9 min read.Updated: 08 Oct 2020, 10:31 AM ISTAnto T. Joseph
With 50 stations on the block, private investment will be the flavour of the season. But there are concerns too
The user charge is a political hot potato in the making. The plan is to levy a nominal charge as part of the fare at all busy stations. This will be ploughed back into the redevelopment
There was a virtual scramble at the 25 September pre-bid meeting that discussed the proposed revamp of Mumbai’s iconic Chhatrapati Shivaji Maharaj Terminus (CSMT). The 132-year-old station, formerly known as Victoria Terminus, is up for a historic overhaul. A large number of prospective corporate bidders, consultants and architects attended the online video call that stretched beyond the stipulated time as the authorities answered each query and tried to allay concerns.
Here are a few takeaways from the meeting: as it is a Unesco World Heritage site, the old structure cannot be touched. The plan is to restore the station to its pre-1930 glory by demolishing the nearby buildings that housed administration offices, an eyesore by any standard. The refurbished station will function like a city-centre mall complete with retail outlets, eateries, entertainment facilities, hotels and souvenir shops, among others.
Since CSMT caters to over one million commuters daily during normal operations, arrival and departure need to be segregated. The core operations such as train and parcel movement, signaling and ticketing will continue to remain with the railways. The project will try to integrate various modes such as the proposed fast track of Harbour Line that connects the island city to Navi Mumbai, and the metro line, to make it a transport hub.
Two weeks earlier, a similar pre-bid meeting was called for New Delhi Railway Station (NDLS), which caters to 450,000 passengers daily. As many as 20 potential bidders attended the meeting. The project with an expected capital expenditure of around ₹6,500 crore proposes a multimodal hub with state-of-the-art amenities like an elevated concourse, restaurants, shopping malls and multi-level car parking, among others.
There’s more. Indian Railway Station Development Corporation (IRSDC), which is driving the bidding process, has taken up eight more stations, including Patna, Gwalior, Surat and Guwahati. “In total, we are working on 123 stations. Our target is to complete the bidding process for 50 stations in one year," S.K. Lohia, managing director of IRSDC, told Mint.
Railway station privatization is expected to be the flavour of the season for private investment. The pre-bid meeting in Mumbai drew 43 companies apart from half-a-dozen consultants. The big names included Adani Group, Larsen & Toubro, Tata Projects, GMR Group, Essel Group and Kalpataru Power. For New Delhi, around 20 companies including Adani Group, GMR Group, Société Nationale des Chemins de Fer (SNCF), JKB Infra and Anchorage Infrastructure have shown interest.
“The game has just begun," said the representative of a leading infrastructure player. Speaking on condition of anonymity, he added that the company was keen to take the plunge and that the few stations that have been privatised thus far were too small. Two stations—Habibganj and Gandhi Nagar—that were handed over to private parties a couple of years ago are finally getting ready to open to the public.
Clearly, Asia’s oldest rail network is now frantically seeking private capital for the upgrade and upkeep of stations, a desperate cry for decades. What’s on display is a transition of an organization, one of the largest employers in the world, from being a social concern to a commercial enterprise. The government wants to raise funds by monetising the prime real estate lying unused at most stations, which in any case face the brunt of constant encroachment.
Just like in the case of airport privatization, the prime real estate held in cities alongside the railway stations will be the gilded carrot. A new bidding model entailing a long lease of land and a system of upfront-cum-annual concession fee is broadly in place, supported by a potentially controversial user-charge system that the government is likely to notify soon.
For the Mumbai project, IRSDC has pegged the redevelopment cost at ₹1,642 crore. The successful private bidder will get to develop 2.5 million sq. ft of built-up area on leasehold basis for 60 years for commercial development and up to 99 years for residential development on selected plots at CSMT, Wadi Bunder and Byculla. The cost of real estate around the station is fixed at ₹1,433 crore. The successful bidder will rebuild the station under DBFOT (Design, Build, Finance, Operate and Transfer) model, and operate and maintain the station for 60 years.
Of course, at a time when companies are battling a crisis of confidence due to the uncertainty caused by covid-19, the hurried bidding has raised several eyebrows.
A top official from a potential bidder for Mumbai is worried about the huge capital expenditure. “A lot of money is at stake. As the country faces a serious economic slowdown, several companies may decide to go slow on their investment plans. When nearby shopping malls in Mumbai are struggling to get tenants, can they run a giant shopping arcade inside CSMT?" he asked.
Make no mistake: the user charge is a political hot potato in the making. The plan is to levy a nominal charge on the passenger, which will be collected as part of the fare at all busy stations. This will be ploughed back into the redevelopment and upkeep of the facilities.
Amitabh Kant, CEO of the government think tank NITI Aayog and chairman of the five-member committee overseeing privatization of railway stations and train operations, knows the subject is politically sensitive. “We are taking everybody along. We are working in partnership with every constituent," he told Mint. “It is going to the (Union) Cabinet. Final bidding will happen only after fixing the user charge, which will be notified in a month," added Kant, stressing that big station redevelopment projects won’t work well without a user fee.
