Rail ministry pinning hopes on foreign partner and private capital
Prime Minister Narendra Modi may have ruled out privatisation of Indian Railways but the government may end up banking on private capital for funding its big endeavours like the high-speed rail project. The railway ministry is looking for a partner among foreign state-owned agencies and private developers for funding its ambitious project.
“We are floating a Cabinet note for selecting the partner for implementing the high-speed project, preferably in government-to-government mode. However, the financial model to be adopted is under discussion,” said a senior railway ministry official close to the project’s planning.
In the first phase, the ministry is trying to roll out semi-high speed trains on nine identified routes. The first of these trains, between Delhi and Agra, is likely to be launched soon. In the next phase, high-speed trains on the Mumbai-Ahmedabad and Delhi-Chennai routes will be commissioned.
The official said the feasibility study for the Mumbai-Ahmedabad corridor, a Rs 70,000 crore (Rs 700 billion) project, was being conducted by Japan. “Interim reports have been submitted and the final report is expected in June 2015. The funding pattern for the project will be clear only after that,” he said. Rail Vikas Nigam Ltd (RVNL) and its subsidiary, High Speed Rail Corporation (HSRC), are likely to be involved in the initial project work.
The ministry is trying to rope in a developer that will construct, maintain and operate new high-speed train projects which do not require any link with the existing rail network and which are above 250 kmph, including supply of rolling stock.
“The rail ministry may on best effort basis, if required, acquire land for the project at the developer’s cost and facilitate transfer on a long-term lease,” the official said, hinting at limited intervention by the government.
Also, the ministry will provide freedom to the developer on the sticky issues of design and tariff, subject to a ceiling specified by the government. The main challenge, however, is to attract developers and financiers for these projects, which typically yield returns on investment of not more than 3 per cent. Hence, the need for soft loans from global funding agencies.
Another key concern for the ministry is to insulate its existing network and operations from potential losses in high-speed services. “A case in point is Konkan Railway Corporation Ltd (KRCL) where losses on passenger operations by KRCL have been borne by the railways for many years. A proper framework is being planned,” the official said.
The Union Cabinet had in August relaxed the foreign direct investment (FDI) norms permitting 100 per cent investment in rail projects such as high-speed trains, suburban services, dedicated freight corridors, freight and passenger terminals.
The ministry has notified 17 such areas, including rail route electrification, signaling systems and logistics parks.
Investors have so far shown interest primarily in three areas: high-speed services, medium high-speed services and station development.
The railway ministry is now expanding the list to cover 50 additional areas or projects.
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