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The Ministry of Railways’ first attempt to foray into private risk-based track infrastructure projects seems to have run aground as the ministry converted six projects from a revenue-sharing model to the de-risked hybrid annuity model (HAM), according to minutes of an official meeting.
The ministry, in a meeting of the Public Private Partnership Appraisal Committee (PPPAC), a key panel headed by Economic Affairs Secretary Anuradha Thakur, secured approval on 1 August to develop six new rail lines with a capital cost of ₹31,814 crore, under the HAM model.
The six proposed railway projects comprise four projects in Odisha, one in Telangana and one in Jharkhand.
PPPAC had in April accorded ‘in-principle’ approval to these projects under the Design Build Finance Operate Transfer (DBFOT) model.
“Subsequently, based on market feedback, the Ministry of Railways revisited the project structure and proposed their implementation under the HAM. Under the proposed HAM structure, the railways ministry would bear the traffic and tariff risks and provide 40 percent of the Bid Project Cost as grant during the construction period,” according to the minutes of the meeting made public on Tuesday.
HAM does not involve risk-taking by the private entity and experts have traditionally kept it out of the league of so-called “pure PPP” models like DBFOT and Build Operate Transfer. Experts welcome the move, claiming that revenue-sharing based frameworks may take shape later on, and HAM would be a good start.
While the projects have been flipped into a HAM model, this would still be railways’ first attempt at building large trackside infrastructure in PPP mode, and would open new avenues for the railways, experts said.
“Since toll-based projects will require a lot of planning and stakeholder consultation (on the proportion and modalities of ticket and freight revenue to be shared by Railways with developers), for the time being, it would be a good idea to structure these projects as either HAM or traditional Annuity projects. Once the private sector creates a successful track record in execution, BOT Toll project structures could also be proposed,” said Kuljit Singh, Partner and Infrastructure Leader at Ernst and Young.
The ministry, in fact, told the finance ministry panel that the proposed framework seeks to attract long-term private capital into railway infrastructure.
“Alternative Investment Fund (AIFs) and other financial investors would assess these projects based on the stable and predictable returns offered under HAM relative to alternative investment opportunities. Their participation would also help broaden the investment ecosystem and deepen private-sector participation in railway infrastructure over time,” the Railways told the committee.
The framework, according to the transporter’s submissions, opens the gates for financially strong entities, including infrastructure investment funds and other investors without the requisite technical experience, to participate through legally binding arrangements with technically qualified engineering procurement construction (EPC) contractors.
The bidding documents would specify the applicable conditions, including the minimum tenure of the agreement, the roles and responsibilities of the EPC contractor, and the circumstances in which such arrangements would be permitted, Railways told the committee.
The projects, with a bid project cost totalling to ₹15,975 crore include Balaram-Putgadia-Tentuloi (Inner Corridor) in Odisha, Budhapank-Tentuloi-Luburi (Outer Corridor) in Odisha, Jajpur-Keonjhar Road-Aradi-Dhamra Port in Odisha, Tikiri Station to Waltair Bauxite Mines in Odisha, Manuguru–Ramagundam in Telangana, and Pakur/Nagarnabi to Godda in Jharkhand.
Under the new proposal, the relevant authority under the railways would be responsible for land acquisition, statutory approvals and the 40 per cent upfront payment during construction, while the Concessionaire would undertake the design, financing and construction of the project.
During the operations period, the authority would operate the trains, provide rolling stock and crew, and make annuity and operations and maintenance (O&M) payments. The Concessionaire would be responsible for maintaining the project assets, undertaking station O&M and replacing assets when required, except rails.
Passenger and freight earnings would accrue to the Authority, while the Concessionaire would receive annuity payments, price-indexed O&M payments and limited non-fare revenue, given that the projects are primarily freight-oriented.
Bidder eligibility would be assessed based on both financial and technical capacity.
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