IRSDC’s Lohia says bidders have been told about the introduction of a user charge and how it will be indexed, along with the escalation. “The formula will be stated upfront," he said. While unions and passenger associations are opposing the move, claiming that it will substantially hike fares, senior Indian railway officials insist that the user charge will be very reasonable and will easily outweigh the potential benefits.
Rajaji Meshram, partner, strategy and transaction services, EY India, believes that user charges provide a steady and predictable revenue flow while other revenue streams such as commercial rentals depend on real estate market conditions. “It makes the project more bankable. From passengers’ perspective, the cost of travel might go up marginally, but generally, there is willingness to pay when better facilities are provided, as can be seen in privately-developed airports," he said.
Shiva Gopal Mishra, general secretary of All India Railwaymen’s Federation (AIRF), flags the big difference between rail and air passengers, saying the railways is the cheapest mode of transport in India. “During normal operations, around 22,000 trains carry over 2.5 crore passengers daily, which is equivalent to the entire population of Australia and New Zealand. Nobody is against the development of the railways because it’s the lifeline of the country. The issue is that the railway is confused as to whether it’s a commercial enterprise or a social concern," he said.
According to Mishra, the railways cater to the common people, mostly economically backward travellers who come to the big city stations that will attract a user fee from faraway villages. “We are opposing (the) user charge because it will put a burden on the poor," he said, adding that his union is not against commercial exploitation of the railway land that is unlikely to be put to use in the near future.
The bidding models
Though IRSDC, an equal joint venture company between Rail Land Development Authority (RLDA) and Ircon International Ltd, both under the ministry of railways, was set up on 12 April 2012, it gathered momentum only in 2015. The first model came up after Suresh Prabhu, the former railway minister, insisted on enhancing non-fare avenues and the plan provided a win-win situation for the railways.
The first public-private-partnership (PPP) was flagged off on 1 March 2017 when the management of Habibganj station (Madhya Pradesh) was handed over to the Bhopal-based Bansal Group. Apart from the upfront payment, the model did not insist on an annual revenue share, despite the Bansal Group having been given the land on lease for 45 years. The private party has built all the facilities such as food stalls, platform maintenance, parking and restrooms.
“The success of the Habibganj project has instilled adequate confidence among companies," said Lohia. IRSDC says nearly 98% civil work has been completed as on 30 June and the station is likely to be opened by the year-end. The ₹450-crore project (the station redevelopment cost of ₹100 crore and the estimated cost of commercial development of ₹350 crore) flaunts a swanky commercial hub, shops and eateries.
The other redevelopment project at Gandhi Nagar (Gujarat), which has a five-star hotel in its precinct, is also progressing well. IRSDC says around 93% of its civil work has been completed.
Like in any other PPP model for infrastructure development, the railway station redevelopment projects have also gone through a process of evolution. “After the first bid for Habibganj, the parameters for station redevelopment bidding have undergone multiple changes. The ministry tried its hand with the Swiss Challenge method (inviting a bid and publishing it, before inviting competing counter proposals to improve the initial bid). However, this method did not work very well given the inherent challenges," said Meshram of EY India.
Apart from a couple of successful cases of privatization, the previous models failed to make it a grand success. For instance, three attempts to privatize the Chandigarh station hit a dead-end recently as companies failed to show up with financial bids. The station had put on offer 2.5 million sq. ft of real estate for commercial development, with the lease extending to 99 years.
As per IRSDC, the latest bidding, including Mumbai and Delhi, will be based on an annual concession fee, along with a fixed upfront premium. “It is not universal for all stations," said Lohia. In some cases, the upfront premium may be kept variable and in others fixed, all depending on the size of the project. “In the case of Mumbai and New Delhi, the successful bidder has to spend a lot of money because these are big projects. If we ask for a huge upfront payment, they become cash-flow negative for a long time," he explained.
The mega plan of creating world-class facilities at railway stations integrates with the privatization of rail routes which has already been announced by the railways. This comes at a time when railway’s finances are running thin. After freight revenue slipped in 2019-20 in line with the economic slowdown, due to a drop in coal, ore and cement traffic, the outbreak of the pandemic earlier this year has thrown the Indian Railway’s operations into disarray.
With regular operations having been severely disrupted, the traffic earnings have declined by over 42% to ₹41,844.3 crore during April-August over the same period last year, minister of railways Piyush Goyal told the Parliament on 17 September.
“While IR is investing adequately on safety measures, it is facing a cash crunch for upgrades and modernisation, which is the need of the hour," said Rajendra B. Aklekar, author of several books on railways, including The Great Indian Railway Romance. All the mega plans of high-speed trains and track upgrades are difficult to be implemented without additional money, he says.
And then there are other issues. Can the existing monopoly operator Indian Railways afford to leave the sector completely unregulated for private players? “No. You have to have a regulator because there will be issues which will crop up. The existing Rail Development Authority (RDA) will be converted to a regulator. We are working on it," said Kant.
Is the railway ready for the transition to a commercial establishment which can cater to users who are ready to pay for the service? “Yes. It has to become a business enterprise," added Kant.