The Hindu Business Line : SPV route suggested for freight corridor

CONSULTING firm Ernst & Young has suggested an SPV (special purpose vehicle) or a joint venture route to finance the proposed dedicated rail freight corridor for the country. The government plans to construct a high-speed rail freight corridor, costing over Rs 20,000 crore, connecting Delhi with Mumbai and Kolkata.

The firm, in a study, has evaluated four financing options — one with complete Indian Railways' funding, another through the SPV route with relatively higher level of Railways funding, a third method through a joint venture route where Railways puts in relatively low amount of funds and a fourth with complete privat funding.

In the first option where Indian Railways is at the helm of control and funds, viability is rated "high". Here the entire risk would rest with the Railways and the project reflected in the Indian Railways' balance sheet.

However, the three other options suggested would not be reflected on the balance sheet of Railways.

The second option, which E&Y feels would be a favoured method, involves formation of an SPV with a 30-per cent outlay from Railways.

The option would leave all control to Railways except risk accountability, which would be reduced to 30 per cent. A separate SPV would also provide focus, greater accountability, operational freedom and faster skill development, according to E&Y.

The third option requires the Railways to put in about eight per cent of the project cost.

The remainder would be raised from various institutional investors (financial institutions, multilateral agencies) or from the government's budgeted layouts for infrastructure projects, among others. The control of Indian Railways on the project would be "significant" and the ease with which the project can be implemented is expected to be high.

The risk recourse to Railways would be to the extent of 8 per cent only.

The fourth evaluated option talks about complete private ownership with absolutely no outlay from Indian Railways and no risk recourse to Railways as well.

This form of implementation, while leaving little control to Railways, would also rate low when it came to viability. While E&Y points out that the SPV/JV routes would be the right way to move, it also raises some concerns that need to be addressed while implementing the project.

The issues include sub-optimal utilisation of existing assets, competing facilities and rights, meeting existing cross-subsidy requirements between passenger and freight operations and extent of access to other carriers.

In case of freight shifts to a new dedicated freight corridor, then the cross subsidy requirements of existing lines would increase, points out E&Y.

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