Railways has embarked on an ambitious journey of allowing private trains to run on the railway network. It is expected that private participation is likely to bring better experience for the customers. It is quite agreeable that private sector has certain advantages in terms of providing better services compared with that of public sector.However, transportation is a complex business and the viability of running private trains on railways’ track is yet to be established. Till now, railways have been functioning with in-house companies like IRCTC which are more familiar with railway functioning. However, new players would require some time to establish their own metrics of profitability and sustainability.
The private participation in railways can kick off only if it is made ‘asset light’. In other words, for a new player to participate, the net investment should not be so high that he feels suffocated by the tough conditions of contract and long tenure of concession period.The railways has proposed 35 years of concession period for private operators. It is based on the argument that private operator will make investment on rolling stock and thus, needs a longer tenure to recover his cost.The railway is essentially proposing a public private partnership with a long concession period in a business which is very complicated and variable in margins.Airline Industry is an example of how tough it is to make margins in transportation business. Indian railways itself makes money in very few passenger segments.
The contours of private participation , therefore, hinges on the concept of ‘wet-leasing’ of trains.Wet-leasing is a very popular term used in airline Industry where both the pilots and the aircraft are given on lease by a lessor to the lessee.Thus, airlines do not own the pilot or the aircraft but take them on lease for their operations.This allows the airline operators to keep themselves asset-light and reduce upfront capital investment which may have financing costs attached to it.Further, it allows easy entry and exit of private players reducing the risk of getting stuck in an unproductive venture. The same model needs to be replicated by railways.
Railways has already said that the trains will be manned by its own pilots and guards.However, it is unnecessarily going into the concept of concession period which could make the things complicated by having entry and exit barriers. Ideally, it is the time for railways to create a Special purpose vehicle for wet-leasing of trains.The special purpose vehicle can buy rolling stock like ‘Tejas’ and ‘Vande Bharat express’ and then wet-lease them to private players.It can also attract certain financial institutions to invest in its venture releasing the resources of railways. Such an arrangement will reduce the need for such a long concession period and encourage private participation.
Also, the idea of AtmaNirbharBharat will be better served if Indian rolling stock gets first preference in getting traction with private players.Such leasing arrangements will not only create a market for Indian rolling stock but also encourage the Indian manufacturer to innovate and reduce their costs.The idea of imported rolling stock is fascinating but has both operational and fundamental demerit.On one hand, the compatibility of foreign rolling stock is yet to be established on Indian tracks and on the other hand, it is imperative that India should build up on its well-established capacity to make high-grade rolling stock.
The private participation ,thus, requires more than allowing the private trains to run.It has to create an ecosystem where the costs attached to such participation are low and chances of litigation are less. Power sector is a classic example where such long concession period is a subject of constant tussle and political turmoil. Apart form wet-leasing, the regulatory overhaul in terms of Rail Development Authority is long overdue.A good regulatory environment and flexible operational arrangements are essential to make private participation a long lasting success in India’s railway sector.