Private passenger trains: Why a rail regulator is needed to ensure level playing field

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September 7, 2020 12:02 PM

With the govt readying to launch private trains on the railway network, demand is growing for a regulator that can streamline operations and ensure parity between different operators.

On July 2, the Ministry of Railways had invited Request for Qualification (RFQ) from private players for operation of passenger trains over 109 pairs of routes.

As the Indian railways gets ready for the privatisation of train operations on select routes, demand is growing for a regulator that can streamline operations and create a level playing field in the sector. Experts hold that the end of the government monopoly—the first dozen private trains are expected to start running in FY2023-24—would set into motion new dynamics, making it necessary that issues like scheduling of operations and fixing of liabilities are addressed equitably.

Anuja Tiwari, partner, Energy, Infrastructure and Resources at DSK Legal says that as in other sectors like electricity and aviation, a regulator would ensure proper determination of technical issues, including fares and balance liabilities, and resolution of disputes. “For the project to be successful, and to be able to set a model precedent, it is important that a rail regulator is put in place,” she says.

One primary issue in this context is of competition from the Indian Railways which would continue to operate on routes offered to private players. Says Manish Agarwal, leader, capital projects & infrastructure, PwC India, “If the railways is able to subsidise by not allocating costs the way a private operator would do, then there will be a problem. The private operator will have to pay the cost as well as haulage charge. If the railways does not bear the haulage charge, the field would get tilted against private operators.”

He feels investors are keen on a technical regulator and not an economic regulator like CERC, SERC, or TAMP which regulates the price, investments, service levels and the entry and exit of investors. “For passenger trains, the pricing would not be regulated, the haulage charge would be pre-determined, and service level would be a part of the concession agreement. So, a regulator would only need to ensure that approval and scheduling, etc is done in a non-discriminatory manner, particularly on high-congestion routes,” Agarwal says.

On July 2, the Ministry of Railways had invited Request for Qualification (RFQ) from private players for operation of passenger trains over 109 pairs of routes, through introduction of 151 modern trains or rakes. The last date for applying under the RFQ was September 8, 2020, and the announcement of the shortlisted bidders was to happen in the next 60 days. However, the last date for applying has since been postponed to October 7, 2020.

Bombardier, Siemens, Alstom, and state-run BEML were among the 23 companies that took part in the second pre-bid meeting held earlier this month. Sector watchers point out that train manufacturers are keener on selling their locomotives to PPP developers than getting into operations themselves, given risks like the volatile nature of traffic projections. However, there is need for manufacturers to be less risk averse, they say. Since train sets can be procured on lease, manufacturers not willing to operate trains would need to change the entire business model, with issues like timing of asset monetisation becoming important. Says Tiwari, “the lease model naturally implies that rentals would be paid periodically as opposed to upfront payment of sale price.”

To make the picture clearer, the government should try a pilot run on a few routes before taking the process forward, says Suneet K Maheshwari, founder, Udvik Infrastructure Advisors. “Selecting operators with a good pedigree on a cost-plus basis, the Centre can then consider the dry and wet leasing method or direct ownership for viable operations,” he says.

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