Railways stations revamp: New PPP model has more for investors; IRCTC to play critical role

In the new contracts, the lease term might be raised to 99 years from the current 45 years while residential premises could be a part of the assets created. (Indian Railways photo)

A revamped public-private partnership (PPP) model to redevelop railway stations will see more attractive terms for private investors while Indian Railways’ (IR) agency — Indian Railway Station Redevelopment Corporation (IRSDC) — will play a critical role, official sources told FE. In the new contracts, the lease term might be raised to 99 years from the current 45 years while residential premises could be a part of the assets created.

Moreover, developers would be allowed to give multiple sub-leases rather than just one. “These were three sticking points for developers. We are going to approach the Railway Board stating that the current process will be foreclosed and to come up with a fresh approach,” said the official.

The Indian Railways’ redevelopment plan is being revisited as the “Swiss challenge” bidding process evoked only lukewarm interest. With the changes on the anvil, the transporter would roll back the tenders already floated for redevelopment of 23 stations, the sources added.

The contracts, which have already been awarded — in the case of Habibganj station — won’t be annulled but all other cases, including those where final bids have been received (Jammu Tawi and Kozikhode), would be suspended and re-evaluated.

IRSDC has been asked to devise a new single-stage, single-parameter bid process for station redevelopment which will be sent for Cabinet’s approval within two months, another official said.  In addition, it will now lead the redevelopment process and start redevelopment of some 15 A1 and A category station as test cases in order to instill confidence among developers. The railways will either use its own finances or raise debt to redevelop the test-case stations, with estimated investment of Rs 6,000-8,000 crore.

Under the station redevelopment plan approved by the Cabinet in July 2015, a total of  400 stations were to be revamped. The project envisaged land areas of 2,700 acres to be redeveloped and a cost of Rs 68,000 crore for commercial development and Rs 28,000 crore for revamp of the stations.

The redevelopment, as per the now-abandoned plan, was to be on ‘as is where is’ basis, through open invitation from interested parties with their designs and business ideas. These stations were to be developed by leveraging real estate development of land and air space in and around the stations.

Under the Swiss Challenge method, an unsolicited offer is made by the original proponent to the railways ensuring her process to be best (in terms of effectiveness including both the factors cost and time). It further allows third parties to make better offers (challenges) for a project during a designated period with simple objective to discourage frivolous project, or to avoid exaggerated project development costs. Then, the original proponent gets the right to counter-match any superior offers given by the third party.

As against this, in the new model being worked out, IRSDC will provide a detailed project report and outline the specifications which developers will have to follow, as in turnkey projects. It will de-risk the projects by taking all approvals before auctioning the stations unlike the earlier as-is-where-is method wherein developers were required to take all approvals.

“The railway minister has directed that IRSDC should be beefed up to take up bulk of the work. It may make some investments first and then auction the projects,” said the railway official quoted above.

Railway minister Piyush Goyal recently held a meeting with leading developers including Tata Realty, L&T, GMR, Shapoorji Pallonji and Essel Infra, among others, who also asked that railways should indemnify issues arising out of “change in law” for developers to be comfortable to submit bids. The new bidding process, to be created by IRSDC, is expected to factor this in.

Developers have asked an integrated plan for connectivity– roads or monorails–with the redeveloped stations as some of the stations are in congested areas which may not attract tenants for the commercial projects.