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Mamuni Das

New Delhi, Oct 16

Private and public investors such as Jindal Steel, Rungta Mines, Essel Mining, Paradip Port Trust involved in the construction of two rail links connecting Paradip and Krishnapatnam ports have accepted the terms spelt out by the Indian Railways in the agreement wherein Railways has put a ceiling on the returns that the investors can get from these projects.

Some rail links are built and maintained by special purpose vehicles (SPVs) with equity from the Indian Railways and other primary beneficiaries such as 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.

The Indian Railways has decided to cap the returns on such projects at 14 per cent and the maximum period for which the investor can own the rail link has been fixed at 30 years. Thus, the investors would continue owning and deriving revenues from the rail link till they receive 14 per cent returns on their entire investment on a net present value basis.

For instance, if the investors get 14 per cent returns on their entire investment by the eighth year of the rail link in operation, then the ownership of the rail link would be transferred back from the investors to the Indian Railways the next year. However, if even beyond 30 years the investors are unable to recover a 14 per cent return, then the ownership of the rail link goes back to Indian Railways in the 31st year since 30 years is the maximum period for concession.

These terms have been put in the concession agreement, which is a contract between the Railways and the investors that would stipulate rights and responsibilities of all parties, firmed up by the Indian Railways for these projects.

“The concession agreement has been approved by the Railway Board and accepted by the investors,” Mr D.C. Mitra, Managing Director, Rail Vikas Nigam Ltd (RVNL), told Business Line. RVNL is an SPV, set up by the Indian railways to construct such links with private partnership. “We are in the process of appointing board of directors of the SPVs that would manage the Krishnapatnam-Obulavaripalle rail link and Haridaspur-Paradip rail links,” Mr Mitra said.

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), NMDC (15 per cent) and another iron ore exporter (12 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 10.91 per cent each, and POSCO and Paradip Port 10 per cent each. The remaining stake is held by MSPL Ltd (5.45 per cent), SAIL (1.82 per cent), Jindal Steel and Power (1.82 per cent), and IDCO, Government of Orissa (0.6 per cent).

These 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.

More Stories on : Railways | Supply Chain Management

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