Public private partnerships in financing projects on Indian railways

Abstract

Indian Railways (IR) has been a consistently dividend paying organization, but capacity addition and network growth rate has dwindled over the years due to falling net budgetary support from Government of India, and increasing social Political expectations causing multi fold increase in the number of socially desirable but financially unviable projects on its shelf. Economic liberalization and globalization post1990 ushered in a new era of challenges, which lead to search for alternative financing involving private sector. During the last two decades varied forms of partnership have emerged on IR and in order to capture them seven carefully selected independent organizations including CONCOR., KRCL and RVNL were studied. They either came into existence as part of public private partnership (PPP) or used varied forms of private partnerships. Thirty key professionals including MDs and Directors in these organizations, heads of Delhi and Bangalore Metros, from government, consultants al1dfInancial institutions were interviewed in depth for eliciting their perceptions and opinions on existing PPP models and way forward. Public-private partnership on IR has evolved from public-public partnership and is based on strong need for increasing investment, prioritising projects, timely completion, adoption of modem systems on new network, and u sing private expertise in loss making peripheral services. Each case studied is unique in respect of form of partnership, funding, risk management and regulatory mechanism, and provides valuable insight in to what caused its success/ failure in achieving different objectives. Interviews and case studies bring forward an emerging trend in India in which public sector companies under IR and SPVs have a much greater role to play in future PPPs and building capability in private sector. Most encouraging funding is the perception among stakeholders that no major reform is needed, yet government has to take certain policy decisions to take the endeavour forward. Looked at in the backdrop of the international experience on British Railways, German Railways, and American Railroads; which were reviewed in detail before the onset of research; the PPP on IR has been primarily a bottom up evolution in new projects in contrast to the top down imposition in existing railway system in above countries. Lessons learnt from these countries, Eurotunnel Project, Indian experience in PPP in airports and highways have been utilized along with the research findings to propose six different project PPP models addressing SLX most talked about areas ranging from Dedicated Freight Corridor to Mass Rapid Transport projects. Seven project structures in varying degrees of privatisation have been used including three variants of BOT namely Differed Payment, Fixed PVR, and Annuity. Together they form the new projects structure framework for PPP in railways. But this was found inadequate to capture the entire evolution of PPP in IR. Further the government need not necessarily address each small project; rather it should focus on creating organizations and laying sector level policies. In the process a three level PPP framework was developed, which is far superior in capturing various models of private partnerships in raih;'1ays and providing strategies focussed on projects, organizations and railway sector as a whole. The new framework also presents PPP as an alternative to railway reforms with the involvement of private sector being carried out in many countries. The research has shown valuable patteI11S of evolution of public private partnerships in rail transport in India. The new framework of PPP has given form and shape to what had already been happening in railway industry in India for better understanding and clearer strategies. The policy recommendations for governrnent if implemented would help IR take a big leap in realizing its full potential and SLX project PPP models would provide valuable tool to the practiceners for designing future project structures.