Success of Railways' asset monetisation plan can offer template for others

Critical contractual changes may help the long delayed plan to redevelop New Delhi Railway Station finally get off the ground and offer a template for similar projects

Of the 43,000 hectares of surplus land the Railways plans to release for commercial development, abo­ut 60 per cent of the size of Delhi city, the most watched one will be that for the re­c­on­struction of the New Delhi Railway Station.

The possible bidders include Arabian Construction Company, Adani Railways Transport, Kalpataru Power Transmission, GMR Highways and Omaxe. How this project pans out will also mark the apparent success or failure of the government policies for asset monetisation. Despite the attention airports receive, far more Indians travel on railways. The New Delhi station is the busiest in the country and so its progress will be watched keenly by the passengers, i.e. voters.

The project will be steered by the Railway Special Purpose Vehicle, the Rail Land Development Authority, or RLDA. A statement from the company announcing the names of the bidders noted it shall be its “flagship project” with a projected expenditure of around Rs 5,000 crore.

The Railways’ plan is the largest piece of comparable asset monetisation of government land taking place in India. It could well become the template for other agencies with vast parcels of land. This includes the port trusts, the airports and defence lands. Most of these parcels are in urban areas, which makes them most valuable — and consequently contested too. The Delhi Development Authority (DDA) is contesting 19,943 cases. While not comparable in its short history of 13 years, the RLDA has already run up 13 such cases, including one arbitration case with a potential liability of over Rs 100 crore.

The Railways has been trying to redo the New Delhi station for more than a decade. It has not succeeded primarily bec­ause there was no clear-cut plan to monetise the project. The Railways initially conceived the project to be built on the engineering procurement construction (EPC) route. It meant the Railways would have had to pay the bidder from its annual revenue for the project a sum of close to Rs 4,000 cr­ore. The organisation has never had such sp­are cash to offer and the plans stayed on paper.

The Niti Aayog in 2019 prodded the Railways to deploy the same model the civil aviation ministry has used for modernisation of its airports since Delhi and Mumbai were redeveloped. It is the privatisation model. The Railways has done so, using the same model to also bid for running 150-odd passenger trains. Under the DBFOT, or the design-build-finance-operate-transfer model, the successful bidder will run the station for 60 years, handing over the management back to the department after that. As the line-up of bidders shows, the Railways seems to have hit pay dirt.

The organisation, however, has little experience of steering such projects but hopes the RLDA would have acquired the financial heft to do so. The challenge comes from the carte blanche on revenue stream RLDA is offering to the bidder. Under the scheme, the bidder will spend Rs 4,925 crore to redevelop the station, with the necessary road connections through flyovers, relocate railway offices and buildings and so on. For its pains, the bidder shall get the rights to develop all permissible commercial developments such as retail, hotels, offices and serviced apartments in and around the station on Railways land. The land parcel is 88 hectares, somewhat bigger than Nariman Point in Mumbai. It is a big deal.

It is also an unusual contract as the Railways has blocked itself off from any possible additions to its infrastructure through subsequent technological developments. The sum the company will spend on the railway assets is printed in the contract, the sum the company will earn on the rest is for it to keep. The revenue model could have been more robust if the Railways had retained more faith in itself. The smart course would have been a revenue share from the commercial projects, offering India’s infrastructure the rights to a growing stream of cash for decades.

It could have learnt from the next-door Ministry of Roads and Surface Transport’s asset monetisation plan. The National Highways Authority of India has hawked five sets of properties to foreign and domestic companies such as Macquarie and Cube but retains the upside.

The Railways might have learnt some lessons even from another, admittedly poor source, the DDA, which has over the years found it has gifted away valuable land without retaining some of the upside from its monetisation. This has led to precious goof-ups. A land parcel RLDA plans to hawk is held up because the records are not available with the DDA or the Railways.

It is not the Railways alone. None of the agencies such as the ports or the defence estates has shown any interest in pooling some of the knowledge. This is surprising as the DDA is a body under the central government like the RLDA. At the state level, comparable urban land development organisations, such as the Maharashtra Housing and Area Development Authority and the Kolkata Metropolitan Development Authority, have followed the lead set by DDA in their execution of land development projects.

Going further afield, there are good examples abroad. Officers of the Department of Investment and Public Asset Management have favourably referred to the Canadian model. The Canada Lands Company takes over all lands in cities the government does not need any more. The company sells some of it after often repairing environmental damages or figures out ways to expand the value of the lands, setting up all sorts of facilities, ranging from entertainment zones for the public to social welfare projects for marginalised communities. The private sector is roped in even for unsold land, to either build some of the facilities or take over the management of some of these.

To draw the best value for the land, this sort of pooling of knowledge would have helped immeasurably, once asset monetisation gained traction in India.