After CAG rap, railways take PPP policy back to drawing board

To boost private participation, Indian Railways is gearing up to streamline its public-private partnership (PPP) policy. The national transporter is in the final stages of giving shape to model concession agreements under the various models identified under the participative models for Rail Connectivity Policy of 2012.

The model concession agreements framed for various models like build-operate-transfer, non-government railways and joint ventures among others will focus on easier processes by reducing the number of clearances, inspection required, longer lease periods and flexibility in haulage charges to attract private sector investments, said a senior Railway Board official on condition of anonymity. Three draft concessions agreement are ready for discussion.

In a report tabled in Parliament last week, the Comptroller and Auditor General (CAG) of India had criticised the Railways for lack of coherent policy and absence of any model concession agreement. It also said the Railways had refused to accept the Planning Commission's model.

The Railways had earlier refused to follow the model concession agreement suggested by the Planning Commission, calling it “generic” in nature, which would have been incapable to meet the specific needs of the diverse Railway projects, said the official.

Responding to the criticism levelled by CAG for no uniformity in the concession periods, incomplete shareholder agreements, etc., senior Railway officials argued different projects required “dynamic” approach for taking decision on concession periods and called the past few years a “learning trajectory for Railways” .

Planning Commission officials said the Railways has time and again proved to be a “closed” organisation and had not sought any opinion on its latest exercise of framing the model concession agreements, despite having no good track record of dealing with PPP.

“PPP has become a concept where everyone wants to do his own little thing. The Planning Commission has framed the model concession agreements for a lot of specific projects also after consulting all stakeholders. We could have done the same thing for the Railways. The case by case approach of Railways leaves room for arbitrary decisions and creates ambiguity for private players,” said a senior official of the Planning Commission, who did not want to be named.

The Railways expects to come up with model concession agreements for all the four models identified in the 2012 policy within the next six months.

The key concern of the private sector has been no standardisation of the concessionaire and unclear commercial structure. Other issues include low returns on investment because of shorter concession periods and high haulage charges, said an industry expert who did not want to be named.

Others say most private players invest in port connectivity projects because of the absence of any alternatives, not because the project offers and clear investment returns. Last-mile rail connectivity for medium and small private ports has been a key concern for port owners.

The Railways has to be clear in its objective, on whether it wants to bring in efficiency by associating with private players or whether they are merely seeking an alternative source of funding. Clear reasons for getting private investments will help identify clear project gains, said  Abhaya Agarwal, partner, infrastructure and PPP, EY

The Railways has a target of getting Rs 6,000 crore for 2014-15 through the PPP route. Since 2000, it has done eight PPP projects in new lines and gauge conversion worth Rs 3,380 crore.