Change the track

| Updated on August 23, 2021

Railways must sweeten the terms and reduce concession period for inducting private trains

Despite multiple rounds of pre-bid consultation and deadline extensions, Indian Railways’ (IR) effort to induct the private sector into its passenger train operations has run into a major stumbling block. The proposal mooted a year ago drew over 120 initial applicants with 103 qualifying to submit Request for Proposals (RFPs). But the recent tender has seen just two players participate — Government-owned IRCTC and private player Megha Engineering — who bid for just three of the 12 clusters, with widely divergent quotes, forcing IR to go back to the drawing board. Given that the IR’s operating ratio is stretched to breaking point, the induction of private players was expected to help it attract private capital to ease severe capacity constraints in its passenger operations. In the long run, allowing private players to operate premium services in high-traffic routes may help the Railways improve the viability of its heavily-subsidised passenger operations.

Under the PPP model, IR proposed to provide all fixed infrastructure and personnel to operate these high-speed trains, while private train operators (PTOs) were expected to procure, operate and maintain the rolling stock. While operators were allowed to set premium fares and granted route exclusivity, they were to bear all running costs, while paying IR haulage charges and a revenue share. Private players who evinced interest initially seem to have stayed away from the final bidding on three key concerns. One, the 35-year concession period is seen as too long given the difficulty of making long-term traffic projections and the 20- to 25-year average life of passenger rakes. IR can perhaps consider a shorter concession period or early exit terms to surmount this. Two, stiff penalties were proposed on PTOs if their trains didn’t stick to 95 per cent on-time performance but with track and station management controlled by IR, such parameters are really not under their control. Three, while flexibility on pricing holds the key to PTO profitability, the Railways retained power to cap fare revisions and raise haulage charges annually. Given that low-cost airline fares anyway set upper limits on how high train fares can go, IR must refrain from such pricing controls.

Setting up an independent regulator to arbitrate on the conflicts that may arise between the Railways’ and the PTOs can help resolve many of these concerns, which essentially arise from worries over conflicts of interest. But, all things said, it is also possible that private players’ lukewarm response to this exercise was a function of its timing. With looming fears of a third wave, IR today faces considerable uncertainty on whether travel will normalise and passenger traffic recover over the next few months. Asking private players to commit to a 35-year venture into this new sector during such uncertain times may be unrealistic. Given how significant the success of this reform is to the IR’s future, it must bide its time on re-floating this tender and time it to a decisive economic revival post-Covid.

Published on August 23, 2021

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