Companies

Concor privatisation plan takes a controversial turn

P Manoj Mumbai | Updated on July 20, 2020 Published on July 20, 2020

Railways looking to transfer land lease pacts to private owner on same terms as Concor

The government’s move to privatise Container Corporation of India Ltd (Concor) has taken a new turn, with the Railways Ministry weighing a potentially controversial plan to ‘grandfather’ the land lease agreements by transferring them to the private entity winning the deal on the same terms as granted to the state-run rail hauler.

Some 25 of the rail hauler’s 64 inland container depots (ICDs), including its flagship facility at Tughlakabad near Delhi, are running on land leased from Indian Railways at concessional market rates. So far, the land licence fee for the lease was paid by Concor at the rate of ₹1,175 per loaded twenty-foot equivalent unit (TEU). In FY20, the land license fee pay-out was about ₹140 crore.

On March 19 this year, the Railways Ministry issued a circular stating that the land licence fee will be charged from FY21 onwards as per a Railway Board letter of February 2005.

Accordingly, from April 1, the revised land licence fee will be calculated at the rate of 6 per cent per acre of the industrial land value where the terminal is located.

 

The current concessional market value of Indian Railways’ land leased to Concor, according to calculation based on the February 2005 Railway Board letter, is about ₹7,500 crore. On this, the 6 per cent land licence fee works out to about ₹450 crore a year.

The revised land licence fee calculation will be valid till Concor’s lease agreements – typically in the range of 10-12 years (for Tughlakabad it runs through 2032) – with Railways are in force.

 

But once the private owner of Concor takes over, all lease agreements will have to be re-written to bring the land value to rates prevailing in the market, to avoid allegations of transferring Indian Railways land to a private entity at below market rates.

The current market value of the Railways land would be in the range of ₹14,000 to ₹16,000 crore. Thus, for the private owner of Concor, the annual land licence fee at the rate of 6 per cent would zoom to about ₹1,000 crore, rendering the terminals unviable to operate.

Lower realisation

Consultants tracking the sector reckon that the steep hike in land licence fee will impact Concor’s valuation and could fetch lower realisation for the government during the sale, apart from depressing bidder interest.

“To address this issue, the Railways Ministry is looking at resorting to grandfathering by transferring the land lease agreements to the private owner on the same terms,” said a person briefed on the development.

Private firms running container trains, however, fear that such a plan would extend a big undue favour to the entity buying Concor, apart from helping it become a dominant player as well as a private monopoly, throwing others out of business.

“The objective of disinvestment in PSUs is to bring in competition. If the existing land lease agreements are continued as it is, then the spirit of disinvestment is compromised and defeated,” said an executive with a private train operating company.

Concor, on its part, has urged the Railways Ministry to continue with the practice of charging the land license fee on a per TEU handled basis till the time the company is owned by the government, to maintain the value of the company.

“Whenever privatisation happens, the new land licence fee calculation can be implemented,” the person mentioned earlier said.

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Published on July 20, 2020
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