The government's maiden full term Railway Budget lacked big bang reforms but sought to evolve new funding channels to meet its investment requirements and said it will tackle issues which have proved to be roadblocks in more private participation in freight corridors.
Railway Minister Suresh Prabhu, acknowledged that the scale of investment needs is such that it will require multiple sources of funding.
“We will tap other sources of finance. Multilateral development banks and pension funds have expressed keen interest in financing new investments. Their time horizon is aligned with ours. They seek sources of predictable and recurring revenue, which we can provide through the issuance of long-term debt instruments to fund revenue generating railway projects,” he said.
The minister talked of multiple partnerships to support the expansion plan. One plank leverages cooperative federalism, where Railways may work with state governments (in their respective regions) to jointly fund projects.
Prabhu said that the state governments will be able to raise financing through special purpose vehicles that Indian Railways will create with them. He said most states have already expressed a keen interest for the joint endeavour.
Secondly, it will partner with PSUs to ensure that sufficient capacity is built to transport critical commodities like coal, iron ore, and cement, etc., from where they are extracted or imported to where they are consumed or processed.
The minister said Railways will create new vehicles to crowd-in investment from long-term institutional investors and other partners. These may include setting up an infrastructure fund, a holding company and a JV with an existing NBFC of a PSU with IRFC, for raising long term debt from domestic as well as overseas sources, including multilateral and bilateral financial institutions.
He, however, clarified: “We will monetise our assets rather than sell them.”
Private participation in freight corridors
The minister showed his intention to encourage private investor participation to augment freight handling capacity of railways and proposed setting up of Transport Logistics Corporation of India (TRANSLOC) to provide end-to-end logistics solution at select railway terminals through Public Private Partnerships.
He said the policy regarding private investment Private Freight Terminals (PFT) was issued in 2010, which was later revised in 2012 to invite private investment in this space but certain issues have emerged which are discouraging further investments in PFTs.
“We intend to address these urgently so that the proliferation of these terminals is not hampered,” he said.
Sandeep Upadhyay, senior vice-president, infrastructure solutions group, Centrum Capital, said “The PPP model needs to crystallise further. For an investor, it is important to understand how the risks are going to be allocated equally between the private sector and government. However, PFT lacks infrastructure and such announcements are basically to encourage people to invest in the logistics and cargo segment and I am sure that investors are looking at PFT as it has decent ROEs.”
Meanwhile, the minister also stated that there will be a review, in the next three months, of Wagon Leasing Scheme, Special Freight Train Operator Scheme, Private Freight Terminal Scheme and Liberalised Wagon Investment Scheme for making them more liberal, broad-based and attractive to our partners from the private sector.