Railways tweaks PPP model to make it lucrative for investors

Avishek G Dastidar Posted online: Monday, Jul 21, 2014 at 0000 hrs
New Delhi : The Railway Ministry has prepared a fresh model of PPP agreements to make them more lucrative for investors, days after the Rail Budget raised a strong pitch for public private partnership as part of a broad strategy to modernise India’s vast network and implement new plans, including the ambitious bullet train corridor.

The new PPP model safeguards private players from taking extra risk and assures them of more returns on investment, besides ensuring the national transporter gets its due from the deal. It also protects investors from the politics of tariff revision.

Realising that PPP has failed in the past primarily because the government did not spell out the benefits in monetary terms in the agreement, the Railways is now willing to talk money. Railway Minister Sadananda Gowda is expected to give a formal approval to this next week.

In the Build-Operate-Transfer model, for instance, while the Railways will pay a sum equal to 50 per cent of the apportioned revenue as user fee to the private party, it is now also planning to give a guarantee of at least 80 per cent of the “projected revenue”, as opposed to projected traffic, in any year.

As earlier, the revenue projection for a route will be on the basis of the freight rate of the year of the agreement, known as “base tariff”, but now the Railways will guarantee a 6 per cent hike in the rate every year irrespective of any revision of the freight rate. The calculation of total possible traffic on the line — hitherto a grey area — is also new.

In the Rail Budget, Gowda uttered the term ‘PPP’ 12 times as means to fund many of the ventures such as station development, passenger amenities and bullet train corridors. He noted that last year the revenue generated fell way short of target mainly because of non-realisation of the PPP projects. The PPP business target for the Railways in 12th Five-Year Plan is Rs 1 lakh crore. In the previous plan, the Railways could achieve less than 5 per cent of the target of Rs 66,000 crore in PPP.