There has been renewed hope among some circles in Bangalore after the Union Railway Minister Mr. Sadananda Gowda made a mention in the Rail Budget about the much delayed Suburban Rail System. He spoke of a survey when a survey has already been done by RITES.
Whilst the mention in the budget was welcome, there was no clarity on how the SPV is likely to be funded or run. If we are to obtain clock life efficiency for Bangalore’s CRS we need the formation of an SPV for the same.
The biggest impediment here is poor state of finances in railways. The railways is not in the best possible position to fund a project of this magnitude. Therefore, it may not be a bad idea to bring in Private Participation through the Equity or Debt route. However, the equity route is not without its pitfalls:
- Private participation might not necessarily mean the Suburban Rail in Bangalore shall be affordable. Equity form of investment is often the most expensive form of finance as the investors usually look for the highest possible returns of investment.
- The investors might not look at running trains on routes, which are not profitable.
- There may be very few Indian companies, which have the capability to run a full fledged suburban railway system. One might argue that L&T is in charge of the Metro system in Hyderabad but what we need to understand the suburban network has a much larger sprawl. Issues like security, safety, speed, land acquisition are a lot more complicated as this network would cover urban, semi urban and rural areas.
- Railways might not be open to the idea of private player for a CRS as it involves use of their infrastructure.
If the new government is indeed looking at Private Participation through the Equity Route for Namma Railu then it needs to pay heed to these following issues:
- The bidding process for this project needs to be absolutely transparent with no hidden benefits to the party, which ultimately is selected as the Equity Partner
- The SPV so formed needs to look at alternative sources of revenue such as real estate, advertising etc so that commuters are not burdened and Namma Railu still remains a profitable affair
- The modalities in terms of profit sharing between the parties concerned such as the State Government, Railways and the private partner need to be worked out before CRS becomes a reality.
An idea was mooted to make BMTC part of the SPV. However, their financial position in the last one year has become dicey. Therefore, this is unlikely to become a reality. This would have yielded the following benefits to the commuter:
- Better Integration between Rail and Bus. This would have resulted in transport in Bangalore becoming truly multi modal.
- BMTC would not have had to run long routes because of the presence of long distance trains. This has actually resulted in the Corporation making losses. A case in example, would be the route 500KE, which is run from Kengeri to Whitefield. A local train along this route would obviate the necessity for this bus.
An alternative way to fund this project would be to replicate the Konkan Railway Model. The SPV for Konkan Railway Project was formed through the participation of the Union Government and the State Governments of Karnataka, Kerala, Maharashtra and Goa. Most of the funding of this project was done through the issue of Tax Free Bonds. A small portion was raised through a public issue as well. The Indian railways is not in a position to leverage its balance sheet any longer and the idea of PPP in Railways in India might be met with stiff opposition from rail employees and politicians. Given all these impediments a more pragmatic approach would be to replicate the Konkan Model and see to it that Bangalore indeed gets its much delayed Suburban Railway System.
I suppose it could be done in these ways:
- The SPV could pay a certain sum of money to SWR (Indian Railways) for using their infrastructure and not involve the Railways as a stake holder in the SPV. In such a scenario, this expense would go as a line item on SPV’s P&L account.
- Railways, The State Government and the Union Government jointly operate the Suburban railway system sharing the profits so emerging.
In both these cases, the SPV must look to maximize alternative sources of revenue such as rentals, advertisement income etc so that commuters are assured of an affordable means of transport.
Your thoughts please!