Indian Railways private trains: Industry seeks sops

In the ongoing deliberations between the ministry of railways and the industry to revive the plan of private passenger trains, after the first round of bids failed earlier this year due to low private sector interest, the private participants have demanded waiver of static charges on rakes and minimum base fare as some of the bid criteria.

After cancelling the ₹30,000-crore bids for private passenger trains in August this year, the ministry of railways has renewed talks with the private sector to revive the plan last month. A couple of rounds of discussions have taken place between the ministry and the private players on tweaking the bid criteria, to make it commercially feasible for the private sector to enter passenger train operations, which hitherto has been the forte of the government.

An industry source close to the development tells Fortune India on condition of anonymity: “The static charge on a rake is to the tune of ₹180 per bogey per hour. The haulage charge is over and above that. Since this severely impacts the viability of the private passenger train operations, we have tried to impress upon the railway ministry to consider waiving the static rake charges.”

On haulage charges, the source points out that with a share in the revenue already in place, a haulage charge will be an additional burden. “We would like it to go. However, even if the railways wants to retain it, there should be parity with the haulage charges that the railways pay for the existing premium trains like Rajdhanis, Shatabdis, Durontos and Tejas. The calculation should be clear to all the parties,” says the source, adding that the provision of minimum base fare in the earlier bid too must be scrapped in the new bids.

The minimum base fare, irrespective of the footfall, and whether the train operates was hard-wired in the previous bid for the private trains.

One of the infrastructure consultants involved in with the process, since previous bids worth ₹30,000 crore was rolled out by the ministry, tells Fortune India that the railways will have to come out of the “haulage charge” mentality.

“One cannot have lopsided bid provisions which work in one's favour. Train operations involve a lot of seasonality and demand and supply pressures. The earning model should be based on revenue, which should be left dynamic, and not on the archaic concept of haulage charges. The burden of commercial viability must be evenly divided between the railways and the private participant. The mix of the fixed charges and the revenue share need to be calculated very carefully,” says the consultant.

If one may look at the revenue projections that were arrived at based on the previous bids, it is evident that they are inclined more towards the fixed charges — with the railways taking less of market risk in the entire scheme of affairs. A feasibility study conducted by Rail India Technical and Economic Service Ltd (RITES) ahead of bid issue last year, pegged the net present value (NPV) of the revenue share, assuming a rate of 10%, at ₹10,463 crore, and the NPV of haulage charge at ₹26,346 crore, considering the entire concession period of thirty-five years.

The consultant points out that this kind of arrangement is tantamount to protecting the downside risks, while trying to maximise the gains and hopefully these will be tweaked in the upcoming bids. Even though railway ministry officials are non-committal on the timeline of the fresh bids on private trains, sources point out that it is likely early next year.

The first tender for private passenger trains was floated by the ministry of railways in June last year for 12 clusters with 109 origin-destination pairs. 120 applications were received from 16 players in the request for qualification stage. IRB Infrastructure, GMR Highways Ltd, PNC Infratech Ltd, and Cube Highways and Infrastructure Pte, among others lined up in the request for qualification in the first round of bidding. Out of the total number of applications, 102 were shortlisted for financial bidding.

However, when the financial bids were opened in July this year, only two players — Indian Railways Catering and Tourism Corporation (IRCTC) and Megha Engineering and Infrastructure Ltd — had put in ₹7,500 crore for only two clusters. While IRCTC had offered a 10% revenue share, MEIL offered just 1%. With low participation from the bidders, the entire bidding process was eventually scrapped.