Why Indian Railways wants private passenger trains on its network – everything you want to know

By: |
July 31, 2020 2:45 PM

To run 151 private trains, which represent only around 5% of total trains run across the country, for 35 years, 109 busy routes have been identified by the government.

The Modi government has decided that some of the future trains will be run by private companies, over the Indian Railways network.

Private trains on Indian Railways: In a bid to improve the country’s railway system, the Modi government is envisaging around Rs 50 lakh crore of investment in railway projects up to the year 2030. It is being expected that around 70% of Indian Railways’ freight trains, will shift to the two upcoming Dedicated Freight Corridors (DFCs) from December 2021. This will result in freeing up a lot of capacity to introduce more passenger trains with higher speeds and better services. For Indian Railways, running of passenger trains is a loss-making business as on average, only around 57% of the cost is recovered through tickets, according to an IE report. Hence, the rest of it is cross-subsidized from the earnings of freight train operations.

Why are private trains being invited to run on Indian Railways?

To cut losses as well as to convert that opportunity into a money-making enterprise, the Modi government has decided that some of the future trains will be run by private companies, over the Indian Railways network, in a business model never tried in India before. According to the report, this move envisages around Rs 30,000 crore of total investment into the railway system through rolling stock as well as other expenditure, to be borne by the private operators. There is just one precondition that the trains introduced by private companies are a definite upgrade from what is offered by the national transporter. The idea of the government is to give an option of superior train services to passengers, without Indian Railways having to spend any money on it.

To run 151 private trains, which represent only around 5% of total trains run across the country, for 35 years, 109 busy routes have been identified by the government. The identified routes have been divided into 12 clusters based out of major city centres, like Jaipur, Howrah, Chandigarh, Bengaluru, Patna, Secundrabad, Prayagraj, Chennai, and two each for Mumbai and Delhi. According to the report, each of these clusters is an independent business project, inviting a private entity to manage. Delhi-2 cluster’s indicative project cost is Rs 2,329 crore. The process of the bidding process will be over by this financial year-end. By 2022-23, the first set of 12 trains is likely to roll out, following with 45 trains in 2023-2024, 50 trains in 2025-26, and the remaining 44 trains in 2026-27.

To run private trains on the Indian Railways network, any company with a minimum of Rs 1,165 crore net worth in the last financial year can apply. For different clusters, this is different depending on how much the national transporter estimates a cluster is worth. However, the range is between an amount of Rs 1,165 crore and Rs 1,600 crore. Also, for a company, there is no bar on the number of clusters it can bid for. Moreover, it has been reported that companies can also bid as consortiums. So far, companies like GMR, Titagarh Wagons, Vedanta group, Bharat Heavy Electricals, Bombardier, Bharat Forge, RK Associates, IRCTC, and some international equity investment firms have shown participation intent.

As per Indian Railways’ internal studies, private investors may see between 17% and 27% Equity Internal Rate of Return (IRR). The project IRR is between 14% and 20%, signifying a moderate to high feasibility. The operators will be free to fix their fares as well as non-fare revenue models, and as these trains will offer better services, fares of these trains are expected to be higher than conventional trains. The upcoming private trains will run at a maximum speed of 160 km per hour. Each of these trains will have at least 16 coaches and the maximum train length permitted on any route. Before the commercial rollout, these trains will undergo trials in India.

The private operator will have a free hand on-board services and tickets. The price of the services and what kind of add-on facilities will be provided, can be decided by the private operator. The private company will have all the freedom to earn from fares as well as non-fare revenue. For this project, the revenues are to be shared by the private operator with Indian Railways. The bid will be won by the company that agrees to share the maximum percentage of the yearly revenue with the national transporter.

Besides, a standard haulage charge will also be received by Indian Railways, akin to track access charge on a per-km basis. For the private operator, Indian Railways has also set certain key performance indicators, such as punctuality, maintenance of trains, and reliability. Punctuality, being the biggest parameter, carries around 95% weightage. While the service reliability means there should not be more than one failure in every one lakh km of distance travelled, like a breakdown.

Indian Railways, in return, will be contractually bound to provide “non-discriminatory access” to private train services. Under this, even though Indian Railways’ trains on the same route will be in competition with private trains, the national transporter cannot give an unfair advantage to its own trains. For this project, Indian Railways will give land to private players to set up maintenance facilities for the trains. After 35 years are completed, the maintenance facilities will belong to the national transporter. To travel on private trains, passengers would be able to book tickets through the current railway reservation system. However, the money will be kept in an escrow account.

According to the report, the Tejas trains that are being operated by IRCTC are not private train operations. The IRCTC Tejas Express trains can at best be described as corporate trains. As the private train project has been opposed by the opposition as well as Railway Unions, VK Yadav, Chairman of the Railway Board, has called this a public-private partnership. The Railway Ministry had stated earlier that there is no plan or proposal to privatize Indian Railways.

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