To smoothen privatisation, Concor to be asked to buy railway land on which it runs depots

P Manoj | Updated on February 28, 2020

41 of Concor’s 86 ICDs, including its flagship facility at Tughlakabad near Delhi, operate on land leased from Indian Railways.   -  istock.com/teppakorn tongboonto

But the move, which is set to load ₹8,000 crore of debt onto its books, will weigh on the stock and its valuation

Container Corporation of India Ltd (Concor) will be directed to buy land leased from Indian Railways to build close to half of its 86 inland container depots (ICDs) as the government looks to resolve a key issue that threatens to derail its plans to privatise the rail hauler of boxes.

“An in-principle decision has been taken to direct Concor to buy Railways land on which 41 of its ICDs are operating,” a government official briefed on the plan said. While the rate at which the land is to be sold/purchased is yet to be fixed, it will be based on the circle rate — the rate at which the government recognises land value for a particular site, he disclosed.

₹8,000 crore payout

According to rough estimates, Concor will have to pay as much as ₹8,000 crore to buy the railway land. The rail hauler will fund the deal through borrowings, which will be carried forward and assumed by the private owner of the company.

“In case, the privatisation plan is delayed or unsuccessful, Concor will have to bear the brunt of the borrowings,” he said.

The government, which holds a 54.8 per cent stake in Concor, has decided to privatise the corporation by selling a 30.8 per cent stake to a private firm and transferring management control.

Land lease hurdle

But, the railway land on which it had build the ICDs was seen as a big hurdle to the transaction due to fears it could court controversy politically.

41 of the rail hauler’s 86 ICDs, including its flagship facility at Tughlakabad near Delhi, are operating on land leased from Indian Railways, for which it pays a land license fee of ₹1,175 per loaded twenty-foot equivalent unit (TEU).

In effect, Concor pays a land license fee on 40-45 per cent of its overall volumes because these are handled at facilities built on Indian Railways land.

For the last three years, the land license fee rate has been linked to the percentage increase in the company’s profit after tax (PAT). In FY20, the land license fee was raised to ₹1,175 per loaded TEU from ₹1,015 per loaded TEU in FY19.

In comparison, terminals run by private container train operators are mostly built on land purchased from the market.

Concessional rate

Concor leased land from Indian Railways at a concessional rate, stoking fears among private container train operators that the new private owner of Concor would gain an undue benefit from buying Concor apart from helping it become a dominant player as well as a private monopoly.

Experts have opined that the government would have to resolve the land issue ahead of privatisation to smoothen the transaction so as to bring parity among box train operators.

“Railway land is the biggest issue facing the strategic disinvestment of Concor. The deal cannot destroy the basic rules of the game laid down by the concession agreement signed between the private operators and Indian Railways in 2007, which provides a level playing field to all,” said the chief executive of a private container train operating company. “We tolerated Concor’s dominant position all along because its land leases are very old and pre-date the 2007 policy whereby the sector was thrown open to private investors. But, going forward, if that land goes into private hands, then it will be a completely destructive move.”

At current market price, the government’s 30.8 per cent stake in Concor could fetch at least ₹18,000 crore.

“Railways can continue with the same system of charging a land license fee, (but) then the other private operators will be aggrieved and would take legal action. The next option is to raise the land license fee levied on Concor to market levels but this would hurt the company’s profitability. So, the chances of putting that kind of money at a lower profit to buy Concor would be slim, depressing bidder interest,” he added.

Published on February 28, 2020

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