India opens rail to private sector

Private sector entities can now construct, operate and maintain railway tracks in the country under the railway ministry’s new policy of promoting investment in rail infrastructure projects.

The Indian railway ministry has green-lighted the private sector’s involvement in the country’s railway operations, the railway ministry said in a statement.

Indian rail
to go private

Private players will now be able to construct, operate and maintain railway tracks under a new policy by the ministry to promote investment in rail infrastructure projects.

The railway ministry has proposed four business models that would allow the private sector to build tracks of 20 kilometres or longer. They include the full contribution-appointed earning model, the cost-sharing-freight rebate model, the special purpose vehicle (SPV) model and the private line model.

According to the cost-sharing-freight-rebate model, the railway ministry and private companies would enter into a cost-sharing agreement to construct the proposed track. In this case, the private sector’s contribution cannot be less than 50 percent of a project’s total cost. The construction, operation and maintenance of the new tracks will be taken up by the railway ministry and the private players will be entitled to a freight rebate of between 10 to 20 percent for a period of 10 years.

The second model, called the full contribution-apportioned earning model, will be applicable in cases where the private sector applicant is making a 100 percent contribution towards the project. Under this model, the private sector entity will construct and maintain the line for a period of 25 years from the date of commissioning.

Regarding the special purpose vehicle (SPV) model, a holding company will be formed between the railway ministry and the applicant, with the authorities owning a 26 percent stake in the vehicle. Under this model, the SPV shall be granted a concession contract to construct, operate and maintain the line, sharing in the revenues it generates for a period of 30 years.

The private line model, the last of the four business models, would apply in situations in which the private parties want to build a new line on privately acquired non-railway land and link it to the railways network. In this case, the private party would enter into a partnership with the railway authority and claim revenues generated on the line for a period of 30 years, minus operational and maintenance expenses incurred by the railway authority, to be deducted from the gross revenues.

With the exception of the private line model, land for building new lines will be acquired by the railway ministry with funds from the private companies.

Indian Railways, a department of the railway ministry, has at present 110 new rail projects in various stages of development with the balance of funds required for their completion estimated at INR60 billion (€986.8 million, $1.3 billion).