indian railway ppp concession ing final

8/6/2019 Indian Railway PPP Concession Ing Final

1/33

World Bank Support of Railway

Conc essioning & Bidding

ROUNDTABLE ON RAILWAY PPPs

George Tharakan and Nupur Gupta, World Bank (SASEI)New Delhi, June 16, 2006


2/33

06/16/2006 George Tharakan, Nupur GuptaWorld Bank

2

World Railways and PPP

Americas, Australasia, UK

Substantial increase in PPP activity

Virtually all rail freight in private hands Central Asia & Eastern Europe

Restructuring involving transition from centrally planned toautonomous management, some privatization

European Union except UK

Largely publicly owned and operated

Adoption of various degrees of separation of infrastructure from

operations China and India

Largely vertically integrated & publicly owned

Mega network development plans


3/33


3

Railway PPP Experience

Developing World


4/33


4

Railway PPP Financ ing 1990-2001Developing Countries

Latin

America,

62%

East Asia

acific, 35%

Other, 3%

US$ 29 billion

Much of the PPP investment has taken place in Latin America and EastAsia. While in LA the experience is largely with freight railways, in EA it is

mainly with urban passenger rail.


5/33


5

World Bank Group Experienc e

with Railway PPPs Freight concessions (30 +): Argentina, Chile,

Brazil, Bolivia, Uruguay, Guatemala, Mexico,Peru, Cote dIvoire/Burkina Faso, Cameroon,Malawi, Mozambique, Senegal/Mali, Ghana,Jordan, etc.

Partial Privatizations: Poland, Romania

Suburban passenger concessions: Buenos

Aires 7 lines, Rio de Janeiro, Mexico City Metro Concessions: Buenos Aires, Rio de

Janeiro, Bangkok, Sao Paulo Line 4


6/33


6

LAC Rail PPP Profile

LAC accounts for close to two-thirds the

investments in developing world - $16 bn 3 countries Brazil, Argentina & Mexico

account for 95% of the investment

Largely concessioning of existing railways

Largely freight corridors

Vertically integrated concessioning


7/33


7

Performanc e of PPP in RailwaysFreight TrafficVolume

Year of MainConcession

2003 TKM increaseover Concession

Year

Argentina 1993 145.7%

Bolivia 1996 -6.4%

Brazil 1996 40.3%

Chile 1995 58.3%

Colombia 1999 68.3%

Mexico 1997 29.1%

Peru 1999 117.8%


8/33


8

Latin America Railway Concession

Results Erosion of railway traffic base halted

Service quality improved

Significant total factor productivity improvements

Tariff levels declined

Government relieved of financial burden

Investment projection typically not met largely aresult of lower traffic volumes than projected

Limited impact on allocative efficiency, railway

market shareConcessions resulted in improved traffic flows, productive efficiency andreduced tariffs. On the other hand, they did not generally result in largecapacity additions or improved inter modal competition


9/33


9

Indian Railways & Need for Capac ity

Enhancement


10/33


10

Indian Railways

IR, the fourth most heavily used system in theworld

Responsible for 15% of passenger traffic and25% of freight traffic in the country

IR has been steadily losing freight market shareto highways due to capacity constraints andskewed tariff policy

Looking from a port connectivity perspectivealone there are serious capacity constraints


11/33


11

Port Traffic & Trade Projec tions Port traffic is expected to double from present levels of over

500 million tons by 2015.

Container traffic from 4.5 to 20 million teu, dry bulk trafficfrom 197 to 390 million tons over the next ten years

Urgent need for rail capacity enhancement and technology

upgradation to cater to this growth alone

164

368

522

782

1130

0

200

400

600

800

1000

1200

1990-91 2000-01 2004-05 2009-10 2014-15


12/33


12

Competitiveness of Ind ian Trade

Higher logistics costs incurred by exporters onaccount of suboptimal routing or mode use

directly affect competitiveness While these additional costs may be sustainable

during boom periods, may lead to a loss of tradeopportunity during troughs, and therefore an

overall loss to the economy

Rail capacity and efficiency needs to be significantlyramped up for meeting the growing trade opportunities


13/33


13

Paradip Port Case Study - Hinterland

Cha

ttis

garh

Orissa

JharkhandWest

Bengal

Paradip

Haldia

Vishakhapatnam(Vizag)

Koira (IO)

Gua Noamundi (IO)

Joda-Barbil (IO)

Bailadila17.2 5.6 11.6

Daitari (IO)Dalli Rajhara8.0 0.0 8.0

Sambalpur (TC)

RaipurTalcher (TC)

Paradip is the naturalchoice for exports of IronOre and Thermal Coal butsignificant quantitiesvolumes must movethrough Haldia and Vizag

Key issue for thermal coalis the connectivityconstraint

Key issues for iron ore are

Connectivity constraint

Port handling facilities

Paradip Vizag Haldia

Iron Ore

15.74

9

(57%)

1.32

(8%)

5.4

(34%)

Thermal Coal

13

10.5

(81%)

2.5

(19%)

-

Quantity in Million TonnesPort unable to encash hinterland value


14/33


14

Paradip Case Study Iron Ore Exports Port handled only 60% of iron ore exported from itshinterland

Paradip handled 9 million tonnes

61% of the ore at Paradip was transported by road. Rail line capacity, port rake handling capacity are constraints

Logistics Cost

Rail transport cost to various ports ranges between Rs 450 Rs

1,350 (per MT) Road transport cost varies between Rs 1,000 Rs 1,250 (per MT)

Impact of new rail connectivity projects

The Banspani Daitari rail link will reduce costs by Rs 350 per MT,this will benefit significant volumes earlier routed to Haldia

Lower FoB price of ore will expand market demand, so benefitseven larger. Savings on the order of Rs 100 crore a year or higher.

