Jun 24, 2016

Railways is set to make the PPP terms more attractive for Investors’

With the potential investors’ initial response to the public-private partnership (PPP) model for railway stations’ redevelopment being lukewarm, the government is set to make the terms more attractive for them to power up PPPs

New Delhi: With the potential investors’ initial response to the public-private partnership (PPP) model for railway stations’ redevelopment being lukewarm, the government is set to make the terms more attractive for them.
An extension of the land lease period from 45 years now to at least 70 years and supporting these ventures with viability gap funding are under active consideration, according to official sources. These apart, it is also likely that the model concession agreements (MCAs) will be reinforced with limited assured sources of revenue to investors to reduce their risks, the sources added.

While the Modi government has lined up plans to revamp 400 railway stations in the country by roping in private investors, only 15-20 projects will be up for grabs in the first phase. The bidding is being carried out under the so-called Swiss challenge method, where an eligible player submits a development proposal to the government, including the premium he is willing to pay the government. Once this proposal is made and due diligence is done, the government would accept counter-proposals from other eligible entities, while the entity which made the first proposal will enjoy the right of first refusal.

According to a senior railway official, private infrastructure players have asked for the lease period of the land to be extended from 45 years to 70-90 years. They have also asked for assured sources of revenue with rights to parking ticketing, platform ticketing and some catering rights.

Even though the ministry of railways is going all out to make the station development plan a success, market sources believe that lack of clarity on certain issues, persisting doubts about the feasibility of the projects and encroachment of land parcels at many major stations have kept investors wary.

“There is still no clarity over how the railway ministry is planning to take the development of these projects ahead. Not all stations have surplus land available to be given for commercial development. The government also need to assure the investors are encroached lands will be taken back and provided for development,” a senior executive from an infrastructure firm told FE.

According to official data, 21 of 85 A1 railway stations have encroached land and 35 such stations have no land available for commercial exploitation.

“The government is talking about commercial, residential and retail development. However, most of the stations that will come up for redevelopment are in Tier 2 and Tier 3 cities, where a revenue structure based on monetisation of land by way of creating office space and building residential projects, malls etc may not be viable in all cases.

“We would ideally like to see if there is any plan to develop logistics parks or hubs around these stations, which

will make more sense given the cargo volumes that railways carry, and will make for more commercial viability for the developer as well,” said an official from another infrastructure company. “Plus the onus of getting all the clearances from the local authorities lies with the developer; the whole process could potentially get very cumbersome, he added.

“We are addressing the concerns in the market.. we have a provision for compensating the developers who lose out in the bidding process for the expenses incurred by them to prepare the detailed project reports. As for local clearances, we have started forming joint ventures with different states so that the approvals come without costly delays,” a senior railway official mentioned told FE.

The ministry of railways has already signed MOUs in pursuance to forming joint ventures(JV) with nine states and is looking at signing MOUs with seven more states in the future for upgrading the railway infrastructure.

“Railways should first focus on creating a few success stories in terms of station re-development. Creating success stories is very important for investor confidence. Planning and design of the station should be done by the transporter as opposed to the private developer,” Abhay Krishna Agarwal, Partner infrastructure & PPP at E&Y said.

Market sources also state that as balance sheets of most of the private infrastructure companies like GMR, HCC, GVK, Jaypee and Gammon are stretched, many of them could be chary about taking up capital-intensive projects like railway station development.