Railways Minister Suresh Prabhakar Prabhu signed two separate Memoranda of Understandings (MoUs) with the governments of Andhra Pradesh and Kerala for the formation of Joint Venture (JV) Companies for Development of Railway Infrastructure on 27th January.
The MoUs were signed in the background of railway minister’s budget announcement regarding setting up of JVs with States for focused project development, resource mobilization, land acquisition, project implementation and monitoring of critical rail projects.
The MoUs envisages formation of a Joint Venture company having 51% stakes of state and 49% stakes of Railways Ministry.
Thus, the JV company shall be fully owned by the government. The company will primarily identify projects and possible financing avenues in addition to govt of India and the state governments. After finances for a project are tied up, a project specific SPV or special purpose vehicle shall be formed. This SPV can have other stake holders from industries, central PSUs, state PSUs etc. However, the JV company shall be a mandatory stake holder with minimum 26% shares in the SPV. The Railways Ministry will sign a concession agreement of 30 years with the project SPV for safe and sound operation, revenue sharing and providing technical & marketing logistics to the SPV. The revenue sharing shall be based on already established formula being used for inter zonal apportionment of revenue. The most important aspect of the MoU is that the ownership of the land shall vest with the SPVs which is a departure from previous practice. This will give financial leverage to the company to exploit commercial potential of the land.
Stressing on the importance of cooperative Federalism, Prabhu said, Railways has introduced decentralized decision making formula which is completely remarkable change.
Prabhu said that railways is creating more companies and ultimately we are going to leverage the funds. Railways has started revamping of 400 railway stations which is a very massive activity and this will mobilize large resources for the
railways massive investment effected in road transport sector while railway has not invested so much despite this railways have been the cheapest mode of transportation.
He said that rail and road will have to work together and Indian Railways is also committed to develop a Multi-Modal Transport Cooperation.
Prabhu stressed that railways have a large shelf of ongoing projects needing about Rs.3.5 lakh crores to complete and
thus formation of JVs with these states will go a long way in faster commissioning of critical rail infrastructure projects as it will not only help in mobilization of funds but also in facilitating various clearances and land acquisition.
Silent Features of the MoU
Railways Minister announced in his budget speech regarding setting up of Joint Ventures with states for focused project development, resource mobilization, land acquisition, project implementation and monitoring of critical rail projects.
17 State Governments consented for formation of Joint Venture Companies in collaboration with the Ministry of Railways for development of rail infrastructure in their respective States. Draft MoUs were sent to these State Governments and discussions were also held with them to clarify various provisions of the MoU.
MoUs have already been signed by the Ministry of Railways with the State Governments of Odisha and Maharashtra.
Today, MoUs are being signed with the State Governments of Kerala and Andhra Pradesh. This signing of MOU is going to be a stepping stone for formation of JV companies.
The MoU envisages formation of a Joint Venture companies having 51% stakes of the respective State Govrnment and 49% stakes of Ministry of Railways. Thus, the JV companies shall be fully owned by the Government. The companies will primarily identify projects and possible financing avenues in addition to Govt of India and the State Governments. After finances for a project are tied up, project specific SPVs or special purpose vehicles shall be formed. These SPVs can have other stake holders from Industries, Central PSUs, State PSUs etc. However, the JV companies shall be mandatory stake holders with minimum 26% shares in the SPVs.
The ministry of Railways will sign a concession agreement of 30 years with the project SPV for safe and sound operation, revenue sharing and providing technical & marketing logistics to the SPV. The revenue sharing shall be based on already established formula being used for inter zonal apportionment of revenue.
The most important aspect of this MoU is that the ownership of the land shall vest with the SPVs which is a departure from previous practice. This will give financial leverage to the company to exploit commercial potential of the land. This is likely to result in making project viable which are otherwise not viable.
At the end of concession period, the railways will have option to take over the assets at a nominal price. This is largely in line with average codal life of the assets as most of the assets will need large scale replacement after 30 years.
Indian Railways has been playing a major role in national integration by connecting the remotest places and bringing people closer to each other. Railways receive a large number of demands for network expansion as a railway line acts as an engine of growth for the area it serves.
However, Railways have a large shelf of ongoing New Line, Gauge Conversion and Doubling projects needing about Rs 3.5 lakh crores to complete. We have been trying to meet the aspirations of public within limited availability of funds.
To expedite the projects, Railways have been trying to mobilize resources through other than Gross Budgetary Support. However, on the initiative of Hon’ble Minister for Railways Sh. Suresh Prabhu ji, Indian Railways have tied up funds for critical capacity enhancement project of doubling, third line , electrification etc. An MoU was signed with LIC of India and we have already taken first tranche of Rs 2000 Cr for these projects. This tied up loan will ensure dedicated and assured funding for such critical projects.
Indian Railways have targeted to commission 2000 Km New Lines, 4000 Km Gauge Conversion and 11000 Km Doubling/Tripling/ Quadrupling projects over 5 years i.e. from 2015-16 to 2019-20. In 2015-16, we had kept quite ambitious target of commissioning 2500 Km Broad Gauge track. It is a matter of great satisfaction that we are poised to not only achieve these targets but to surpass them. We have already commissioned about 1300 Km Broad Gauge track till December, 2015 against 800 Km track commissioned in the corresponding period of the previous year (Due to monsoons, major commissioning takes place in the last quarter of the financial year).
Formation of Joint Venture Companies with the State Governments will go a long way in faster commissioning of critical rail infrastructure projects as it will not only help in mobilization of funds but also in facilitating various clearances and land acquisition.
