PPP Leading the Railway Station Development in India

September 20, 2020
Blog

Indian Railway Stations Development Corporation Limited (IRSDC), is a State-Owned Enterprise (SOE) jointly owned by two other SOE of Ministry of Railways, India. It endeavors to be a leading organization in the field of development, redevelopment, operation and maintenance of railway stations with passenger amenities of international standards.

World Association of PPP Units & Professionals (WAPPP) endeavors to collect and publish PPP reviews, standards, case studies and other relevant information. They continue to provide online forums and organize international meetings for the exchange of knowledge, advice and ideas on multiple topics of interest to both public- and private sector PPP practitioners.

To understand the work being done a discussion with Mr. S.K Lohia, MD & CEO of IRSDC was held online with Mr. Naresh Bana, Member of Executive Committee, Treasure and Chair of the Editorial Board of WAPPP, on 18th September 2020 at 12:15 pm for 30 Minutes approximately. Latest updates of ongoing projects and future plans of IRSDC were shared. Mr Lohia mentioned that Habibganj and Gandhinagar Railway stations in Gujarat are scheduled to complete in December 2020. These two stations may be models of such PPP projects being planned by them. Even during/due to pandemic the projects are progressing adequately.

Elaborating on the impacts of pandemic he said the financial model of ongoing PPP projects may suffer for a brief period but overall, the viability of PPP projects will not be affected as railway stations continue to be hub of activity. Except for construction delays the EPC projects are not likely to suffer any adverse effect.

IRSDC have been using ‘Swiss Challenge Approach’ and conventional procurement procedures for bidding out the station development projects. The land use model provides concessionaires with full usufruct rights and all other provision for commercial exploitation of the railway station land except that land cannot be mortgaged. It seems to be working well with prospective partners.

The draft model concessionaire agreement (MCA) as available on the website of IRSDC was discussed. It was clarified that there is no exclusive regulator as of now but the same may be appointed in future. The user fee is being laid down upfront at the RFP stage to avoid need for adjudication at any later date. It was also updated that in the current dispute resolution process the second stage of conciliation is between Authority and SPV instead of GM, Zonal Railway and SPV as mentioned in the draft MCA. At present there is no elaborate insurance compliance for the life cycle of PPP. The concessionaire is free to obtain insurance as per risks envisaged. It is also optional for concessionaire to follow the international Environmental, Social and Governance (ESG) norms.

IRSDC is constantly seeking foreign investment and recently the Chairman Railway Board along with ‘Invest India’ had a long discussion with prospective foreign investors and invited them to participate in the ambitious station development program. Mr Lohia was forthcoming and positive for future participation in such events to showcase their work and learn from failures of such projects worldwide as may be known to WAPPP members.

To enhance investment acceptability of IRSDC projects and on behalf of WAPPP Mr Naresh Bana shared his following inputs :-

a.     Risk allocation as seen in the draft MCA of IRSDC appears asymmetric with most of the risks being allocated to the developer/concessionaire. It needs balancing.

b.     International investors depend on the type and extent of insurance available to cover various project risks. The current insurance cover of IRSDC projects appear inadequate. It appears to be a pan Indian phenomenon as also noted by the ‘World Bank’ while commenting on the modified MCA of port development in 2018 in India. 

c.     Dispute resolution mechanism needs to be preceded with dispute avoidance provisions in each sub activity of entire PPP. That may be able to arrest the points of difference before those turn into disputes. In the arbitration phase the SPV should be allowed to suggest arbitrator of  their own choice and not restricted to choosing from those arbitrators who are empaneled with IRSDC.

d.     Railway stations after development are going to be the place frequented by people and thus ESG aspects need to be integrated thoroughly and prominently in future projects.

 

The online meeting completed on a positive note with both participants indicating future engagements for knowledge sharing and capacity building. The video link of the meeting is given below.