Railways draws new strategy to raise Private Funding

New Delhi:  Cash-strapped Indian Railways, which will spend a massive Rs 5 lakh crore for capacity augmentation during the 12th five year plan, will soon come out with innovative funding strategy including roping in of big-ticket private investment.

A sub-committee set up for this purpose under the chairmanship of planning commission B K Chaturvedi will submit its report by middle of December. It will then go before finance and railways ministries for approval.

Railways has not been able to step up investment substantially to meet the growing demand due to resource constraints. This had contributed to lot of freight traffic moving away from railways to road despite it being cheaper mode of transport. In certain cases high freight to cross subsidise passenger fare too has contributed to the shift from rail to road.

“We are looking at what government can do to raise resources and how to make private sector invest a lot of money in railways, Chaturvedi told.

Railways invested Rs 1.09 lakh crore in 11th five year plan. One fifth of Rs 5 lakh crore railway spending on capacity addition in the 12th plan will be raised by IRFC through market borrowing. The rest will have to come through budgetary support, internal revenue generation and PPP. Revenue shortfall has already forced railways to cut its plan outlay for capacity augmentation in FY14 to Rs 55,881 crore from Rs 60,100 crore.

“Basically, we are working on 5 or 6 PPP models,” Chaturvedi said adding that the idea is to rope-in steel, power and the like to invest in the construction of railway lines, which would be adjusted against their payments for the locomotion services provided by the Indian railways over a period of time.

It has already happened in the case of several ports in Gujarat and in Odisha, Chaturvedi said adding steel, power and cement plants can also build such lines.

The sub-committee is also looking at how the railways can raise resources on their own, he said adding it is looking at alternative mechanisms for funding new freight corridors, rolling stock and doubling of existing lines.

It would consider providing government guarantee to IRFC to enable it to raise more resources and also looking at designing projects in a manner that it did not require sovereign guarantees.

The railways which has embarked upon ambitious dedicated freight corridors connecting Delhi-Mumbai and Ludhiana-Kolkata via Delhi, is looking at PPP mode for other corridors – Delhi-Chennai, Chennai-Kolkata, Kolkata-Mumbai and Chennai-Goa.

The first two corridors on which over Rs 80,000 crore is being spent, are expected to be completed by the end of the 12th plan. While JICA has provided funding for Delhi-Mumbai corridor, World Bank has provided assistance for Ludhiana-Kolkata corridor. Lately ADB has evinced interest in providing funding to the Kolkata-Chennai freight corridor.

“It is quite likely a few other corridors are taken up before the end of the 12th plan under PPP mode,” Chaturvedi said.

Though government is looking at expanding PPP mode for investment in railway lines, he ruled out foreign private investment on such projects for the time being. “Just now we are not thinking of funding from outside except institutions like World Bank,” he added.

The FDI in railways would be only on individual projects like joint ventures for the manufacture of locomotives, coaches and other equipment, he said.

Government would allow foreign money in leasing of wagons. Already one private company has leased specialised wagons to railways, which is being used for movement of specialised materials. These wagons are manufactured abroad by global companies, he said.

The capacity addition of railways is mainly aimed at moving away freight traffic from road back to rail. The 12th plan targets movement of 2 per cent from road to railway. The idea is to move 5-6 per cent from road to railway by these investments, which will be a substantial traffic.

Indian Railways are one of the world’s largest railway networks comprising 115,000 km of track over a route of 65,000 km and 7,500 stations. It transported over 25 million passengers daily (over 9 billion on an annual basis) and 2.8 million tonnes of freight daily.