India’s PPP: Rail

Investment is needed to improve track, rolling stock and delivery times. At present passenger trains manage an average of 50 kph, while freight just 22 kph. Indian Railways has long been regarded as the backbone of the socioeconomic growth of India. The country has the world’s fourth largest rail network and the second largest in Asia after China. Indian Railways has recently attracted immense global media and corporate attention due to its turnaround to profitability, and has been consistently recording buoyant growth rates over the last few years as India’s population continues to increase. According to India Railways, the cash surplus before dividend and net revenue were estimated by the government at US$6.17 billion and US$4.53 billion, for 2007-08 respectively. This places Indian Railways in a better position than many Fortune 500 companies.

India Railways have stated that they ambitious annual plans for 2008-09 with a huge investment earmarked of about US$7.91 billion. The plan includes a total budgetary support of US$1.66 billion that includes US$163.33 million from the Central Road Fund. This plan has been slated to turn sizable profits running into the billions of dollars for the years 2010 and beyond.

Indian Railways has identified the following initiatives to help transform the viability of Indian rail into a commercially acceptable operational model:

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• Increases in income through advertising on all Rajdhani (luxury express coaches), with the cost of advertising being around US$1.26 million per train
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• Introduction of new generation trains that would be fuel-efficient, recyclable and have low-emission to generate certified emission reduction credits.
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• Construction of a dedicated freight corridor, with an investment of US$81.92 million slated for 2008-09 and US$614.40 million for 2009-10.
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• Renewal of 44.5 million pre-stressed concrete (PSC) sleepers set for open line work
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• Technological upgrades and modernization for higher operating efficiency
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• Development of PPP in new routes, railway stations, logistics parks, cargo aggregation and warehouses
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• Development of 100 budget hotels with private participation in the vicinity of railway stations
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• Installation of Wi-Fi to provide wireless access at 500 stations
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• Introduction of marketing rights for advertising on railway tickets and reservation charts
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• Establishment of integrated logistic parks on unused lands
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• Development of agri-retail hubs, cold storage houses, multi-purpose warehouses on surplus land with the railways
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• Training of railway managers to meet future challenges, Indian Railways is planning to set an international management institute in New Delhi
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• Renewal of over 2941 kilometers of rail, which will require 3.39 million tons of rail steel, and over 2,382 kilometers of pre-stressed concrete sleeper renewal
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• Implementation of dynamic pricing policy, tariff rationalization, non-peak season incremental freight discount scheme, empty flow direction freight
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• Discount schemes, loyalty discount schemes and long-term freight discount schemes among others to boost capacity utilization levels

Meanwhile, according to the Ministry of Railways, increases of freight and cargo in both domestic and international routes have placed considerable stress on capacity on the two main Delhi-Mumbai and Delhi-Kolkata lines. The government has decided to build dedicated freight corridors in the Western and Eastern high-density routes to cater for this deficit. The investment is expected to be about (US$4.9 billion). Surveys and project reports are in progress and work is expected to commence within the coming year.

Previously, containerization was operated under a state monopoly, CONCOR. Facing the increasing containerization of cargo and freight, this sector has now been liberalized and is open to competition. Private sector entities may now either partner with or compete with CONCOR. The government has stated that 14 applicants have currently submitted applications seeking permission for container train operation, all of which have been approved.

For professional advice and assistance with foreign direct investment matters, incorporation, tax accounting, due diligence, payroll or audit services in India please contact Dezan Shira & Associates at india@dezshira.com or visit www.dezshira.com.