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Wednesday, February 24, 2010, 14:25 Hrs [IST
The public-private partnership model for investment, though a phenomenal success in case of highway development projects, is failing to make any significant impact in the railway sector.
In the recent past, the ministry of railways had initiated several concrete measures to explore the PPP route for improving its flagging infrastructure across the country. The private sector's response to these initiatives, however, has been somewhat muted.
The ministry's Vision 2020 document, presented in Parliament in December last year, lays down a highly ambitious and aggressive plan for capacity augmentation, upgradation and modernisation of Indian Railways in the next 10 years. The proposals include addition of 25,000 km of new lines, electrification of 14,000 km of routes, doubling and quadrupling of lines, construction of several dedicated freight corridors, development of world-class stations, setting up of rolling stock manufacturing units, logistics hubs, Kisan Vision projects, and expansion and management of optical fibre cables network. It also envisages setting up of schools and medical and nursing colleges.
The railway ministry estimates that Rs 14,00,000 crore would be required to achieve the goals laid down in the Vision 2020 document. It hopes to mobilise a considerable share of the required investment through private sector participation. However, considering the reluctance of the private sector to invest in railway infrastructure projects, it is not clear as to how exactly this will be done. In all probability, the targets will be eventually scaled down and some of the projects completely scrapped in the coming years.
"The PPP model is unfit for the railway sector," A.V. Poulose, former Financial Commissioner, Indian Railways, told Projectmonitor. "The international experience has been that road projects gain from the PPP model because of toll. The model won't work in the railway sector. In railways, projects require very large investments and have long gestation periods. The return on investment is received after a considerable period of time. The private sector wants quick returns on its investments. Unless extra incentives are provided, it would be difficult for railways to attract the private sector. Worldwide, a very limited number of railway projects are getting cleared under the PPP model," he added.
According to Poulose, the private sector would be more willing to invest in railway production units in the current scenario.
"The private sector may be interested in making investments in manufacturing of locomotives, coaches and wagons. Therefore, the Railways can try and secure private sector participation for the production units. Once that happens, the government funds that have been planned for investment on these units can be diverted to projects like laying new lines," he said.
A senior railway official attributed the private sector's lack of interest in railway infrastructure projects to poorly prepared feasibility reports.
"We have not been able to present the projects in an attractive manner. It is very important to get detailed and accurate feasibility reports prepared for projects as it helps determine their viability but in many cases that has not been happening," said the official.
A recent report by the Associated Chambers of Commerce and Industry of India, quoting official estimates, had stated that the Indian Railways would need investments to the tune of $65.5 billion during the 11th Five-Year Plan for its expansion drive. Close to 19 per cent of the total required investment is expected to be generated through private sector participation. The report also said that the possibility of a meaningful number of railway PPP projects becoming available in the market in the near future was remote.
Dr. Kalpana Dube, Senior Professor (Finance & PPP), Indian Railways Institute of Transport Management, Lucknow, does not agree that the ministry's PPP initiative has been a non-starter. "The PPP initiative of the railways offers immense potential for the private sector," said Dr. Dube.
"It is a win-win situation for everyone, be it the private sector, railways or the public. The Ginger Rail Yatri Nivas in New Delhi is a prime example. The Indian Railway Catering & Tourism Corporation Ltd had allotted the task of renovating and operating Rail Yatri Nivas in New Delhi on PPP basis for 15 years through open tender to Roots Corporation Ltd, which is a subsidiary of Indian Hotels Company Ltd. Today, the hotel is a major success and has a very high occupancy rate," she added.
Dr. Dube also said that Indian Railways was working to rope in private sector participation through the PPP route for various projects including setting up of medical and nursing colleges, creation of multimodal logistic parks, and development and modification of railway stations.
"In order to ensure that projects under PPP are financially attractive, there is provision for viability gap funding," she added
Indian Railways is on the brink of bankruptcy. The ministry has asked the Government to double its budgetary support to Rs 39,600 crore. The Finance Ministry has responded by saying, "Railways need to have a certain discipline." Railways Minister Mamata Banerjee can't blame anybody but herself for putting the organisation in red. Under her stewardship, Indian Railways has registered a sharp decline in earnings and a steep rise in expenditure. She promised 1,000 km of new lines every year but has not been able to deliver even 10 per cent of that. Expenditures have gone up by Rs 1,330 crore and earnings are down by Rs 1,142 crore, taking the net deficit to Rs 2,500 crore. The Operating Ratio (OR) of the Railways is likely to be the highest in recent times. It would be spending Rs 95 to earn every Rs 100. One of the best ORs in recent times was in 2007-08 when the organisation spent as little as Rs 75.9 to earn Rs 100. The Railways' reserves are at its lowest in recent years at Rs 5,000 crore.
Prime Minister Manmohan Singh, Finance Minister Pranab Mukherjee and Planning Commission Vice-Chairman Montek Singh Ahluwalia are a worried lot as Banerjee takes no advice. At a meeting with Manmohan and Mukherjee earlier this month, she asked them not to insist on a fare hike. Poised to present what she hopes will be her last Railway Budget, she has asked for a free hand. Banerjee knows it is also her last chance to woo the electorate in West Bengal. So it is going to be another bout of populism: more new lines and trains for her home state.
