It was not just the trains that came to a halt when the Covid-19 pandemic hit the country; it also threatened to thwart Indian Railways’ great private journey. In March, before the country went into a lockdown, the Railways was gearing up to release the first part of a bidding document to roll out private passenger trains. Then, as the novel coronavirus spread, upending life and businesses, there was a growing fear that the government’s ambitious plan would be derailed.
Will the virus-battered economy affect the project that would require a massive investment from the private sector? That was the question on everybody’s lips when a group of secretaries met on June 29, the tenth meeting of the empowered group since it was constituted under NITI Aayog CEO Amitabh Kant in 2019 to take a call on private trains.
Their unanimous answer was, “No”, Railway Board Chairman and member of the group VK Yadav told ET Magazine. In no time, on July 1, the Railways invited request for qualification (RFQ) from private operators to run 151 passenger trains in 109 routes. This would require private sector investment to the tune of Rs 30,000 crore. The Railways, meanwhile, will end up spending virtually nothing. It will instead earn a fee for electricity and for lending its infrastructure, and also a share in the total revenue of the venture.
The railway brass, therefore, was elated when 16 potential bidders, including big groups such as GMR, Bombardier Transportation, CAF India and Sterlite Power, joined the first pre-bid meeting via video conferencing on July 21. A number of clarifications and some modifications were sought, says a railway official in the know. The second such meeting is scheduled for August 12.
Buoyed by the early response to private passenger trains, the Railways is now steaming ahead with private freight trains as well. It is fast-tracking the process of auctioning routes in the yet-to-be completed dedicated freight corridors (DFCs) to private operators to run freight trains. Since 2006, private container trains have been operational in a limited way, but no other type of private freight trains has been allowed.
In 2023, when the first lot of private passenger trains starts running, the Railways would like to flag off private freight trains as well.
As the process of private passenger trains is already underway, the Railways is likely to package freight trains as an added attraction. An early mover in the passenger segment could end up clinching lucrative freight train operations as well.
A train manufacturer will be more enthused to set up a new factory or expand an existing one if there are opportunities to produce both coaches and wagons. For any private rail venture, be it passenger or freight, there are three critical components — investor, manufacturer and operator — and all of them need to be certain of gains before ploughing millions of rupees into it. It is in this context that auctioning freight routes to private players becomes significant. Railway Board chairman Yadav confirms the development.
“A railway regulator will be created before the rollout of private passenger trains in 2023. Once DFCs are ready, we are planning to bring in private freight operators there. They will invest in wagons and containers. So, the regulator will have two mandates — regulating passenger trains and freight trains,” he told ET Magazine, adding that the group of secretaries weighed all possible fallout of the economic downturn before coming to a conclusion that private companies would look for new areas of investments, making the railway projects a good candidate.
Anurag Sachan, MD of DFC Corporation of India Ltd (DFCCIL), says the company has been preparing background papers for the auctioning of routes and the introduction of private freight trains. “We are likely to engage private players first in the 650 km stretch between Palanpur (Gujarat) and Rewari (Haryana), which will be operational this fiscal,” he says.
(See interview, “We will Auction Routes for Private Trains”). The new deadline for the completion of the entire DFC project is June 2022. While the details of the private freight train project — the number of trains, routes as well as the expected amount of private investment — are not in the public domain, the process is likely to be simpler than the one for passenger trains.
Wooing private players for passenger train operations is trickier because, first, it is a politically sensitive issue. The Congress and the Left parties have already expressed their reservations about the venture. Although 151 private trains constitute only 5% of long-distance trains, this move is suspected to be a baby step towards privatising the Railways. Second, unlike the profit-making freight business, passenger operations in the current format can at best recover 50% of investments, making this an unviable business proposition to a private investor. Premium trains such as Rajdhani and Shatabdi, however, make operational profit the moment their occupancy rate is 60-65%, says a railway officer who has calculated past data.
ET Magazine was the first to report on September 22, 2019, that the Railways was planning to introduce 150 private trains, a first-of-its-kind move in the history of the national transporter since 1924, when it was fully nationalised. The system continued even after Independence.
The bidders for private passenger trains are expected to be shortlisted for the final round in October-November when the request for proposal (RFP), the second part of the bidding document, will be offered. The final contract is expected to be awarded in April 2021, and the first lot of trains, mostly imported ones, is scheduled to arrive in mid-2023, according to the timeline drawn by the Railways Bidding will be on the basis of revenue share and the winner will be the qualified bidder willing to share the maximum revenue with the Railways.
