Wednesday, February 24, 2010, 14:25 Hrs [IST
The public-private partnership model for investment, though a phenomenal success in case of highway development projects, is failing to make any significant impact in the railway sector.
In the recent past, the ministry of railways had initiated several concrete measures to explore the PPP route for improving its flagging infrastructure across the country. The private sector's response to these initiatives, however, has been somewhat muted.
The ministry's Vision 2020 document, presented in Parliament in December last year, lays down a highly ambitious and aggressive plan for capacity augmentation, upgradation and modernisation of Indian Railways in the next 10 years. The proposals include addition of 25,000 km of new lines, electrification of 14,000 km of routes, doubling and quadrupling of lines, construction of several dedicated freight corridors, development of world-class stations, setting up of rolling stock manufacturing units, logistics hubs, Kisan Vision projects, and expansion and management of optical fibre cables network. It also envisages setting up of schools and medical and nursing colleges.
The railway ministry estimates that Rs 14,00,000 crore would be required to achieve the goals laid down in the Vision 2020 document. It hopes to mobilise a considerable share of the required investment through private sector participation. However, considering the reluctance of the private sector to invest in railway infrastructure projects, it is not clear as to how exactly this will be done. In all probability, the targets will be eventually scaled down and some of the projects completely scrapped in the coming years.
"The PPP model is unfit for the railway sector," A.V. Poulose, former Financial Commissioner, Indian Railways, told Projectmonitor. "The international experience has been that road projects gain from the PPP model because of toll. The model won't work in the railway sector. In railways, projects require very large investments and have long gestation periods. The return on investment is received after a considerable period of time. The private sector wants quick returns on its investments. Unless extra incentives are provided, it would be difficult for railways to attract the private sector. Worldwide, a very limited number of railway projects are getting cleared under the PPP model," he added.
According to Poulose, the private sector would be more willing to invest in railway production units in the current scenario.
"The private sector may be interested in making investments in manufacturing of locomotives, coaches and wagons. Therefore, the Railways can try and secure private sector participation for the production units. Once that happens, the government funds that have been planned for investment on these units can be diverted to projects like laying new lines," he said.
A senior railway official attributed the private sector's lack of interest in railway infrastructure projects to poorly prepared feasibility reports.
"We have not been able to present the projects in an attractive manner. It is very important to get detailed and accurate feasibility reports prepared for projects as it helps determine their viability but in many cases that has not been happening," said the official.
A recent report by the Associated Chambers of Commerce and Industry of India, quoting official estimates, had stated that the Indian Railways would need investments to the tune of $65.5 billion during the 11th Five-Year Plan for its expansion drive. Close to 19 per cent of the total required investment is expected to be generated through private sector participation. The report also said that the possibility of a meaningful number of railway PPP projects becoming available in the market in the near future was remote.
Dr. Kalpana Dube, Senior Professor (Finance & PPP), Indian Railways Institute of Transport Management, Lucknow, does not agree that the ministry's PPP initiative has been a non-starter. "The PPP initiative of the railways offers immense potential for the private sector," said Dr. Dube.
"It is a win-win situation for everyone, be it the private sector, railways or the public. The Ginger Rail Yatri Nivas in New Delhi is a prime example. The Indian Railway Catering & Tourism Corporation Ltd had allotted the task of renovating and operating Rail Yatri Nivas in New Delhi on PPP basis for 15 years through open tender to Roots Corporation Ltd, which is a subsidiary of Indian Hotels Company Ltd. Today, the hotel is a major success and has a very high occupancy rate," she added.
Dr. Dube also said that Indian Railways was working to rope in private sector participation through the PPP route for various projects including setting up of medical and nursing colleges, creation of multimodal logistic parks, and development and modification of railway stations.
"In order to ensure that projects under PPP are financially attractive, there is provision for viability gap funding," she added