Faced with a staggering investment ask of over 50 trillion for expanding and upgrading India’s railway infrastructure during 2018-30, the government has continued with its focus on public private partnerships (PPPs) in various areas like station redevelopment, freight movement infrastructure etc. One of the boldest PPP initiatives to be announced as part of the railway’s 100-day plan has been the proposed involvement of private partners to operate passenger trains. While the private sector has been involved in rail freight movement over the last few years, this is the first time they would be playing a role in passenger carriage.

The move to involve the private sector in operating passenger trains is significant. Even globally, while there have been many instances of private involvement in freight movement, PPPs in rail passenger movement have been adopted successfully only in a few countries like UK, Germany, France, etc. One of the most successful examples is UK, where the government has used a 7-15 year franchise model to involve large private sector players in operating passenger trains on heavy duty routes like the West Coast Main Line, which connects London with major centres around Birmingham, Manchester and Glasgow. Under the model, the franchisee uses the government’s existing track, signalling and related infrastructure to operate its trains, while providing “above the rail" services like purchasing/leasing and maintenance of carriages, locomotives and rolling stock; running daily train services as per an agreed schedule together with associated customer amenities around booking of tickets, catering, comfortable travel, etc. While the contours of the PPP arrangement for India would need to be finalized based on ground realities, there are a few key building blocks which would need to be put in place for the arrangement to succeed.

First, in case of any PPP arrangement (other than pure play service management contracts) which involves the private partner providing “above the rail" services, it would be necessary to ascertain the usage cost of track and other related infrastructure provided by the railways. For this, the railways would have to segregate its financial accounts under (a) track and related infrastructure development and maintenance and (b) fleet management and regular operations. Next, the basis of cost allocation would have to be worked out in a manner which does not discriminate against private operators.

Second, an independent regulatory authority for drafting regulations, monitoring compliance and adjudicating on relevant economic, technical, environmental and safety related matters would need to be constituted. The Rail Development Authority, set up in 2017, is likely to play a key role in this area. For comfort of potential private partners, it would be important for the Authority to be perceived as independent in terms of its composition and funding, being open and transparent in its deliberations and accountable for its decisions.

Third, any public service obligation to be met by the private passenger train operators like concessional tariff for certain sections of the population would have to be explicitly monitored, costed and financial support extended separately without mixing it up with regular project cash flows.

Fourth, there should be clear incentives in the contract for the private operator to achieve improvements in areas like carriage technology, on-time performance, ticket booking, etc.

The success of this bold and pioneering initiative will fully depend on the government’s ability to navigate these issues in a manner such that the final PPP arrangement is a win-win for all concerned stakeholders.

Arindam Guha is partner at Deloitte India.