Suresh Prabhu's Model Concession Agreement aims to woo investors for funding railway projects

NEW DELHI: With funding of projects becoming the biggest challenge for the railways, Suresh Prabhu is going all out woo private investors with industryfriendly policies.

His team has finalised a first-of-its-kind Model Concession Agreement for BOT projects to be funded under the PPP scheme, guaranteeing the private investor an 80% return of the projected revenue irrespective of the actual returns from the project.

Providing the much-needed comfort cushion, the railways have also decided to take care of the inflationary risk. It has assured the investor that whether there is a hike in freight and passenger fares or not, the returns will go up by five to six per cent every year depending upon the inflation.

This is a major departure from the earlier agreements where the investor was not assured of any returns on his investment and had to bear the inflation factor too. Four projects have been identified by the railways to be implemented under this new BOT agreement. These include the Wardha-Nagpur third line, Bhuj-Nalia doubling, Kazipet-Vijaywada third line and Bhadrak-Nargundi third line.

“The 70-km Wardha-Nagpur line is the first to be taken up. It is not just the projected traffic but also how it translates into monetary worth that is being calculated. It is only then that the railways can give an assurance on the projected revenue,” explained a senior Railway Board official.

This is the first time that the railways would be calculating the financial worth of projects. Earlier, the agreements only took into account the traffic projections on the line. “This alone was not enough for an interested investor. It would be difficult for him to judge a project based only on traffic projections. It is crucial to explain it in terms of revenue,” the official added, based on railways’ past experience with private investors.

Officials said that major changes are underway even in the way the project reports — both technical and financial — are prepared. “The investors want independent financial assessment of the project. We are planning to get consultants to do the assessment and write the financial reports,” the Railway Board official said. They were looking at project management consultancy not only to prepare the report but also manage the entire bid process.

“It is not easy to get these things done in an organisation so bound by bureaucratic processes,” he added.

Sources in the ministry said that it took long hours of discussions with the finance department to come up with the Model Concession Agreement. “Now that we are offering guarantee to the investor, we have been cautioned to pick projects, to be implemented under this, with great care. The projects have to be revenue generating,” an official said. The Wardha-Nagpur line that has been chosen, for example, is believed to be a “safe project”. The existing two lines are already saturated and the third line sorely needed to relieve pressure from the overburdened lines. Former Railway Board chairman Vivek Sahai told ET that the new agreement was a positive move, and that he himself had struggled to get some of these things off the ground, especially railways bearing the risk of inflation.