By Manish Agarwal
The Indian Railways (IR) have invited the personal sector to personal and function passenger trains on over 300 paths, bundled into 12 clusters. It’s estimated that every cluster would entail an funding of Rs 2,000-3,000 crore in procurement of rolling inventory, and might cumulatively add vital capability of AC coaches within the nation. There may be some degree of skepticism in regards to the success of the transfer, given the railways’ patchy observe file with the personal sector, in personal Container Prepare Operations and with the 4 fashions for PPP in railway traces.
One other criticism has been that permitting the personal sector to function trains that can service the very best finish traveller phase, doesn’t instantly tackle the important thing challenges of the railways, specifically of turning into operationally environment friendly and investing in enlargement and upgradation of the community. However apart from the anticipated advantage of attracting air and luxury-bus travellers to trains, there are three broader advantages which can be attainable from the proposal. Reaping these advantages would additionally require the Indian Railways to take initiatives that tackle investor considerations.
First, the personal sector’s success would rely critically on IR’s operations of observe and station entry. The bidders will in all probability require very clear working procedures, duty allocation and excessive penalties for non-performance by IR. This final component (i.e compensation for non-performance) has been weak in PPP contracts in India. If the specter of penalties certainly acts as a deterrent, it may lead to make use of of know-how for higher scheduling. Improved and extra predictable scheduling would result in higher observe utilisation, and may gain advantage everybody, together with freight operations.
Second, the observe entry prices (referred to as haulage cost) to be paid to IR will likely be key to the viability of personal operators. Ideally, a clear allocation of IR’s capital and working prices to varied actions would allow a transparent willpower of the parts of the community prices. The method of clear cost-allocation would assist to determine hidden inefficiencies, which may kind separate efficiency-improvement initiatives for the railways. Having decided the complete value of tracks, the important thing query then could be the quantum of the observe entry cost to be levied on the personal operator as a set value. To supply a level-playing discipline the place personal operators compete with premium trains of the railways, it could be necessary to find out how a lot of the infrastructure prices are loaded into the pricing of IR’s premium trains. This train would result in extra clear understanding of unit-economics of the enterprise, and the extent of subsidies being offered to or earned from premium passengers. This is able to additionally present clearer price-cost benchmarks that the personal operators would wish to beat, to show their added-value.
Third, as personal trains get launched, their planning and operations will assist in understanding value elasticity of demand, and affordability of various know-how and repair ranges. In addition to demonstrating sources of effectivity, the information from these operations might additionally inform the talk on affordability of fare will increase (although, after all, the politically delicate class of travellers might stay out of the goal phase).
The aforementioned points may even be key considerations for bidders, i.e. enforcement of IR’s efficiency, extent of mounted prices to be dedicated, and the excessive threat related to site visitors guesstimates. The extent of bidder curiosity after the shortlisting stage will rely on the consolation IR is ready to present on these components (amongst others). So, addressing these is crucial to the success of the proposal. The extra advantages of extra disciplined operations and higher understanding of economics of serving totally different segments would additionally vastly influence the journey in direction of reforming the rail sector.
The author is Associate – Infrastructure, PwC India