The Indian Railways aims to raise Rs1 trillion, 40% of the investments it has planned over the next five years, from the private sector through public-private partnership (PPP) schemes to bridge a gap in its financing plan.
Railway minister Lalu Prasad said the PPP projects would span a range of activities, including building shelters at small stations, developing four large stations into “world-class” ones, and creating so-called multi-modal logistics parks.
PPP projects are schemes used to attract private investments in infrastructure. The government partners a private player in a specific area, such as enhancing facilities at a railway station; the private player invests money, and develops and operates the facilities for a predetermined period of time to recoup the investment; ownership generally remains with the government.
In 2008-09, the railways hopes to award PPP concessions with the aim of attracting investment commitments of about Rs25,000 crore, said Prasad. Four of the projects would include upgrading the New Delhi, Patna, Mumbai (the Chhatrapati Shivaji Terminus) and Secundrabad railway stations through a global competitive bidding process. PPPs for enhancing these stations are expected to attract investments of Rs15,000 crore, Prasad added.
According to independent observers, the key to the railways’ success in attracting private investment is in its processes and mindset.
“If the railways has to get Rs100,000 crore through PPP, decision-making has to be much faster and (its) thought process has to change,” said Akhileshwar Sahay, president of the infrastructure advisory division for New Delhi-based project management firm Feedback Ventures, and a former railways employee. Sahay’s reference is to the government’s reluctance to share management control and returns even in projects where it seeks private investment.
“Because of next year’s elections, you need to have a very strong implementation plan in place to deliver...,” said Kuljit Singh, partner at audit and consulting firm Ernst and Young, on the general trend of governments going slow on key decisions in an election year. India will likely go to the polls early next year.
Another decision the railways had to deal with has to do with returns on PPP scheme winners. Prasad’s speech signalled the railways’ plan to move away from the current system of offering a fixed return on equity to build, operate and transfer projects on the basis of open tenders.
Groundwork for awarding a PPP to upgrade the New Delhi station through an open tender began earlier this month. Around 20 companies, including Larsen and Toubro Ltd, DLF Ltd, Reliance Industries Ltd, GMR and Bharti Enterprises have shown interest in this. Other large PPP projects involve setting up locomotive and coach factories.
The railways has already attracted some private investment through PPP projects. These include a pilot project for issuing smart cards for the Mumbai suburban service.