The Hindu Business Line : Railways may cap returns for SPVs

New Delhi, June 27 Steel and mining companies such as SAIL, Posco, Jindal Steel and Power, Rungta Mines investing in special purpose vehicles to build rail links may have their returns capped from such ventures.

The Indian Railways is working on a proposal to cap the returns that special purpose vehicles (SPVs) can get by building and maintaining feasible rail link projects (port link and gauge conversion) such as Haridaspur-Paradip and Obulavaripalle-Krishnapatnam links.

In such SPVs, there is equity participation from Indian Railways and other primary beneficiaries of the rail link such as mining and steel companies, port trusts and State Governments. In return for the investment, the SPV is apportioned revenues earned by Indian Railways from these rail links for a specified period. For the two SPVs that would construct and maintain the Obulavaripalle-Krishnapatnam and Haridaspur-Paradip rail links, the Railways has already signed the shareholders agreement but is working on the concession agreement.

CAPPING LEVELS

While the Railways is yet to firm up the exact level of returns that the SPV would be allowed to pocket, sources indicate it could be capped in the range of 15 per cent per annum on a net present value basis. Additionally, the Railways may link the returns earned from the project to the duration for which the SPV gets to own the rail link.

“The SPV would be given the concession to own and maintain the link for about 30 years. But, if the total investments are recovered (along with the specified level of return) before the concession period gets over, the ownership of line would be transferred back to the Indian Railways during that year itself,” said official sources.

The process is being reworked since the Railways feels the need to limit the returns that companies can get from railway operations. However, it has to maintain a fine balance so that the proposed conditions do not make the projects unattractive, point out industry observers.

When finalised, these norms would be a part of the concession agreement that these SPVs would sign with the Indian Railways. The concession agreement is basically a contract between the Indian Railways and the SPV owners that would stipulate rights and responsibilities of all parties.

For partnerships in such rail link projects in the future, the Railways is also considering some other options that include allowing the strategic (user) investors to bid for the projects on a competitive basis.

PRESENT NORMS

As of now, investors are selected on the basis of assured annual traffic guarantees that they provide for these rail links. Then, they are allowed to build, finance, own and maintain the tracks for a stipulated fixed duration of 32-33 years after which the ownership is transferred back to the Indian Railways. Similar ongoing projects undertaken by SPVs such as Pipavav Rail Corporation and Kutch Railway Company are guided by such rules.

The 113-km rail link between Obulavaripalle and Krishnapatnam in Andhra Pradesh would be handled by Krishnapatnam Rail Road Corporation Ltd, an SPV with Rail Vikas Nigam Ltd (30 per cent), Government of Andhra Pradesh (13 per cent), Krishnapatnam Port Company Ltd (30 per cent) and other strategic investors that include iron ore exporters (27 per cent) as equity partners.

In the Haridaspur-Paradip line, RVNL has the largest equity stake in the SPV (48 per cent), while Essel Mining and Rungta Mines have 11 per cent each, and POSCO and Paradip Port have ten per cent each. The remaining ten per cent stake is held by MSPL Ltd, SAIL, Jindal Steel and Power, and Government of Orissa.

More Stories on : Railways | Infrastructure

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Ministry gets in-principle nod for use of Hindon airport

Cochin Port Trust moving to 24/7 work culture

Crisis Management Group to keep watch on USS Nimitz

Port of Venice office in Mumbai

TN lorry owners asked not to ply to Karnataka

Railways may cap returns for SPVs