Reforms can increase industry participation in railway projects

Reforms can increase industry participation in railway projects
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First Published: Fri, Sep 04 2009. 12 21 AM IST

Strategy change: Indian Railways constitutes an indispensable part of the logistics infrastructure, transporting at least 40% of the country’s land freight and 20% of domestic land passenger traffic.
Strategy change: Indian Railways constitutes an indispensable part of the logistics infrastructure, transporting at least 40% of the country’s land freight and 20% of domestic land passenger traffic.
Updated: Fri, Sep 04 2009. 12 21 AM IST
Mumbai: Indian Railways, which runs one of the world’s largest rail networks, needs to implement a number of structural reforms to be able to draw more domestic and international participation in its projects, global audit firm Ernst and Young (E&Y) has said in a report.
Strategy change: Indian Railways constitutes an indispensable part of the logistics infrastructure, transporting at least 40% of the country’s land freight and 20% of domestic land passenger traffic. Rajkumar / Mint
In a study titled A Journey’s Chronicle: The Changing Landscape of Indian Railways, E&Y said state-owned Indian Railways requires an effective institutional framework and clarity on regulatory aspects when it considers participation of private firms in its projects.
“During the bidding process for the modernization process of New Delhi railway station, confusion arose as a result of the different model concession agreements presented by the Planning Commission and the Indian Railways,” E&Y said in the study released in July.
“Such situations increase the sector’s risk perception among investors. The Indian Railways’ policy should also clearly lay down the preferred strategy for all eventualities, such as single bids or conflicts of interest,” the report added.
Because of a controversy on the conflict of interest clause, the first tender was scrapped. The railway ministry floated a fresh tender for the project, which is still being processed.
Indian Railways constitutes an indispensable part of India’s logistics infrastructure, transporting at least 40% of the country’s land freight traffic and 20% of domestic land passenger traffic. It is the world’s fourth largest freight carrier, transporting at least 2 million tonnes of freight daily.
E&Y suggested the integration of partnerships by the private sector into the planning process by disaggregating the planned investment into sub-sectors and subsequently into projects. Systematic project preparation should follow, it said.
“As of now, there is no clarity on various railway projects,” said an executive with a Bangalore-based infrastructure company that is in talks with foreign firms to modernize the New Delhi railway station. “We are still keen on railway station modernization projects. That is going to the future. But lack of clarity in terms and conditions are discouraging us and our partners.” The official declined to be named.
A standard contractual framework, laid down after considerable debate and incorporating the feedback of all key stakeholders, is a key ingredient in successful implementation of private firms partnering the railways on various projects, E&Y said.
“A contractual structure of this nature should allocate risks to parties that are best placed to handle them and have an equitable risk-reward sharing framework. Such frameworks enable investors to evaluate risks and accordingly decide whether and how to participate in the bidding process for both current and future projects,” it said.
The absence of such an approach could result in roadblocks, as in the case of the New Delhi railway station project where 13 consortiums were disqualified from the bidding process due to cross-holdings. A well-defined contractual structure, however, would warrant high interest for the New Delhi station modernization project and the 49 other similar projects that are to follow, E&Y said.
Overall, India plans to develop 375 stations as model stations that will offer facilities such as drinking water, adequate toilets, catering services, waiting rooms, dormitories and better signage.
Another negative is employee productivity at Indian Railways, which is among the lowest in the world. As Indian Railways is the largest employer in the world, low productivity would impact the sector significantly, the firm said. Labour costs account for almost 45% of Indian Railways’ expenditure.
Spanning 63,273km, the Indian Railways network is the second largest rail system in the world under a single management and the fourth largest overall after the US, China and Russia.
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First Published: Fri, Sep 04 2009. 12 21 AM IST