India moves to open up railway sector

The country has made further steps towards privatising railways by issuing guidelines applicable to both domestic and foreign investors.

In a bid to shed light on the implementation of rules laid out by the Department of Industrial Policy and Promotion (DIPM), India last Thursday issued sectoral guidelines applicable to both foreign and domestic investors.

The recommendations complement the regulatory changes announced by the DIPM last August, which aim at attracting foreign capital to the country’s cash-strapped railway sector. They include model concession agreements, more flexibility in the elaboration of project proposals and a listing of identified projects in demand, and are intended to make the reforms more intelligible to prospective investors.

They follow Suresh Prabhu’s appointment as Minister of Railways earlier this month, and come after India reaped international recognition from international consultancy firm KPMG for being host to six of the world’s top 10 “most innovative and impactful” infrastructure projects.

The measures announced last week are seen as a potential breakthrough in a country where the modernisation of railways is seen as key to unlock significant economic growth – but where the sector has remained a highly-centralised monopoly until recently.

The government is now pushing through privatisation in 17 segments of the industry, including sub-urban corridor projects through public-private partnerships (PPP), high speed train projects, dedicated freight lines, rolling stock manufacturing, railway electrification, signaling systems, freight terminals, railway technical training institutes, testing facilities and standalone passenger corridors.

A key feature of the reforms is the possibility for potential PPPs that are seen as economically justified but not financial viable to benefit from grants of up to 20 percent of the project cost.

Observers note that a number of hurdles remain for private investors looking to invest in the sector, however. Existing joint venture projects relating to freight lines – abiding by the 2012 Non-governmental Railway participative model policy – are to see 26 percent of their equity retained by the Ministry of Railways (MOR), or any of its public sector undertakings, the guidelines decreed.

A series of public authority pre-requisites are also required for PPP contenders to be considered.

Pre-screening of project proposals by the Railways Board (MoR portal) is to be followed by a technical and financial viability vetting and transferred to one of the country’s 15 Zonal Railway authorities, also entrusted by the government to “prepare/update technical, traffic, [and] financial reports for identified projects”.

Another potential damper to the promotion of private participation is the right that the MOR retains to verify antecedents of foreign collaborators and domestic promoters, including their financial standing and credentials.

Safety and regulatory certification from the government is also required pre-commissioning for projects involving passenger transit.