Private train operations: PSU bidders have barely time to sign up partners

Public sector enterprises such as IRCTC, in the race to run private trains on the Indian Railways network, may be at a disadvantage.

The rules mandate that state-owned companies must select consortium partners through an open bidding process, which is a time-consuming process.

The Railway’s bidding norms for private trains, which now provide companies time to bid till October, bar potential bidders from forming a consortium with any firm that has already been shortlisted at the qualifying stage.

Effectively, the potential bidders get a smaller window to negotiate to select the consortium partner before the shortlisting.

Public sector units that have bought bid documents to run trains for 35 years include Indian Railway Catering and Tourism Corporation (IRCTC), a listed arm of the Indian Railways, and BHEL.

IRCTC, which has experience in operating international and domestic tourist trains as well as the Tejas Express trains on the Indian Railways’ network, is looking for companies that can bring in funds to form a special purpose vehicle. Those looking to tie up with IRCTC can pick up 51-60 per cent stake in the SPV.

IRCTC will manage train operations such as catering, marketing, and ticketing, while the equity investor will bring in funds for rake procurement, hospitality services, and branding expertise. In fact, government sources confirmed that IRCTC is contemplating to tie up with rolling stock manufacturers, leasing companies, and airlines.

As of now, to ensure serious bidders, the Railways draft norms stipulate that if a single entity applicant adds a consortium member at the bid stage, it will continue to be the lead member of the consortium. However, the norms also stipulate that if an applicant adds a consortium member after the qualifying bid and before the financial bid stage, then it can only bring in companies that are not in the list of qualified applicants. This is to prevent qualified bidders from poaching players from other qualified teams or tying up with players that have already qualified, leaving newer players to step in at the financial bid stage.

But bidders say that in these Covid times there is very little time to ink tie-ups with “serious candidates” before the qualifying bid.

“The demand conditions have changed the market scenario, making it difficult to gauge the train passenger market,” multiple sources confirmed to BusinessLine .

In fact it’s not just PSUs, private bidders too had sought more time to bid citing the challenges that have emerged during the lockdown. Rolling stock providers, which own technology, are worried over losing the advantage if operators can directly purchase from production units.

That said, the Railways has relaxed exit conditions after the train operations start commercially, allowing initial investors to partially exit after one year of commercial operations instead of the earlier two years.

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