Public-private partnerships in port-rail connectivity in India

Abstract

Indian Railways (IR) is at crossroads today. It has to find ways not only to survive as an economically viable organisation in the new competitive environment, but also to play the role expected of it in the growth and development of the economy. The Indian Railways' finances have been passing through a difficult phase particularly after the implementation of the Fifth Central Pay Commission recommendations and the severity with which they have been hit in the last few years has been quite unprecedented. After the economic reforms initiated by Government of India in 1991, the transportation sector was deeply affected. Indian Railways realized the urgency to go for avenues other than dwindling budgetary support and limited internal generations to finance its capital expenditures. Accordingly, IR introduced BOLT scheme in 1994 to accelerate the creation of Rail infrastructure by attracting private funding to supplement its resources. However, due to the rigid structure of the scheme and half-hearted attempt to attract private capital by IR management, this scheme did not take off.IR then engaged RITES and I CI CI to study the shortcomings of this scheme and to suggest a new workable scheme. In 2001-02, IR accepted the BOT structure that was flexible and less bureaucratic with greater transparency and sharper accountability of the Project Implementation Organization Despite these improvements, this scheme could attract only one project. The apparent reasons were the loss of credibility of IR in the capital market and the absence of a specialized agency to market the BOT scheme. Meanwhile an urgent need was felt for providing rail-connectivity to Ports withtheir hinterland. Gujarat Pipavav port Limited (GPPL) approached Ministry of Railways (MOR) in 2000 to provide Broad Gauge Rail-Connectivity to Pipavav Port in Gujarat. MOR and GPPL set up a Joint-Venture company in May 2000called Pipavav Railway Corporation Limited (PRCL) with 50:50 equity participation for the purpose of providing Pipavav-Surendranagar Rail Connectivity. PRCL completed the construction of 350 ETKMs (Equated Track Kms) in six months, in March 2003. The Public-Private Partnership (PPP) model adopted by IR with a private promoter, GPPL can be called a partially successful model. Following broad recommendations are made for a successful PPP model in providing rail-connectivity to Ports in India. 1. There should be cash-realization mechanisms built-in the contract in case of default by the private partner. 2. Concerned State Governments should be made equity stakeholders in the Spy 3. Reasonable Financial and Commercial Autonomy should be granted to theSPY. 4. Completion of Rail-Connectivity and Development of Port should be properlysynchronized. 5. IR should play an important role of risk-mitigator and should have ownership of the Project. 6. State-of-the-Art Technology should be used in Construction and O and M. 7. IR should build an image of a good and reliable partner to work with. 8. Prospective Loading/Unloading Points should be developed along with the Project.