Nov 16, 2013

Poor response of private investment in railways!

By M.Y.Siddiqui

As on date, the investments in Indian Railways through Public-Private-Partnership (PPP) have been extremely poor. Private investment mobilization during the Eleventh Five Year Plan ending March 2012 was 4 per cent of the plan outlay, which was far less compared to the private capital share in other infrastructural sectors like ports 80 per cent, telecom 82 per cent, electricity 44 per cent, airports 64 per cent and roads 16 per cent.

The Planning Commission, in its review of the 11th Plan performance, observed that investment in railways could be stepped up with the help of PPP. In this context, projects related to rolling stock manufacturing units, multifunctional complexes, logistics parks, private freight terminals, freight train operations, liberalized wagon investments schemes, Dedicated Freight Corridors and new railway lines that are in the pipeline need to be speedily executed in the current Twelfth Five Year Plan. These offer excellent opportunities for private investments.
As for the imperatives of private investments, the Ministry of Railways has admitted that given the limited resources and large competing demands for capacity augmentation, connectivity, improved services, Indian Railways would need to mobilize more resources from the private sector. The Government of India in the Ministry of Railways has now begun focusing on mobilizing resources from the private sector with a note of caution in that the capacity of existing Railway Production Units would also be exploited before considering the PPP model.

Pursuant to PPP model, the Government has introduced a New Policy on private investment in building rail connectivity and capacity augmentation. The Policy offers five models for private participation in augmentation of rail services to the nation, which are, Non-Government Private Line Model, Joint Venture Model, Build, Own and Transfer Model, Capacity Augmentation through Competitive bidding, and Capacity augmentation through funding by customer. As a sequel to this, private investments for ports and large mines connectivity are expected during the current 12th Plan period.

With the new policies on Private Freight Terminals (PFT), Automobile Freight Train Operator Scheme (AFTO) and Special Wagon Leasing Scheme in place, private investments particularly by stakeholders are expected to be garnered. The Government has also set up a special purpose vehicle, the Indian Railways Station Development Corporation (IRSDC) for development of stations through PPP.

The new policies on private investments in the Indian Railways during the current 12th Plan period, to end in March 2017, are intended to yield rupees100, 000 crore targeted private capital investment.

The railways being high capital-intensive bulk transportation business module, the private sector is wary of investing in it because of long gestation period between investment and its fructification and high depreciation costs. The sole interest of private investment is to get quick return on investment, which does not fit in the rail infrastructure. A case in point is Own Your Wagon Scheme introduced in 1993, which could not take off except public sector oil companies for their captive transportation of Petroleum, Oil and Lubricant (POL). That too lost its sheen over the years following spread of oil and gas pipelines. The scheme has since been modified with all its variables but not fructified as contemplated.

The foregoing leads one to conclude that the PPP model to supplement efforts of Indian Railways to augment its infrastructure and services to the nation is still in experimental stage because of lukewarm response from the private sector so far. The Railways will have to make extra efforts to attract private capital lest it should be remaining a well-intentioned plan on paper with the existing bottleneck in rail infrastructure continuing unabated!

Writer is former Director Public Relations for Ministry of Law & Justice and Railways

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