
10 Captive
transmission lines for wheeling power 1,000
11 Energy
conservation projects 1,000
12 Captive Power
Generation, Adra power plant 8,000
Total - Ministry of Railways (12 Projects) 58,100
Crores
