Why PPP does not take off on Indian Railways!

Risk management and mitigation is the key.

India has quite well advanced in designing sound PPP models. One need not re-invent.

The actual hurdle is mental attitude. For some reason our finance and audit wings as well as many executives suffer from a complex; private party should not be allowed to get benefit from working for railway. Excessive fear that we may give away some undue benefit to the private party is at the back of our minds holding us back.

It was more than 3 decades ago some dynamic officers in Board tried hard to create a professional costing expertise within railways to make a proper planning and execution of works and manufacturing of rolling stock. But it died after a two year effort.

Any new project of railway construction is not a rocket science -- it is like any other civil engineering project. SO long as we do not have to do under traffic block conditions, the risks can be estimated and mitigated during construction phase.

But even here, our planning and execution suffers a lot because we never finalise the drawings and sign them off. With change in some big boss, ideas change and the tinkering with drawings goes on as ego massaging exercise.This has a cascading effect on design and costs. With departmental working with no target to be met with contractors get paind escalations and costs.

In PPP our officers will have to forego this luxury and subject themselves to some discipline. Actually it is a turf war. More psychological than real.

Then simple BT model--that is build and transfer model is better to reduce the complication of running traffic and manage earnings.

Not that we have not done successful one-- Pipav model is good and is working. But the problem was again costing the operations. Konkan Railway costs were agreed to be the bench mark by the private party.

There is tremendous talent and intelligence in Railway Board and really speaking they do not need help from outside. It is a matter what attitude we take to our work. One ingredient missing is humility and respect for others who could be junior but well versed in their field.

PPP in railways will never occur, until we change our mind set. IRFC has enough experise to put together finance and after proper DPR, with honest figures for costs and revenues.

Frankly railway standards of preparing estimates and then use that as bench mark to judge the capital requirements of a private party will never work. The financing costs have to be taken at 30% of the capital cost which we do not. Example of Konkan Railway can be checked. More than Rs 1000 cr was the financing cost for the project construction period out of Rs 3500 cr. If we work out based on basic project cost, then it is close to 40 to 45%!!!

We waste months and years, to come to an agreed figure for the project cost with the private party and we having a gap of more than 50 to 60% in our perception of the cost for the project.

Then we suffer from endless suspicion that the private party is duping us.

This is mainly a matter of risk appreciation and mitigation which railway officers are ill equipped to do. Cashflows and delayed cashflows time costs, undefined tax and legal costs all add up to woes of the private party.

Decision making and clear handing over of the project with third party quality assurance, leaving out excessive departmental interference, a certain level of trust in the private party, then having a fixed rate contract with promised fixed rate of return duly guaranteed by railway in irrevocable terms with proper There are assured bank processes to create needed confidence levels for the private party.

When projects are financially unviable, the PPP can still be worked to our advantage, if the component of capital and revenues are topped up to take care of risk of the private capital and assure him his fair return. We can to that extent reduce our capital requirements. But we should be prepared to accept that the project really does not produce the revenues but needed for social reasons, and it will have capitalised losses over next 10 to 15 years or more, but all of which will go to the railway account. The private party should have only well defined expenditure and return profile for his portion and his liability extinguish within specified 10 year period.

What we need maturity on the part of railways. You cannot be a boss controlling the contractor. You have to learn the relationship management of how to behave and deal with a partner with due respect and trust. We have to learn total delegation of responsibility and power too.

That is where Railways are failing. It is not the case of this model or that model-- it is just an excuse to avoid loss of fiefdoms and unquestioned obedience.

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