Indian Railways Looks To Shed Baggage Of Past With New Station Privatisation Plan

Asia’s oldest rail network will invite applications for modernising stations across the country every month. But for that, Indian Railways will have to overcome delays, streamline approvals and cut red tape, things that derailed the effort earlier.

“A number of attempts have been made in the past, and we have learned from them,” SK Lohia, chief executive officer of Indian Railways Station Development Corp., the nodal agency for redevelopment, told BloombergQuint in an interview. “Having learnt from what works and what doesn’t, the government has done a lot of facilitation in terms of allaying the concerns of the investors.”

For his optimism, Lohia cited single-window clearance for layout and building plan, no change required in land use for redevelopment, exemption from prior environment clearance, and extension of concession period of up to 99 years for residential projects and 60 for commercial blocks from 45 years previously.

Indian Railways, according to government data, ferries 2.3 crore passengers and about 3.4 million tonnes of freight daily from more than 7,300 stations. At least, it did before the pandemic. Yet, it's short of funds as rail fares are heavily subsidised. For upgrading railway stations to commercial centres like airports, Prime Minister Narendra Modi's administration is seeking participation of private developers. His government even kicked off a plan to allow private operators to run trains on one of the world's largest networks.

But drawing interest from the private sector for station upgrade has been harder than thought as delays and stringent conditions made it unviable. Envisioned in 2004-05, the project failed to take off. Modi renewed it in 2016 with a plan to redevelop 400 stations. The response, however, was tepid and only the upgrade of Habibganj, Bhopal, kicked off under the model. Gandhinagar station is also being redeveloped but it's being done jointly done by IRSDC and Gujarat. Both are expected to be ready by December after missing the 2019 deadline.

‘This Time It’s Different’

Lohia said investors can now make money either by monetising land and air space by setting up shops, kiosks, advertisement hoardings, parking lots, offices and residential properties. The railways, he said, also introduced the user charge model, similar to airports, to provide a defined revenue stream.

“The ministry has done a lot in the last one year to address many core issues in the station redevelopment push,” Pawan Kant, president (long-term assets and PPP) at Kalpataru Power Transmission Ltd., one of the firms shortlisted to redevelop Gwalior, Nagpur, Amritsar and Sabarmati stations, said over the phone. User fee, he said, will go a long way in improving the financial situation of the investors and make the project viable.

Railopolis: A 24x7 Commercial Hub

The national transporter is focusing on redeveloping 123 stations into Railopolis—or 24x7 multi-model hubs. As many as 50 will be taken up for redevelopment in the first phase at an estimated cost of Rs 50,000 crore. Request for quotation for eight have already been issued. For New Delhi and Chhatrapati Shivaji Maharaj Terminus in Mumbai, the two biggest projects, the requests for qualification will be issued by next month. Delhi and Mumbai will require investment of Rs 4,925 crore and Rs 1,642 crore, respectively.

Lohia is hopeful that these will see participation from global funds as well. “We have showed from the work done in Habibganj in Bhopal that is nearing completion that work can be done while the trains are running.”

His confidence also stems from the initial participation for the redevelopment of four stations under the project—Nagpur, Gwalior, Amritsar and Sabarmati—for which 32 firms showed interest. “For each station, we had minimum six bidders that have qualified,” Lohia said, adding that two funds--ISQ Capital and FairFax--too participated for the bid.

What’s In It For Railways

A station operator can either pay an upfront premium or annual premium or a combination of both to IRSDC, providing the agency a major source of revenue.

Lohia said IRSDC will get a percentage of the project development cost, and will retain 15% of the surplus lease premium, and pass the remainder to the railways. IRSDC is 50% owned by state-run consultancy and engineering firms RITES Ltd. and Ircon International Ltd., while the rest is held by the Rail Land Development Authority.

IRSDC, the authority to set up a fund or joint ventures, is looking to list in the future. While Lohia declined to give any timelines, he said the agency will test the market once it has redeveloped about 50 stations.

Several Unknowns

Developers and consultants BloombergQuint spoke with agreed that the renewed push is a good start but a lot is still unknown.

“We have studied number of railways proposals and there is always confusion on land titles as the properties are dated," Pankaj Bajaj, managing director of Eldeco Infrastructure and Properties Ltd. and Eldeco Housing and Industries Ltd., the firms looking to participate in the project, said over the phone. "Second is land use. Railways says a change it is not required, but local authorities in many places do not agree to it.”

Stations are mostly based in the crowded and old parts of a city, away from the new infrastructure, Bajaj said. To make these commercially viable, a holistic plan for the development of the entire catchment area, instead of just the standalone station plan, is required, he said, adding that his company will wait for a few projects to kick off.

Kant flagged lack of co-ordination with local authorities is a grey area. “For example, construction in Mumbai it will require about 30-40 plus approvals,” he said, adding if the single-window clearance works or developers are supposed to pursue individually with the local authorities, needs to be seen. “Success will also depend on prompt and efficient providing of all clearances during implementation.”

Another concern is railways' poor track record of completing projects on time, like the dedicated freight corridors.

So there is an element of uncertainty regarding delay, said Abhishek Gupta, assistant vice president and real estate analyst at ICRA. “Every bit of delay will result in loss of revenue for the investors.”

Lohia of IRSDC said a team chaired by NITI Aayog chief executive and comprising Railway Board chairman and secretaries of Department of Economic Affairs and Urban and Housing Ministry as members has been set up to monitor the progress of the projects.

Jagannarayan Padmanabhan, director-transport and infrastructure, Crisil Infrastructure Advisory, agreed the railways have made an earnest attempt and now it's up to the market forces. “If they are able to bring four stations to logical conclusion by getting a private operator, it will set the momentum for other projects."

Watch the full interview here: