The sweetened BOT plan with a novel model that guarantees the developer inflation-indexed 80% of his half-share of projected revenue from rail lines built under the build operate and transfer however may not be sweet enough for potential Bidders as the railways will continue to exclusively undertake operation of trains on the system and determine tariffs, they allege.
New Delhi: A novel model that guarantees the developer inflation-indexed 80% of his half-share of projected revenue from rail lines built under the build operate and transfer (BOT) system could finally attract private investors into capacity augmentation projects in the Indian Railways, government source say.
The new BOT model would also give the developer full right to revenue between 80% and 120% of what is projected at the time of bidding (RFQ stage) without having to share it with the railways, the sources added. In case the actual revenue is 120-150% of the projected level, 50% of the additional receipts would need to be shared with the national transporter and 75% if the revenue turns out to be higher still.
Although officials were optimistic of the new design of the concession, they said the BOT awards in the current fiscal would likely be through the annuity model. “We are receiving an increasing number of enquiries from potential bidders for BOT projects thanks to the railways assuming large part of the traffic risk. But given the processes involved, the bidding under the new model could commence only from the next financial year. Over the next two-three years, many BOT projects would be thriving on the ground,” a rail ministry official said.
He added that the improved BOT model was designed to allay investor fears, caused by the issues of (lack of) control of the network and interoperability that are specific to the railway sector.
However, analysts pointed out that the sweetened BOT concession model too doesn’t go far enough. Even under the proposed BOT model, it may be noted, the railways will continue to exclusively undertake operation of trains on the system and determine tariffs. Private investors would look for a system where they could also be train operators and collect revenue as passenger fares and freight and share it with the railways as track access charges.
Under the new BOT model, the concession period will be 25 years and the bidding criterion would be the (progressive) premium to be paid by the developer or the grant (viability gap funding) he expects from the government in the reverse-bidding method. Besides the promise of seamless operations, the railways would also procure the land required for the project (90% of the land would be in the transporter’s possession before the bidding starts) and secure all requisite approvals and permits.
Source said the main comfort for the private developers under the new BOT model is the mitigation of risk from lower-than-projected freight traffic. The tariff projected in the RFQ year is escalated annually with linkage to wholesale price index. The land will be leased to the developer by the railways on nominal fee and lease will be co-terminus with the concession period.
Although the policy to rope in the private sector for the country’s railway infrastructure enhancement was put in place in 2002, investor interest remained largely lukewarm: Just Rs 2,700 crore was invested by private players in the sector in the subsequent decade. As against this, investment commitments to the tune of Rs 10,000 crore have come since 2012, the rail ministry official cited above said.
The use of private funds for development of India’s railway infrastructure is currently limited to small stretches of rail lines built by “stakeholder” industries (mainly port companies and industries that use the rail network for freight transportation). These are mostly first- or last-mile connectivity projects to ports, large mines, industrial parks, clusters and also include feeder routes to the dedicated freight corridors. The models adopted include pure private-sector projects of the size of up to Rs 500-600 crore, joint venture projects with any one of the railway PSUs, where the stakeholder private firm, selected through the “direct permission” route, is assigned a majority (usually 74%) stake.
In pure private projects developed by stakeholder industries on a nomination basis, the development is carried out on private land and assets are not transferred to the railways at any stage. In the JV model, the railways helps the JV acquire the land at its cost; the ownership of the land, leased to the JV on a nominal fee of Re 1 per annum , vests with the government, and once the lease period is over the land goes to the government on payment of purchase price sans interest.
The key difference between the exiting models and the (now-improved) BOT model is that while the former ones are meant to largely cater to traffic provided by the stakeholder industry itself (although subject to common carrier principle), the latter would help in the expansion of the railway’s mainstream network.
In November last year, the railways opened almost all major railway-related activities, except, in the main, running of trains and tariff fixation, to foreign direct investment. Apart from last-mile rail connectivity projects, private investments have taken place in creation of freight terminals, procurement of rolling stock and in container services