India: Emerging Opportunities for Private Sector in Infrastructure

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Rohan Sanghavi
India: Emerging Opportunities for Private Sector in Infrastructure

40th Annual Meeting of Board of Governors, Asian Development Bank Kyoto, Japan
Address by Mr J P Batra, Chairman, Railway Board, Government of India


It gives me great pleasure to share with you today, the high growth experience of Indian Railways. We are fully owned by Government of India. Our rail network is the fourth largest in the world.

  1. In the financial year that has just ended, we lifted 726 Million tones of cargo and we are the fourth largest freight carrier amongst the world’s railways. Last year, we carried 6.35 billion passengers and we are the largest carrier of passengers amongst the world’s railway system. We account for 2.3% of the country’s GDP and employ 1.4 million employees directly.

  2. Given its size and importance, the performance of Indian Railways is vital to the economy. I am proud to say that by any measure, we have performed exceedingly well during the last three years. Our freight traffic has grown at 9% and passenger traffic at 7% per annum during the period. Our normal annual growth for at least four decades earlier has been 4% in freight and 2% in passenger.

  3. This growth has come from our effort in maximizing efficiencies out of a saturated system. Last year we earned a surplus of US$ 4.5 billion on revenue of US$ 16.0 billion. Our operating ratio came down 78.7% - one of the best among rail networks. For the current year we aim, and hope to achieve, revenue of US$ 18 billion and surplus of about US$ 5 billion.

  4. Our freight is expected to grow at 8.6% and passenger traffic, at 6% over the next five years. By the beginning of 2012, we plan to carry 1100 million tones of freight traffic and 8.4 billion originating passengers.

  5. We realize that such high growth would be difficult to sustain without adequate planning for capacity augmentation. Our ongoing investment in infrastructure would continue. The investment planned for the current year is US$ 7.7 billion. Over the next five years, our investment needs would be about US$ 56 billion. We hope to mobilize a large part of the investment requirement amounting to at least US$ 15 billion through debt and PPP. We have identified a number of areas where Public Private Partnership could be a mutually win-win option.

  6. Dedicated Freight Corridor Project

    We have decided to take up the construction of two routes of Dedicated Freight Corridors in phase-I. The first will connect Mumbai in West to Delhi in the North. The second will link Ludhiana in the North to the Kolkata area in the East. This would involve construction of over 2700 route kilometers at a cost of around US$ 6.5 billion. Planning for these corridors is in advanced stages. We are simultaneously carrying out feasibility studies for four other freight corridors comprising of about 8000 route kilometers. These freight corridors are planned to carry high-axle loads of 25 and 30 tonnes and also heavier trailing loads. Dedicated freight corridors would lead to separation of the freight and passenger operations on the busiest trunk routes of IR.

    A new company has been incorporated to execute the project with a mix of debt and equity through a mix of EPC and PPP. The project would offer substantial opportunities for PPP for track construction/ maintenance, electrification, signaling and rolling stock for dedicated Freight Corridor could be entirely met through PPP or leasing.

    Discussion has been going on between the Governments of Japan and India for possible assistance to the projects under Special Terms of Economic Partnership (STEP). Possibility of using inputs of Japanese inputs of technology and know-how in the areas of advanced signaling systems, electric locomotives, logistics parks, and project management is under examination.

    We are also encouraged by the MOU signed between Governments of Japan and India for setting up of Delhi-Mumbai Industrial Corridor. This envisages establishments of a large number of mega or ultra-mega industrial regions and developments or augmentation of several ports in the states of Gujarat and Maharashtra. The Industrial Corridor would spawn a number of freight logistics parks and add to the traffic on the Dedicated Freight Corridor.
  7. World - Class Railway Station

    We are also taking up the work of redevelopment and modernization of stations at important cities. 19 stations have been identified for development through the PPP route by leveraging the real-estate potential. It is envisaged that most of the large stations would entail investments in the region of US$ 500 million each.
  8. Manufacturing facilities for locomotives/coaches/other railway equipment

    We require around 4500 passenger cars and 700 locomotives per annum to meet our future traffic needs. Our in-house capacity for manufacture is around 2500 cars and 350 locomotives per annum. This gap needs to be bridged. There is also a need to upgrade technology. We are studying the possibilities of PPP. We are prepared to give long-term demand guarantee to encourage prospective manufacturers to set up rolling stock units in the country. We hope to initiate the bidding process by July this year and expect to mobilize investments of about US$ 1.5 billion in this area.

    At present, we procure 10,000 freight cars annually. These are procured from the wagon building industry, mostly in the private sector. The designs are provided by RDSO, our certification and inspection agency. Our plan for the future is to go in for wagons with higher pay-load to tare-ratio. We have recently liberalized the existing provision to allow private wagon suppliers to bring their designs and get these approved by RDSO.
  9. High-speed Rail Corridors

    We have decided to carry out pre-feasibility studies for four High-speed Passenger Corridors covering distance of about 2800 kilometers. The corridors having potential of traffic will be managed through PPP route.
  10. Operation of Container Trains

    Operation of rail-borne container services has been opened to private operations in the year 2006. 15 firms have been licensed for the business. The scheme is now open for other intending firms to apply.
  11. Indian Railway Catering and Tourism Corporation (IRCTC) and Rail Land Development Authority (RLDA)

    We have formed a separate company named Indian Railway Catering and Tourism Corporation (IRCTC) to execute PPP initiatives in hospitality tourism and catering. IRCTC is in the process of developing a chain of 100 budget hotels through PPP. Licenses for 20 hotels have already been awarded.

    Last year, we also set up a new Rail Land Development Authority (RLDA) to spearhead commercial exploitation of surplus land through PPP.
  12. Construction of Inland Container Depots (ICDs), rail side warehouses and procurement/ lease-out wagons are a few other areas where we are seeking private investment.

  13. To cope with growth, we would require modern signaling and track maintenance equipments. We plan to spend about US$ 3 billion on these equipments in the next five years. A number of suburban projects are under implementation. Mumbai Urban Transport Programme Phase-II alone would require 96 EMU train-sets-valued at over US$ 500 million over the next five years. These areas will be open for private participation.

  14. Indian Railway Finance Corporation (IRFC) is the financing arm of Indian Railways. IRFC enjoys BBB (Stable) rating from reputed International Rating Agencies. It has been raising finances in both domestic and International markets at highly competitive rates. Some of the recent transactions of IRFC include a U.S.. private placement issue to raise US$ 125 million at 5.94% and a Samurai bond deal in Japan for an equal amount. Indian Railways would welcome innovative credit enhancement products suited for our projects having long gestation periods. We would like to work with multilateral and bilateral agencies for this purpose.

  15. We have created a dedicated Public Private Partnership (PPP) cell in the Ministry to provide a single-window service for PPP initiatives and to speed up execution of projects.

  16. Finally, I would like to take this opportunity to thank you for your interest. We would be happy to discuss further details with you.

Take Care..
 
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