The Hindu Business Line : Rlys to cap returns at 14% for rail links

The rule to cap returns at 14 per cent forms a part of the concession agreement, which is a contract between the Railways and the SPV owners that would stipulate rights and responsibilities of all parties.

Mamuni Das

New Delhi, Aug. 20 Indian Railways is close to capping the returns for private and public firms that invest in building rail-links at 14 per cent per annum.

Some rail links are built and maintained by special purpose vehicles (SPVs) with equity from Indian Railways and other primary beneficiaries like steel and mining companies, Port Trusts and State Governments.

In return for the investment, the SPV is given revenues earned by the 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 is close to finalising the concession agreement, having already signed the shareholders agreement. The rule to cap returns at 14 per cent forms a part of the concession agreement, which is a contract between the Railways and the SPV owners that would stipulate rights and responsibilities of all parties.

There was a delay in the concession agreement as Railways looked at various options including allowing the strategic investors to bid for projects on a competitive basis. After the concession agreement is signed by all owners, the SPVs can make the committed cash calls from all investors.

INVOLVED PARTIES

The 113-km rail link between Obulavaripalle and Krishnapatnam in Andhra Pradesh is estimated to have a landed cost of Rs 588 crore, with an equity of Rs 270 crore. It would be handled by Krishnapatnam Rail Road Corporation Ltd, an SPV with Rail Vikas Nigam Ltd (30 per cent), the 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 owners.

The Haridaspur-Paradip line is expected to have a landed cost of Rs 598 crore, with an equity of Rs 275 crore. Rail Vikas Nigam 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 10 per cent each. The remaining stake is held by MSPL Ltd, SAIL, Jindal Steel and Power, and the Government of Orissa.

At present, 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 Railways. Similar projects undertaken by SPVs such as Pipavav Rail Corporation and Kutch Railway Company are guided by such rules.

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