Making private-sector trains a reality

The appointment and functioning of an independent regulator will take unprecedented time, and till then, the Railways need to keep moving on. (File image)

By Abhaya Agarwal

Economists/experts have favoured harnessing private sector investment in the infrastructure sector, particularly for the railways, to achieve efficiency and balanced development. Several attempts have been made in the past to attract private players to many segments of the railways such as station development/re-development, monetisation of land assets, operations of passenger trains and development of dedicated freight corridors. But, none has yet made meaningful headway.

Regardless of India having Asia’s oldest rail network, passenger trains have always been a heavily cross-subsidised, loss-making business for the Indian Railways. The latest initiative of the railway ministry has been to identify more than 100 routes across the country to run private trains, which has been appreciated by the industry, evident in the way it has garnered genuine interest from national and international players. This could be the stepping stone for long-term private partnerships.

Prospective bidders and experts venturing into this new business, however, are aware of the risks involved and have flagged various issues, such as the absence of an independent regulator, lack of freedom to set and regulate fares, restricted exclusivity for private trains, high access charges and stringent penalty clauses for non-compliance with key performance indicators like for punctuality, reliability, maintenance and so on.

In Europe, the regulator normally auctions or allocates train path timetables and defines the access charge regime as well as the basis of change in future. Indian Railway is making huge losses in passenger train operations, but wants the private sector to invest in rolling stock and run them, simultaneously taking the uncertain risk of haulage cost and tariff. Bear in mind freedom to fix fares will not necessarily result in a higher fare, especially given the scenario wherein the India Railway, being the regulator as well as the competitor, is running trains at a tariff that may go south or north depending upon political will. The competition with airlines is also very intense and uncertain, resulting in the upper limit being hardly flexible.

In a nutshell, high investment in rolling stock and uncertainty over tariff and revenue and increasing access (haulage) charges is not a workable solution. The appointment and functioning of an independent regulator will take unprecedented time, and till then, the Railways need to keep moving on.

One way forward could be unbundling of provision and maintenance of the rolling stock (including locomotive and coaches) or, in this case, trains-sets that can be provided and maintained best by their manufacturers. The Railways will have to share its yard, shed and workshops for maintenance. The better idea would be for the Railways to approve train-set technology of various providers and procure them for onward leasing to private train operators.

Train operators can provide a higher yield per passenger-km through better marketing techniques and the provision of value-added services. The income then generated can be shared with the Railways after meeting expenses of rolling stock charges, haulage charges and their own operating and running costs. The Railways will also have an option to take back the rolling stock from a non-performing operator and deploy it somewhere else. This will ensure higher bankability for the overall arrangement and fewer risks for the private players as well as the Railways.

The Railways meanwhile can work upon the regulatory regime through separation of infrastructure and operations, track access regime common to both public and private operators, licensing and dispute resolution regime.

Last not the least, the objective of the exercise should be understood upfront and pursued. Is it investment and better technology in new train-sets, increasing per passenger yield or providing better services to woo passengers back to railways from airlines? This choice(s) will define the selection of the risk-reward matrix better and make decision-making faster.

The author is Partner, EY India

Co-authored with Maansi Shah, senior associate, infrastructure and strategy, EY India