CCEA revises Railway's industrial land lease policy; lowers fee to 1.5%

Move likely to pave way for Concor's strategic sale

The Union Cabinet Committee on Economic Affairs (CCEA) has revised the long-term lease policy for the industrial use of the Railways’ land. The new policy will see the Railways’ land licensing fee coming down to 1.5 per cent, from the current 6 per cent (with a 7 per cent annual increase) of the market value of the land. The lease period has been extended to 35 years from five years now.

According to a government statement, the policy has been tweaked for a smoother implementation of the PM Gati Shakti National Master Plan framework. According to sector observers, the revised terms will also help facilitate the government’s strategic disinvestment in the Railways’ undertaking Container Corporation of India (Concor).

“Liberalising the land leasing policy would open avenues for all stakeholders/service providers/operators to establish more cargo-related facilities and render their participation, assisting in the generation of additional cargo traffic and freight revenues to the Railways," said the CCEA. There is currently no official information on the annual increment in the licensing fee.

The Centre, in November 2019, had approved privatisation of Concor but could not initiate its sale because of uncertainty on account of licensing fee that was earlier introduced by the Indian Railways. 

The land licensing fee changes every five years, and the new policy shall now provide clarity to the incoming buyer of Concor for the next 35 years, an official said. The move will also provide clarity and certainty on land, as the company’s business is dependent on that, he added.

This, in turn, will make the financials of the company transparent for interested parties. Once the policy is notified, the Department of Investment and Public Asset Management (DIPAM) will initiate the process and start preparing the expression of interest (EoI) document for Concor’s privatisation.

The sale of the government’s 30.8 per cent stake -- along with management control -- of its total 54.80 per cent may fetch the Centre over Rs 13,630 crore, based on the closing price of Concor’s shares on Wednesday.

The fine print

• Railway land industrial-use fee slashed to 1.5% of the land’s market value from 6% now
• Lease period extended to 35 years from five years at present
• Move to give fillip to implementation of PM Gati Shakti
• Entities using railway land for cargo facilities can opt for new policy after competitive bidding
• Concor stake sale may fetch govt over Rs 13,000 crore

Concor currently has 61 container depots, of which 26 are on Railway land, leased on a per container licence fee basis.

The NITI Aayog had previously recommended that the Railway land leasing fee for containers should be kept below 3 per cent. According to sources, the high industrial-use land lease rate was a major obstacle in the Centre's attempted divestment of Concor.

“With the new policy approved now, a lot of private sector concerns are likely to be allayed,” a Mumbai-based sector expert said.  
 

Meanwhile, the existing entities using the Railways’ land for cargo terminals will have the option to switch to the new policy regime after a transparent and competitive bidding process, said officials at the Railways ministry, adding that the policy shall be framed and implemented within 90 days.

The analyst quoted above added that the move is likely to have an overarching positive impact on the sector, as both Concor and private container train operators will see a significant slashing of lease rental costs.

The Centre is also expecting the new land-use policy to give a fillip to multimodal integration under the PM-Gati Shakti, aimed at reducing logistics costs. “As many as 300 PM-Gati Shakti Cargo Terminals would be developed over the next five years and around 120,000 jobs would be generated,” said a source at the Railways ministry.

After surging over 14 per cent intraday, the Concor stock ended the day’s trade with a gain of 8.6 per cent. The sharp rise in the stock was amid reports of a lower licence fee for the company that dominates the Railways’ container freight market. The policy was announced after market hours.

Concor is currently paying 6 per cent of market value of land per annum as licence fee and the annual outgo for FY23 is pegged between Rs 300 crore and Rs 400 crore.

(with inputs from Ram Prasad Sahu)