100% FDI gets green light for rly line projects

Written by Rajat Arora | New Delhi | Updated: Dec 26 2012, 08:23am hrs
Foreign direct investment is set to flow into the building of fixed railway infrastructure (read railway lines), ending a long-preserved policy of allowing only Indian Railways to set up these facilities out of its internal accruals or budgetary and other support.

Private investors, ports, export/import companies, other investors and FDI will now be allowed in the railway lines meant to connect ports, industrial and logistical parks, and mines with other parts of the country. The railways will either award these projects (construction and maintenance) on nomination basis or select the investor through competitive bidding. A revenue-sharing model has already been worked out.

The move is expected to give a boost to a sector where infrastructure expansion will provide direct, tangible benefits to the economy. Currently, the PPP model in the railway sector is at a takeoff stage, with large domestic investments coming in a few areas or projects, including the Mumbai elevated rail corridor, private freight terminals and a slice of the eastern segment of the dedicated freight corridor. However, no FDI is allowed in these PPP projects and is limited to only manufacture of components.

Under a new policy for participative models in rail connectivity and capacity augmentation projects notified by the railway ministry, 100% FDI has been permitted under the approval (FIPB) route for the development of first- and last-mile connectivity projects at either end of the rail transportation chain providing connectivity to ports, large mines, logistics parks.

Under the policy, the railways will soon invite expression of interest from prospective investors.

It is applicable to any kind of goods traffic. These railway lines will be operated on the common carrier principle for public transportation of goods. The railway connectivity will be developed on private land and it will be a non-government railway project, according to the policy.

Besides, funds for the project will be fully mobilised by the project proponent without any participation by the railways. "The policy envisages financial participation of the project proponent in the development and creation of rail infrastructure for providing first- or last-mile connectivity under an agreement with the ministry either on its own or as a joint venture with the infrastructure financing and development institutions," said a railway ministry official.

Despite acute shortage of funds, railways have refrained from allowing FDI in their core areas and allow it, through the automatic route, only in the manufacture of components by private companies. Between 2000 and 2012, total FDI into the railways was Rs 1,354.65 crore, according to the Department of Industrial Policy and Promotion.

The new policy also allows state governments, local bodies, cooperative societies and other corporate bodies, including the overseas corporate bodies, to invest in fixed rail infrastructure projects.

Land for the line will be acquired by the project developer to provide connectivity with the main railway system. The railway land for providing connectivity may also be made available on lease/licence under the extant policy. However, in such cases commercial utilisation of the railway land for purposes other than for the project will not be permissible, said a senior railway board officer.

Under the model, the concessionaire would build lines and maintain them while the railways will have joint and equal right to use the infrastructure to ferry goods. Commercial activities related to freight handling and train operations at the terminal will be conducted by the railways, and their cost will be borne by the non-government railway.

"We are expecting an encouraging response from the foreign and domestic players. It was very necessary for the railways to open the doors for the private sector in core areas. It has been estimated by the Sam Pitroda committee on modernisation that the railways need to invest R7,35,000 crore in the next five years to match the growth rate of the Indian economy," the official added.