The Indian Railways’ ambitious plan to allow private operators to run trains for the first time has met with encouraging response. Fifteen applicants have qualified the initial RFQ or request for quotation stage.
The railways have thrown open its doors for the private sector, under Public Private Partnership (PPP) model to operate on congested routes divided into 12 clusters. Those who have qualified at the RFQ stage are now expected to bid for operating trains on 140 ‘origin- destination’ pairs of routes.
The RFQ stage typically involves vendors preparing their bids before negotiating the processing, awarding and closing phases. The operators are expected to invest ₹30,000 crore and bring 151 modern trains (modern trains are rolling stock built with improved technology which will reduce maintenance). The exercise could be a test case for the railways before it decides to further open up its fleet.
But there are glitches as some prospective bidders have raised concerns over the bidding process, the requirements and the expectations built-in. Their biggest concern seems to be the tight bidding schedule. The vendors have voiced their concerns during the pre-bid meetings conducted by the railways.
The qualified bidders include IRCTC, a public sector arm of the railways and companies such as Cube Highways and Infrastructure, GMR Highways, IRB Infrastructure Developers, Megha Engineering & Infrastructures, Arvind Aviation, BHEL and Gateway Rail Freight.
A consultant advising one of these shortlisted bidders told The Federal on the condition of anonymity that a financing plan needs to be worked out, rolling stock (trains) need to be selected and a detailed commercial analysis needs to be done before a bid can be submitted.
“Just a viable bid is not adequate. A thorough analysis of each cluster requires a minimum of three weeks and even if a bidder bids for four clusters, it would run out of time before submission.” The final date for submission of bid is March 31, which is already a two-month extension from the January deadline earlier.
Another prospective bidder also spoke up about the “near-impossible” timeline for the entire process and sought a “clear five-six months” for interested operators to conduct a detailed evaluation of each cluster. The second bidder said that he has sought extension on bid submission deadline but haven’t heard from the ministry so far.
The second major irritant is the financial model for the bid. The railways has made it clear that the bidder offering the highest premium per cluster would be selected as the winner. And not only would the selected bidder have to pay this fixed charge, there will additionally be a haulage charge for using the Indian Railway’s tracks and other services. One of the bidders said that the railways should be charging either fixed premium or haulage charge, not both. “If a percentage of revenue is anyway being charged then why should the operator pay a haulage charge over and above the first levy? So I would say these financial parameters do not make the bidding viable,” he said.
Sudhanshu Mani, former general manager at the Integral Coach Factory, Chennai who oversaw the production of Train18, pointed out that while some suggestions from prospective bidders have already been accepted by the railways, some issues remain. “The contract period of 35 years is a killer. A strong pitch must be made for reduction of the project duration to 24 years. Then, the operator should be given freedom to choose his train’s departure or arrival time as well the origin and destination within a city based on his estimation of preferences of the passengers.”
Further, he felt the railways’ assertion that the “obligation of the government to provide exclusivity shall not apply once the capacity utilisation of a train crosses 80 per cent” and amounts to penalizing an operator for good performance. He said this limit of utilisation needs to be increased to 95 per cent for each route in each cluster.”
Eighty per cent exclusivity clause means railways can run own train once private train has 80 per cent occupancy. As per the bid conditions, the concessionaire has no exclusivity on a route except a promise by the railways that it will not operate a train within 60 minutes of the departure of a private train on the same route. But even this ‘exclusivity’ can be withdrawn if the occupancy of the private train exceeds 80 per cent. The bidders want the condition to apply when the private train has 95 per cent occupancy, not 80 per cent, since fares on private trains will likely be higher than what the railways will charge. If there is simultaneous operation of private train at higher fare and an Indian Railways train at subsidised fare, the concessionaire is unlikely to break even on a route.
Mani said that that the exit clauses and penalties should be re-examined as no private train operator would like to exit after investing in a rolling stock. “After all, the rolling stock would be almost like a dead asset, which he would not be able to sell off like other assets,” Mani said.
Outwardly while the railways has allowed the successful bidders freedom on setting fares, in reality there may be little headroom available to the latter to charge a premium over extant fares, given the stiff competition with airlines and also because the travel time would hardly see any significant reduction, he added.
The absence of any commitment from the railways over establishing a regulator is another aspect which is making prospective bidders hesitant. As of now, the Indian Raiways is present in all aspects of train operations though it is a competitor to a bidder since it would continue to operate trains. Besides the Indian Railways are also the provider of infrastructure such as tracks and other services. Above all it would be an adjudicator in case of any disputes.
A bidder said, “a regulator is certainly needed and this must be specified at the time of bidding. Otherwise the entire exercise could get mired in doubts”.
Mani echoed this sentiment, saying the bid document says that the government shall appoint a consulting engineering firm to be the independent consultant.
“This is a clause which the prospective bidders find the most disturbing. In this environment of multiple risks and limited possibilities of risk mitigation, it is absolutely essential that an independent regulator be in place,” he said.
On its part, the railways has eased some conditions to make train operations viable for bidders. For example, it has said that it will not run a competing train within a 20 kilometres radius and given full freedom on fares. The railways must address concerns on project viability, or otherwise some of the clusters may fail to elicit even a single bid.