Private Trains: Dilemmas of a prospective PTO

Early last year, Indian Railways (IR) announced an ambitious plan to privatize 109 O-D (Origin-Destination) pairs of trains, forming roughly 5% of existing Mail/Express trains, over 12 clusters. The avowed objectives declared by the Ministry of Railways (MoR), inter alia, are:

 

Ø  Induction of modern technology – Quantum Jump

Ø  Reduced maintenance intervention - 40,000 km/30 days

Ø  Reduced transit time

Ø  Enhanced safety

Ø  World class travel experience to passengers

Ø  Reduce demand supply deficit in the passenger transport sector

Ø  And, bringing in private investment to the tune of Rs 30,000 crore in rail sector

 

The bidding process was started in July 2020. The model proposed a concession period of 35 years with the concessionaire (termed PTO or Passenger Train Operator). A PTO would be required to induct their own train, pay fixed haulage charges for path, stations, access to railway infrastructure and charges for electricity consumed and share revenue with IR to be decided by competitive bidding. The conditions would be stringent with the PTO contracted to ensure 95% punctuality and not more than one failure per lakh kilometres of travel and commitment to improved on-board services like cleanliness and catering. The trains brought in by a PTO would require to clear tests and trials to validate rolling stock operation by IR before introduction. IR would provide Driver and Guard and use of all its fixed infrastructure except maintenance for which the facilities would require to be created by PTOs.

 

The model looked good on paper with IR standing to gain in terms of more revenues without investments, PTOs to make reasonable profits and passengers to get better travel experience. As for the so-called quantum jump in  the technology, the expectations of improved punctuality would ensure that only trains designed for  faster acceleration and deceleration and reduced requirement of maintenance be introduced; given that the infrastructural upgradaion by IR to support higher speed capability is some time away, if at all, this can be achieved only if train sets are deployed. This in itself is a welcome sign as barring the spark of Train 18 in 2018-19, IR has been a big laggard towards this technological upgradation.

 

The exercise has since been going through chops and changes and huffing and hawing, primarily due to apathetic attitude of IR. Bids against RFP (Request for Proposal) have been called and the last date of submission, as of today, is 31^st March 2021. Submission of a competent and viable bid would involve working out a financing plan, selection of rolling stock and then preparing a detailed commercial analysis to work out the proposed percentage of revenue-share. For economies of scale in terms of the rolling stock, a prospective PTO must bid for at least 2 clusters and thorough commercial analysis of each would require approximately a month. Given that serious dialogue between prospective bidders and the manufactures of rolling stock is still at a very preliminary stage, an extension of the date of submission to the middle of the year appears to be a sine qua non. I hope the mandarins in the MoR realize this.

 

Let us not forget that the project is so modelled that there was no risk for IR, except loss of face in case of failure of the project whereas a prospective PTO has to contend with high investment and operation risks. Lok at the dilemmas of the prospective PTOs: this being the first step towards a viable and vibrant private train operation in India, they definitely want to be a part of this growth story in the making, with the strategic vision of entering, as early birds, in a field which holds promise for future. On the other hand IR is not helping them as much they should for making the project as risk-averse as possible. which would drive the prospective bidders.

 

As of today, clear gaps remain between what the prospective PTOs wish to be changed in the bid documents and what IR is willing to concede. Some of these important issues are:

 

The issue of absence of an independent regulator

A PPP contract of this nature being tried out for the first time, should not be unwieldingly spread over 35 years; a 24-year contract is more reasonable

Freedom to the PTO to choose his train’s departure or arrival time as well the origin and destination within a city based on his estimation of preferences of the passengers. Retention of exclusivity to a PTO till the occupancy reaches 95%; instead of penalizing a PTO for good performance, they should be incentivized

PTOs should be given some flexibility to choose the routes of operation within a band of 70 to 100% of the prescribed routes in a cluster

The exit clauses and penalties should be tweaked as no PTO would like to exit after investing in rolling stock, an investment which cannot be salvaged easily in an exit situation

The fares of IR are telescopic as the distance travelled increases, and that being the prevailing market norm, the prospective PTOs would also require to keep their fare structure conforming to this; in such a scenario, the haulage charges per kilometre should also be made telescopic, i.e., reducing as the distance travelled increases

 

Assuming that the entire exercise by Indian Railways (IR) was not about, first boiling the ocean and then blamestorming, but hopefully more like doing nothing by halves, one hopes that better sense would prevail and IR would address the genuine concerns of the bidders. It is a good initiative for the country and should not be allowed to derail due to cussed babudom of IR. After all, at stake is not merely this project but credibility and allure of IR, both from the standpoints of ease of doing business and long-term PPPs into the future.

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