NEW DELHI (Commodity Online):Despite the fact that Indian Railways (IR) is pinning all it’s hopes on private equities (PEs) investments to an extent of US$ 13 billion during 11th plan period to support it’s expansion drive including laying of dedicated freight corridors across the country, it has so far raised a meager US$ 84.8 million through PEs which falls short of expectations by 15 times.

This, according to a Report brought out by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) on PEs Investments Towards IR goes to prove that railways has yet to roll out investment friendly models to support it’s diversification drive on lines anticipated by PEs and also ensure reasonable return on capital deployed.

Since 11th plan began in 2007-08 and close to 3 years have already elapsed, the railways received limited PEs participation until now as only 2 deals so far announced for it. One that of Patil Infrastructure – a company focusing on railway track engineering, received US$ 56.7 million funding from one equity partner.

In the second one, Harish Chandra – a railway line manufacture attracted investment worth US$ 28.1 million from Axis Pvt. equity, adds the ASSOCHAM.

According to official estimates, both public and private investment planned for modification, expansion drive of railways including laying of part of freight corridors during the 11th five year plan should be around US$ 65.5 billion. Of which close to 19% is expected to be generated through private participation.

The report also highlights that over the past few years, the growth of rail network has not kept pace with the increasing traffic requirements. For instance, between financial year 2001 and 2008, the goods traffic increased at a CAGR of 8.3% while the rail network increased only at a CAGR of 0.08%.

Releasing findings of ASSOCHAM report, it’s President Dr. Swati Piramal said that significant private sector participation would be required in the sector. Apart from projects to be developed on PPP basis, large projects in Indian railways such as dedicated freight corridor and the outlays of railways tracks to improve connectivity will offer opportunities for the private sector on an equipment, procurement and construction (EPC) basis.

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This is expected to increase the scope of PEs investments in this segment provided a transparent investment charter is laid out for private investments in timely execution of railway projects such as dedicated freight corridors and it’s diversification and modernization drive.

However, in the short to medium term, the PE opportunities in railways will be restricted to the EPC players as it is unlikely that any meaningful number of railways PPP projects will be available in the market in near future.

Further, numerous issues such as capacity constraints, increasing freight rates and a lack of modern freight terminals continued to impact the rail sector. These infrastructure bottlenecks coupled with poor customer orientation resulted in transit delays of both passengers and goods, resulting in an increased customer preference towards roads.

Rail projects in India have generally been a part of the public sector domain. However, based on success of PPP in other infrastructure sectors such as highways, Indian railway has begun to take a small measures to explore the PPP route which can be profitable provided reforms and transparency is strictly observed in awarding rail projects for private equities including private investments, said Dr. Piramal.

With a total network 63,332 km spread across 8000 stations, the Indian railways forms the second-largest rail network in the world under a single management. Indian railways involved in a number of activities including freight and passenger operations, infrastructure development, manufacturing and other ancillary businesses such as catering and tourism. The freight segment accounts for about 70% of the overall revenues. Indian railways carries approx. 40% of the freight traffic and 20% of the passenger traffic of the country.

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