The Make in India rakes will be added in subsequent years, says a railway official connected to the project. At present, in addition to the Railways’ facilities for manufacturing coaches and locomotives, multinational companies such as Bombardier Transportation and Alstom too have rail coach factories supplying coaches mainly to the metros. The Make in India coaches are occasionally exported as well. BEML, the defence PSU, too, has a rail coach manufacturing facility in Bengaluru.
More players are likely to set up shop in India, with the government emphasising on Aatma Nirbhar Bharat and Make in India. Subrat Nath, MD of Talgo India, a train manufacturer headquartered in Spain, says, “We will soon set up a factory in India that will not only cater to the domestic train market but will also serve our purpose of exporting trains. As a manufacturer, we may or may not be a party to any consortium in the private train project, but we will definitely expect successful bidders to buy trains from us.” Around the world, manufacturers usually don’t operate trains.
5 Big Questions
What kind of costs will operating private trains entail? The Railways has given rough estimates on the basis of which a back of the envelope calculation is possible. Suppose an operator wants to bid for only one of the 12 clusters, it will need 12-13 trains or rakes. One rake of Train-18, now called Vande Bharat Express, costs almost Rs 100 crore. That means, Rs 1,200-1,300 crore will be required just for rolling stock. It could, in fact, cost more as the operator is likely to go for a better variety of train to incur less maintenance costs, and will also possibly import three out of 12 trains to meet the deadline of 2023. An imported rake could cost up to Rs 150 crore, according to current market rates.
If maintenance costs, such as the upgrade of a maintenance depot, and other miscellaneous expenses are included, the investment for one cluster will come to Rs 2,000-2,400 crore. The concession period is fixed at 35 years, the same as the life of a rolling stock. During this period, the private player has to recover its investments and make some profit.
A spokesperson of GMR, which runs Delhi and Hyderabad airports in public private partnership mode, has confirmed its willingness to join the private bandwagon. “We welcome the government’s move to initiate the modernisation of Indian Railways with private sector participation.
Subrat Nath, MD, Talgo India
We are exploring the opportunity to partner the government in this innovative programme with an open mind,” says the spokesperson, in an email. The contenders for the passenger train project as well as the contours of the consortium will be known only in September.
“The idea behind private passenger trains is simple: you come and invest, I will give you an enabling environment. A private player will have the freedom to choose fare and technology. The only condition is, the technology has to be better than what the Railways currently has” Sudheer Kumar, Former Additional Member, Railway Board, & author of the draft Model Concession Agreement on private trains.
Will It Derail?
However, a number of retired railway officers have cast doubt on the viability of the project. Sudhanshu Mani, former general manager of Integral Coach Factory and the man behind the Train-18 project, says the room for making profit is very limited in this project.
“The Railways talks about a quantum jump in technology. But that will make the project very costly and thus unviable. One can’t increase the fare beyond a point,” he says. The optimists supporting the project in the present size and shape are, however, banking on one aspect: Indian Railways still can’t accommodate as high as 8.85 crore passengers, who are waitlisted annually (2018-19 figures). So, there is no dearth of demand. The magic lies in the right mix of supply.
Anurag Sachan, MD of Dedicated Freight Corridor Corporation of India Ltd, speaks to Shantanu Nandan Sharma about the roadmap for leasing routes to private freight operators. Edited excerpts:
Will you allow private freight trains to run in dedicated freight corridors (DFCs)?
Yes, we are planning to allow private freight trains in our DFCs. Private players are expected to run their trains by paying track access charges. After all, we are spending Rs 80,000 crore in building two corridors (eastern and western). We will have to repay loans; there will be debt servicing; we will incur regular expenses in maintaining our new assets. So, we will have to monetise our assets to the maximum level. We will receive some revenue from private trains.
When are you planning to invite bids?
We have been preparing the background papers. We are likely to engage private players first in the 650 km stretch between Palanpur (Gujarat) and Rewari (Haryana), which will be operational this fiscal. We will not discriminate between Indian Railways and private players. We will charge track access fees from both but, yes, the entire revenue will ultimately go to the Railways.
How will the bidding process differ from the one for private passenger trains?
Ours will be simpler. We will merely auction the routes. Private players will share their revenue with us. They will be allowed to run wagons or containers. So, what kind of trains they run and what rates they charge will be determined by the operators. The rates, after all, will be driven by the market. We will also monetise the excess capacity of our optical fibres (placed all along the 3,000 km route) by auctioning them. We have an arrangement with RailTel, another rail PSU, to monetise it.