Railways to remain ‘Vibrant Lifeline’ for National Growth: says Dolat Capital

मुंबई Mumbai: Dolat Capital interacted with Arunendra Kumar, Ex Chairman Railway Board. It Indicates, major capex plans for Railways over medium term. “Railways: New Lifeline for Growth!”, says the report.

FDI is now allowed in 10 sectors in railways. Railways had an expenditure target of Rs.60,000 Crore in the current financial year. The sourcing is as follows:

  • Budget allocation: Rs 30,000 Crore
  • Loans: Rs 15,000 Crore
  • Railways internal resources: Rs 15,000 Crore
  • PPP: Rs 5,000 Crore (so far, this has not taken off as per the expectations of the government).

Given the projects that are under execution, the department has a capability of undertaking an annual expenditure of Rs 1,10,000 Crore. However, due to paucity of funds, it’s expenditure is restricted to Rs 60,000 Crore. The government is aware of this scenario and hence is encouraging private sector for incremental investments through PPP route.

The terms and conditions of the contract are more private-sector friendly. Earlier, railway contracts were more hegemonic in nature, leaving no bargain for the private sector. Now realising the importance of private investments, the railways have become more equitable in their dealings with the private sector.

PPP model in railways can be designed by varying one of the four key components; Land, Laying, Ownership and freight rebate.

The Central Government is also working on a State-wise SPV model. Herein, the GOI and state jointly undertake the project, both in terms of capital investment and execution.

Railways have projects that have long gestation period over 7 years. This restricts railways’ ability to raise debt from market, as servicing could become an issue in the interim.

There are two locomotive factories (assembling units) planned under PPP route. These would have a total outlay of Rs.3,000 Crore. The unique features of these projects are:

These would be largely assembling units and would undertake assembling, painting and testing related works.

Guaranteed orders worth Rs.30,000 Crore (a diesel locomotive is worth Rs 16.5 Crore and electric locomotive slightly higher).

The orders would include 800 units of electric locomotive and 1000 units of diesel electric locomotive.

The contract has rigid timelines, performance on fuel consumption and investment timeline clauses. Any deviation from the clauses would invite penalties

Land has already been purchased by the GOI and once bidding process is over, would be leased to the successful bidders.

Technical bids are cleared. For electric locomotive assembly plant Seimens, Alstom and GE have qualified. For Diesel locomotive assembly plant, GE and EMD (now Caterpillar) have qualified.

RFPS for financial bids are yet to be issued. The current government is concerned about the “guaranteed order” clause of the contracts. While it was well discussed by the previous government, the current regime is taking a fresh look at this. This is holding back issuance of RFP for financial bids.

While executing a railway project, alignment (identifying the route and achieving requisite clearances) is most time consuming. Typically, if alignment has been achieved and there is no tunnel/brigde/hilly terrain, 50km of railway line can be laid in a year.

There have been more proposals of port connectivity, incrementally.

DFC: Total cost of above 3400km estimated or Rs 810bn. The estimated completion for the project is between March 2018 to December 2019. It will lead to faster movement of freight traffic between West to North & North to East routes.

Wagons availability is not an issue considering the huge capacity both captive and private. The lead time required is also lower or 6-8 months vs other activities which require longer lead time.

To Download Report, Click HereRailways The Lifeline of Nation Economy post Rail Budget 2015- Dolat Capital