Viability key to FDI in railway projects

Ports, mining likely to see first investment under revised policy; interest also in high speed project

With the track cleared for foreign investment in construction of new railway lines, gauge conversion, doubling and other public-private partnership (PPP) projects in maintenance, the first flush of capital is likely to come in port and mine connectivity.

Operations would be partially opened to foreign entities in dedicated freight lines, high-speed trains and  connectivity projects under the PPP model, said an official. A lot would, however, depend on the fare structure, on which the Railway Board is to have the final say. The move comes with a rider. The ministry of home affairs has cautioned against Chinese investment in border rail projects. All FDI proposals will otherwise be cleared under the automatic route, without needing approval from the Foreign Investment Promotion Board.

Though the policy, notified by the railways ministry in 2012, permitted foreign entities to participate, the Industries Act, along with the consolidated FDI policy effective from April 2013, prohibited any foreign investment in railways. The current executive order of the government will remove the policy anomaly.

Apart from capacity augmentation, last-mile connectivity projects to ports and mines will benefit. FDI would come under the various models identified under the December 2012 policy of the railways. Up to hundred per cent FDI will be permitted under the non-government, build-operate-transfer models. Capacity augmentation projects like doubling and gauge conversion would also be allowed to attract investment up to 100 per cent.

FDI projects under the joint venture route will have a ceiling of 74 per cent.

Arvind Mahajan, head of infrastructure and government services, KPMG in India, said, "With high operating ratio, and reliance on budgetary support, the railways have under-invested over several years on capital expenditure. Modernisation & expansion to catch up to India's needs requires huge investment, which the railways can't meet on their own. Private sector participation, including FDI, is essential in this context. The liberalisation of FDI is therefore a welcome move."

In his maiden budget, Railways Minister Sadananda Gowda laid emphasis on private sector investment, including foreign funding. With a backlog of pending projects, the cash-short railways have an ambitious plan of attracting Rs 1 lakh crore in the 12th Plan period ending March 2017. In the first two years, though, it had generated about Rs 3,000 crore only.

The much-talked high-speed rail project is likely to be funded by Japan International Cooperation Agency or the World Bank. After getting such funding, the railways might tender out the projects to private entities. French Rail operator SNCF and Alstom, also of France, have shown interest in operations of the high-speed rail project.

Port connectivity projects will be another key area. Indian Railways has ongoing projects worth Rs 6,000 crore here, which have attracted private players.

Two upcoming locomotive projects, at Madhepura and Marhowra, estimated to cost Rs 32,000 crore, have also attracted interest from Chinese companies.

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