Railway’s Land Lease terms and monopoly concern could derail CONCOR sale

NEW DELHI: An attempt to privatise Container Corporation of India Ltd (CONCOR) could falter over creation of a private monopoly, competition concerns and the terms set for the land leased by Indian Railways to the rail hauler to build terminal infrastructure, says experts.

“You cannot deny the fact that CONCOR amongst all the other inter-modal operators is a dominant player. Strategic disinvestment resulting in a new private entity becoming a dominant player is not good from the market point of view. It will lead to a new private monopoly being created out of it,” an executive with a top consulting firm said, asking not to be named.

Besides, CONCOR terminals have been built on land leased from Indian Railways on a per container license fee basis. For instance, CONCOR currently pays about Rs 1,160 per container to Indian Railways as land license fee for the Tughlakabad inland container depot (ICD), its flagship facility near Delhi. The license fee rises annually in the ratio of the percentage increase in CONCOR’s net profit.

In comparison, terminals run by existing private container train operators are built on land purchased from the market.

There are a few instances where private operators have leased small parcels of land from Indian Railways to provide connection from their terminals to the nearest railway network. For this, the license fee is computed on the basis of the circle rate – the rate at which the government recognises the land value for that site and operators pay lease rentals per annum at 7% on the capital value as per circle rate.

CONCOR currently gets land from the Indian Railways at a concessional rate as compared to other inter-modal operators. If this is given on a platter to a new private operator, it will result in the economics of the business going squarely in favour of the new entrant. While people who have slogged it out and lost money during the last 12 years (the sector was thrown open to private operators in 2007) will suffer further at the hands of a new player, the consultant said.

“So, from a competition point of view, it’s a wrong move to privatise CONCOR unless the land lease terms are re-worked,” he stated.

It will not only be in the best interest of Indian Railways to “re-work” the land lease terms post privatisation of CONCOR, but is also in the interest of the sector to bring everyone on par, says industry sources.

“Railway land is the biggest issue facing the strategic disinvestment of CONCOR. The deal cannot destroy the basic rules of the game laid down by the concession agreement signed between the private operators and the Indian Railways in 2007, which provides a level playing field to all. We tolerated CONCOR’s dominant position all along because its land leases are very old and pre-dates the 2007 policy. But, going forward, if that land goes into private hands, then it will be a completely destructive move,” said the chief executive of a private container train operating company.

At current market price, the government’s 54.8% stake in CONCOR could fetch at least Rs 20,000 crore including control premium.

“If that kind of money has to be invested in buying CONCOR, it would mean huge amount of debt would be involved. Whether that kind of debt can be serviced by the profit earned is a moot question,” the consultant mentioned earlier said.

“Railways can continue with the same system of charging land license fee, then the other operators will be aggrieved and they would take legal action. If they don’t, then the license fee would have to be increased to market levels but the profitability will go down. So, the chances of putting that kind of money at a lower profit would be dim. I feel it is a very difficult proposition to find buyers for CONCOR,” he added.

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