Logistics

Pressure building up on govt to fix land licensing issue ahead of Concor sale

P Manoj MUMBAI | Updated on February 05, 2021

Private container train operators fear that the privatisation of Container Corporation of India Ltd (Concor) will create a “state-supported dominant private player” in the inter-modal sector and urge the government first to address the issue involving Railway land given to the state-run company at concessional rates before starting the sale process.

“Any change in policy going forward that benefits Concor commercially without first addressing the issue of concessional land having been made available to Concor will not only be a clear violation of the concession agreements (signed between Railways and private container train operators) but will also create a de-facto situation where preferential treatment would be received by the potentially successful private bidder for Concor,” Manish Puri, President, Association of Container Train Operators (ACTO), wrote in a letter to Prime Minister Narendra Modi.

This would also create a state-supported dominant private player in the intermodal sector which will be against the interest of free and fair competition, he said.

“The future of Indian Railways depends heavily upon expansion of the container business on the rail, for which the continued participation and health of all investors in the space remains critical,” Puri said.

The privatisation exercise, according to ACTO, should be undertaken in a manner that “first addresses this important issue rather than proceed toward what we fear could be the creation of a market-disruptive force if a commercially dominant organisation like Concor is transferred to entirely private management under a concessional pricing regime”.

Intermodal sector

The Indian intermodal sector was developed by Indian Railways through Concor by facilitating Inland Container Depots (ICD) on railway land by Concor.

Railway land was leased to Concor at a fixed per 20-foot container (twenty equivalent units or TEU) basis helping it develop business with a lighter balance sheet and without being under pressure of paying fixed rental or large capital expenditure for acquiring large parcels of land on which the terminals were to be developed.

This meant that until the business developed at any such location, Concor would pay only marginal cost linked to the business’s actual level of activity. This land was made available to Concor by Railways sometimes even by closing its Public Goods Shed movement.

In 2006, the Indian Railways decided to deregulate the sector by attracting private investment to qualify by paying an upfront fee of ₹10 crore for operating container trains on specific routes and ₹50 crore for operating over the entire Indian Railway network.

As a result, 13 new operators secured licenses to run container trains.

Land policy

However, even at this stage, the Indian Railways didn’t correct its land policy for Concor by bringing it on par with its general land licensing policy for other Indian Railways land users and continued with per container fee as a variable cost.

This resulted in an uneven field for the new operators. These operators were not given Railway land to build their terminals. In fact, these private operators had to pay land licence fee at 6% of the circle rate of the land notified by the state government with an annual increment of 7% for a narrow strip of land required to connect their sidings to the nearest railway station – something that even Concor was not paying during its two decades of operation nursed by Indian Railways. This land license fee was subject to a revision every five years to keep in tune with the land’s market price (circle rate), ACT stated.

Therefore, the private operators had to buy private land for development of terminals at market rate resulting in a heavy balance sheet and a heavy cost structure compared to Concor.

“Thus, Concor had a huge cost and pricing advantage as compared to the new private operators. This advantage was used by Concor to continue its dominance in the market by playing the price card wherever the competition set up their terminals closer to Concor terminals which were built on railway land at a concessional fee,” ACTO stated.

Published on February 05, 2021

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