The end of a Monopoly? The public-private partnership of Indian Railways.
Envisaging a vision for the upgradation of our country’s Railway system, an investment to the tune of Rs 50 lakh crore is needed to be made by 2030. But in accordance with the Union Budget, only a fraction of it can be made by the Government. Hence it has finally opened its doors for private players in the passenger trains segment.
The running of passenger trains has been a loss-making business for the railways, recovering only 57% of the cost through the sale of tickets. Introduction of modern trains needs considerable investment in rolling stock such as coaches and engines. Cost of operations include manpower, electricity and the like. The burden of this modernization expense is too heavy to be borne by the government alone. Also, the shifting of the freight trains onto the two upcoming Freight Corridors by December 2021, will provide an opportunity for the introduction of more passenger trains, especially on the routes, where the demand is much greater than the available number of seats. Hence this business model is being introduced - to help the government cut losses as well as earn more revenue.
About 109 busy routes have been identified for the introduction of 151 trains (representing only 5% of the total number of trains run in the country) for the next 35 years. The routes are divided into 12 clusters, based out on the major city centres they will be travelling from and to. The centres include Patna, Bengaluru, Secunderabad, Howrah, Jaipur, Prayagraj, Chennai, Chandigarh and two for each of Mumbai and Delhi. Each cluster will function as an independent business project.
The invitation to collaborate has been extended to any private company, with or without any experience in the sector. But yes, there are certain financial eligibility requirements. The company has to have a minimum net worth of Rs 1165 crore in the last financial year. This base value can increase depending upon the estimated worth of the cluster in which the private player will be functioning. A particular company can also bid for a number of clusters and bidding can also occur as consortiums too. Business houses such as Bharat Heavy Electricals, the Vedanta Group, Bharat Forge, IRCTC and a few others have already expressed their interest. The bidding process is supposed to be completed by the end of this financial year. The initial set of 12 trains is expected to start operating by 2022-23 and the remaining have also been suitably scheduled.
But the question arises how can the private players expect to garner profits when already this segment is suffering from losses? Well, for now, it is known that they will be free to decide upon the fares and will also focus on the non-fare revenue aspect. A condition has been laid down that they have to be technologically superior to the existing models and have to run at a maximum speed of 160kmph. The players are at a freedom to decide upon the add-on facilities and price them accordingly. An internal study of the Railways has also predicted that the players can recognize an Internal Rate of Return of about 17-27%, signifying quite a healthy profit. As the services offered will be better than the conventional trains, the prices are also to move up accordingly.
The private players are supposed to share the revenue with Railways, with the suitable company agreeing to share the maximum part of the revenue winning the bid. For accessing the tracks too, a haulage charge needs to be paid on a unit kilometre basis. There are also other overheads such as track maintenance, using railway terminals and others. On the other hand, Railways will provide land to the party for setting up their facilities and will also give them ‘non-discriminatory access’ (no unfair advantage to its own trains).
This move has also attracted criticism, being interpreted as the privatization of the Railways. Although the government has firmly maintained its stance about no such intention, only time can tell whether the Railways will continue belonging to the people or not.