New business model for Railways

Syllabus subtopic:

• Government Policies and Interventions for Development in various sectors and Issues arising out of their Design and Implementation
• Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

Prelims and Mains focus: about the move and its significance; reforms in the railways sector

News: The government has decided to delink the cost of energy consumed by the private trains from the overall haulage charges payable to Railways.

Aim of the move : To make the business of running trains more viable for private operators in the future.

A new business model for the Railways

The government is on course to bring in private sector into the business of running passenger trains. The idea is that when Dedicated Freight Corridors take away at least 70 per cent of freight trains, a lot of capacity will open up in the conventional network. To meet the huge demand for more trains without spending on investments, the idea is to get private sector to share some of that burden. More routes will eventually be opened, The current exercise is to try and present a lucrative business proposition for the private players to enter the segment and invest for the long term.

Details of the move

• It has been decided that if the private players – who will be running 150 trains on 100 identified routes – bring in modern trains that are in vogue across the world that display the actual amount of energy consumed – a feature not reliably available in Indian train systems – the haulage charge will come down to around Rs 512 per km, much below the Rs 668 per km that has been set for the private companies. The Rs-668 per km figure includes the energy cost as well.

• However, policymakers have decided that delinking energy cost leaves a leeway for the private player to bring in energy-efficient train sets. And it could be different for each player depending on the type of rolling stock being used.

• In addition, the Empowered Group of Secretaries under NITI Aayog CEO has decided to “define” item-wise what non-fare revenue would include for the private players.

What are haulage charges?

Haulage charge is the money private players will have to pay to Railways, on a per-km basis, for using its infrastructure in operating the trains – track, signaling, associated manpower and the like.

Significance of the move

• This makes the business model even more lucrative for private players due to enter the new business traditionally held by Railways as a monopoly.

• This is because in the new business model being developed, private players will be bidding based on how much of their gross revenue they are willing to share with Railways – over and above the haulage charge payable to operate the trains.

• As per the latest round of discussions, everything that the private train operator can make money from — seat preference, luggage space, parcel, branding of all kinds, onboard facilities like wifi and entertainment — will be part of the gross revenue the operator will have to share with Railways. This is in addition to the money made from ticket sales.

• Since revenue share in this shape and form does not have a pre-existing model in India and is being tried for the first time in the rail sector, policymakers want to make the contract watertight from the point of view of Railways. The private consultant advising the Railways on this project has been asked to draw up the nitty-gritty of the inclusions of non-fare revenue to be made part of the Request for Qualification (RFQ) document.

• The effort is on to issue the RFQ before the end of this financial year. As per the timeline, the winning bidders will get about two years to roll out the first set of trains after trials on Indian track conditions.

So far, big names from industry like Tata Realty, Adani Ports and SEZ, the Essel Group and others, and PSU IRCTC have shown interest in bidding for the routes.