The Planning Commission has asked Indian Railways to cut its losses from passenger operations, which are at Rs 14,000 crore per year now. The losses were being subsidised by increasing freight charges, which too had come down by Rs 700 crore. The Railways does not have enough money to put into its two critical reserves-the Capital Fund and Development Fund, used to purchase and upgrade assets and improve passenger amenities. The Railways failed to put even a single rupee into the Capital Fund last year too, a sign of a bleeding organisation. Yet, Banerjee has announced a revamp of the Kolkata Metro network at a cost of Rs 11,000 crore.
Payments to suppliers have been held back for the first time in the history of the Railways. "It was bad enough last year when payments to contractors were held till after the budget, to present a relatively better picture. This year, payments to regular suppliers of crucial equipment such as cables used for signalling and fishplates for tracks have been withheld. Many suppliers have complained, saying that even they are running an industry and have to prepare balance sheets," says a senior Railway Board official.
RAILWAY MINISTER MAMATA BANERJEE
The board has asked all 16 zones to send details of their carry-forward liability. Officials in the budget and finance departments have been trying to figure out how to best present the least scary picture of Railways finances. Here too they are constrained, working without a head. The whimsical minister has not appointed a finance commissioner (FC) since Sowmya Raghavan retired six months ago. Banerjee's handpicked official, additional member Samar Jha, is overseeing budget preparation. "She decided to go ahead with the budget without an FC since it is the official's job to question unnecessary spending and projects. Didi is definitely in no mood to have anything questioned or scrutinised," says a Railways ministry official.
Raghavan had said in March 2010 that "if the trend of spending more and earning less continues, not only the internal generation of funds suffers but there is a very serious threat of the ministry defaulting on the dividend-payment liability". She also said the fund balances have all been utilised, so there are no savings to meet shortfall in internal generation targets. According to Raghavan, unless the Railways controls expenditure and increase earnings on a sustained basis, "survival of the organisation will become a difficult proposition".
Apart from the FC, the Railways has been functioning without a Member (Traffic)-a post vacant for more than a year now. The Member (Traffic) is arguably the most important official, responsible for policy formulation, management of passengers and goods traffic. At a time when the Railways is losing revenue in carrying passengers and goods, the importance of the post can't be undermined.
Another flagship project of the Railways-Dedicated Freight Corridor (DFC)-is on the verge of derailment. Manmohan had laid the foundation stone of the project in 2006 but it has not gone beyond that stage. In the last budget speech, Banerjee had promised to get the project on track by revamping the DFC Corporation, in charge of executing the project. Nothing has moved in that direction. In fact, even the position of the managing director (MD) has been vacant after V.K. Kaul was removed five months ago.
Similarly, the Rail India Technical and Economic Services has been functioning without an MD for three months. "Banerjee is just not interested in these day-to-day tasks of running the ministry. Apart from her apathy, crucial decisions get delayed because she rarely comes to Rail Bhavan, functioning out of Kolkata," says another official. "All the files have to be sent there. Since those are important, most of the times, senior ministry officials, including Chairman Railway Board, have to personally take the files to Kolkata. As far as Rail Bhavan is concerned, she is the non-resident Railways minister."
BANERJEE FLAGS OFF THE SINGUR-HOWRAH EXPRESS
In the run-up to the last budget, Mukherjee had raised objections to several projects which Banerjee had proposed since she had not got the mandatory clearance from the Planning Commission. Subsequently, the prime minister had written a note to Banerjee, making certain suggestions about running the Railways (see box: Prime Concerns). Obviously, Banerjee is in no mood to implement them.
An Indian Railways spokesperson defends the organisation's financial mess as something beyond the control of the ministry. Citing figures, he says the Railways had to dish out Rs 55,000 crore over the past three years as arrears and pension under the Sixth Pay Commission. Indian Railways lost Rs 2,500 crore for non-loading of iron ore from Orissa and Karnataka, and another Rs 1,500 crore on account of Maoist and Gurjar protests. The multiple hikes in diesel prices also cost the Railways Rs 1,000 crore. The organisation had to shell out Rs 1,500 crore under the modified assured career growth scheme. "It is a question of increased working expenses. The Railways will be able to overcome the impact in a year or two," he said. Reality defies such optimism.
- ABSENCE OF A LONG-TERM VISION: Railways planning is not guided by a clear vision of where it should be 10 to 20 years from now. It should fix specific targets.
- CAPACITY AUGMENTATION: GDP growth of 9 per cent requires total transport to grow at 10 per cent per year but the Railways is growing at only 7 per cent, leading to a steady loss of freight to roads. Its share is abnormally low at 30 per cent.
- TECHNOLOGY MODERNISATION: Globally, passenger trains reach 240 kmph, but the average speed of our Shatabdi is 80 kmph.
- RATIONALISATION OF TARIFF STRUCTURE: The next budget must include a minimum increase of 10 to 15 per cent in Class II passenger fare with no increase in freight. The unbalanced fare structure, with high freight rates and low passenger fares, has several adverse consequences. Indian Railways has consistently resisted the Planning Commission's proposal to set up a statutory regulator to fix fares.
- LAND ACQUISITION: A disturbing development is the Railways being told to avoid land acquisition and instead "negotiate" with farmers. Unless this is quickly resolved, we can expect long delays.
- PUBLIC-PRIVATE PARTNERSHIP: A decision on the role of Public-Private Partnership is urgently needed. The Railways has been reluctant to adopt the PPP model.
- DEDICATED FREIGHT CORRIDOR: Immediate review of the status of Dedicated Freight Corridor with clear timelines and fixing responsibility.
Courtesy: India Today