New Delhi: In the presence of Minister of Railways, Suresh Prabhakar Prabhu, two separate Memoranda of Understanding (MoUs) between the Ministry of Railways and the Government of Andhra Pradesh and that of Kerala for “Formation of Joint Venture Companies for Development of Railway Infrastructure in the States of Kerala and Andhra Pradesh” were signed.
The MoUs were signed in the backdrop of the Railway Minister’s Budget announcement regarding setting up of joint ventures with States for focussed project development, resource mobilization, land acquisition, project implementation and monitoring of critical rail projects.
Speaking on the occasion, Prabhu said that the Indian Railways was happy to have a dream come true today — that of cooperative federalism. He said that there were few activities which were directly administered by the Centre; Defence, Foreign Policy and currency for example. He said the Railways was one of those which directly administered by the central government. He said it is always necessary that we must have partnerships in other ground-level sectors whether it is State government, local self-government, PSUs and others.
The Railway minister thanked the 17 State governments that have consented for the formation of joint venture companies in collaboration with the Ministry of Railways for development of rail infrastructure in their respective States. Emphasizing the need of working together, the minister said that the relationship with State governments was beyond a project and not a transactional relationship. The Railways has introduced decentralized decision-making formula, which is a remarkable change. The current moves will improve State governments initiatives, which will help in implementation of rail projects in a speedy manner.
The minister said that the Railways was creating more companies and ultimately we were going to leverage the funds. The Railways has started revamping of 400 Railway stations, which is a very massive activity and this will mobilize large resources for the Railways. Massive investment has poured into in the road transport sector while the Railways has not invested so much despite this its being the cheapest mode of transportation. Prabhu said that rail and roads would have to work together and the Indian Railways was committed to develop a multi-modal transport cooperation.
Prabhu further said that today’s MoUs were very important MoUs, which would help in developing infrastructure in Andhra Pradesh and Kerala. The minister said that the Railways had a large shelf of ongoing new line, gauge conversion and doubling projects needing about Rs 3.5 lakh crore to complete and, thus, the formation of joint venture companies with these State governments would go a long way in faster commissioning of critical rail infrastructure projects as it will help not only in mobilization of funds but also in facilitating clearances and land acquisition.
In his welcome address, member staff, Railway Board, Pradeep Kumar stated that the signing of the MoUs was going to be a stepping stone for the formation of JV companies. He stated that earlier, such memoranda had been signed for the formation of JVCs with the Governments of Maharashtra and Odisha.
In the JVCs, 51% stakes are of each state government and 49% are of the Ministry of Railways. Thus, the JV companies shall be fully owned by the government. The company will primarily identify projects and possible financing avenues in addition to those of the central and State governments. After finances for a project are tied up, a project-specific special purpose vehicle (SPV) shall be formed. This SPV can have other stakeholders from industries, central PSUs, State PSUs etc. However, the JV company shall be a mandatory
The JVC shall be a mandatory stakeholder with minimum 26% shares in the SPV. The Ministry of Railways will sign a concession agreement of 30 years with the project SPV for safe and sound operation, revenue sharing and providing technical & marketing logistics to the SPV. The revenue sharing shall be based on already established formula being used for inter zonal apportionment of revenue.
Kumar stated further that the most important aspect of the MoUs was that the ownership of the land would vest with the SPVs, which was a departure from previous practice. This will give financial leverage to the company to exploit the commercial potential of the land.
Other salient features of the MoU
- The Ministry of Railways will sign a concession agreement of 30 years with the project SPV for safe and sound operation, revenue sharing and providing technical & marketing logistics to the SPV. The revenue sharing shall be based on already established formula being used for inter-zone apportionment of revenue.
- At the end of the concession period, the Railways will have the option to take over the assets at a nominal price. This is largely in line with the average code life of the assets as most of the assets will need large scale replacement after 30 years.
- The Indian Railways has been playing a major role in national integration by connecting the remotest places and bringing people closer to each other. The Railways receives a large number of demands for network expansion as a railway line acts as an engine of growth for the area it serves.
- To expedite the projects, the Railways has been trying to mobilize resources through other than gross budgetary support. However, on the initiative of Prabhu, the Railways has tied up funds for critical capacity enhancement project of doubling, third line, electrification etc. An MoU was signed with the LIC of India and the first tranche of Rs 2000 Cr for these projects has already been taken. This tied up loan will ensure dedicated and assured funding for such critical projects.
- The Indian Railways has targeted to commission 2,000 km new lines, 4,000 Km gauge conversion and 11,000 km doubling, tripling and quadrupling projects over 5 years: from 2015-16 to 2019-20.
- In 2015-16, an ambitious target of commissioning 2,500 mm broad gauge tracks was kept. The ministry is poised to surpass the target. About 1,300 km broad gauge tracks have already been commissioned till December 2015 against 800 km of tracks commissioned in the corresponding period of the previous year (due to monsoons, major commissioning takes place in the last quarter of the financial year).
On the event of the signing ceremony, the Railway Board’s officials namely member-mechanical Hement Kumar and financial commissioner S Mookerjee were present among others. On behalf of the Railway Ministry, Prakash Dudeja, executive director, Works, signed the MoUs whereas on behalf of the Government of Andhra Pradesh, PK Srivastava, OSD, Government of Andhra Pradesh and Sivasankar M, secretary, Transport Department, Government of Kerala, signed the MoUs. The vote of thanks was proposed by Laj Kumar, additional member, Works, Railway Board.