High inland transport costs is one of the key issues


15/33


15

Paradip Port Case Study Thermal Coal

Origin Port Distance

Km

Paradip 200 194Talcher

Vizag 560 472

Inland Haulage

Rs per MT

Sambalpur

Talcher

Paradip

Vizag

Paradip is the natural choice for coastalshipping of Thermal Coal

Significant quantities of thermal coal aredirected to Vizag ( 20- 25%)as per allotmentplan of the Standing Linkage Committee forthermal coal

Standing Linkage Committee, allotment plan forJan March (06-07)

Reduction in volumes to Paradip 18%

Increase in volumes to Vizag 51%

This is primarily due to rail line capacity issues

Talcher Paradip

Sambalpur Paradip

Cuttack Paradip

Rail capacity is the key reason

for reduction in volumes

IRCapac ity Enhancement Potentia l


16/33


16

IR Capac ity Enhancement Potentia lIndia-China Comparison

(2002 Data)

India China

Route-km 63,000 72,000

Ton-km per year(billion)

336 1551

Average Freight Tariff

(US cents/ton-km)

1.6 0.96

Traffic Density

(million TU/route-km)

13.1 27.4


17/33


17

China Railway Network Plan

2003-20

Railway route length to increase from 75,000to 100,000 km

Separation of freight and passenger

transport operation on trunk lines 50% double tracking

50% electrification

Total cost of the mid and long term network plan is expected to be$240 billion spread over 2003-20


18/33


18

Indian Railways Development Plan

2007-12 Rs. 5,00,000 crores ($ 100 bn) outlay proposed

for railway upgradation Capacity upgradation

Rolling stock

Equipment upgradation etc.

Given the quantum of funding involved, PPPexpected to be a major contributor (about 60%)

to the planned investments This is a scale of Railway PPPs unprecedented

among railways around the world.


19/33


19

Embarking on PPPs


20/33


20

The Partnership

There are certain misconceptions about the wordpartnership. It is not a warm and fuzzy relationship

between public and private parties working towards acommon objective.

Public and Private partners have distinct objectives.

Challenge for the public sector is to design sufficientincentives so that private profit seeking attains broaderpublic interest objectives.

Rewards are performance related, with mechanismsfor continuous monitoring by the public agency overthe life of the contract not fire and forget proposition.


21/33


21

Public Private Partnerships

PPPs are long-term contracts between a public sectorContracting Authority (CA) and a private service provider.

Challenges for CA are: Carefully structured contracts that are affordable and bankable.

Transfer of specified project risks and good risk management.

Adequate public control to assure output and quality.

Fair contracts that positively enable private investment. Achieving good PPP outcomes is non-trivial. Bad outcomes

can be disastrous e.g. Turkey power sector PPPs resulted inan estimated loss to the country of US$7 billion per year as a

result of badly structured contracts. Fortunately, a lot has been learned and the mistakes need not

be repeated.


22/33


22

PPP-Necessary Cond itions Suc cess

Adequate legal and regulatory framework that isperceived to be, and is in fact, fair and equitable.

Development of standardized clauses which havereceived adequate legal due diligence.

Mechanisms for periodic review of specificcontractual terms during the life of contract.

Effective, efficient and fair dispute resolution.

Fiscal tools for correct accounting of liabilities, esp.contingent liabilities related to PPP contracts.

Early and regular communication with stakeholders,including end-use customers.


23/33


23

Regulation of PPPs

by Law and Regulatory Agency Unilateral administrative act specifying the rights

and obligations of private parties.

Rules written by the legislature with secondaryregulations by Regulatory Agency.

Regulator responsible for applying licensingframework including regulation of tariffs, servicestandards and protecting customer rights.

Discretion vested in the Regulator better informed

but risk of excessive intervention.


24/33


24

Regulation of PPPs

by Contrac t and the Courts Rules written by CA and private party as a contract

governed by contract law.

Discretion vested in the courts may be difficultwhen there are complex technical issues.

Ability to write robust but flexible contractsdesigned to last 30 years could be an issue.

CAs ability to monitor service provider may bedeficient and seen as not even handed.

Insertion of a Regulator with excessive discretionmay deter private sector private sector preferssharp rules - predictable though a little imperfect.


25/33

Ch k d B l


26/33


26

Checks and Balances

Projec t Preparation Guidelines for, e.g.

Appointment/mgnt of Transaction Advisors

Preparation of the business Case

Construction of Public Sector Comparator

Stakeholder consultations Rules for, e.g.

Site hand-over by public agency

Minimum risk transfer e.g. construction risk Tariff adjustment method

Guarantees that assume financing risk

Ch k d B l


27/33


27

Checks and Balances

Bidding and Contrac t Management Guidelines for, e.g.

Standardized contract clauses

Legal due diligence to seal risks in contract

Contract and performance management

Contingency plans for emergencies Independent auditing

Rules for, e.g.

Dealing with unsolicited proposals Payment deductions for under-performance

Interim reviews and periodic contract adjustments


28/33


28

PPP Polic y Support

Expert Advisory Services for generic PPP issues, e.g.:

Contract Adjustment during life of the contract.

Mechanisms for independent expert panels should beestablished:

Method of appointing independent expert panels.

Limits of discretion given to such panels. How to handle refinancings or other windfall profits

Management of Contingent liabilities

Proper accounting of contingent liabilities.

Control risks of off-balance sheet accounting.

Etc.

I iti ti L S l PPP P


29/33


29

Initiating a Large Scale PPP Program

for Railways Where do you start?Well developed Railway PPP Policy paper. This will also createconfidence in the program. The paper should cover, i.a.

PPP initiative in the context of a long term strategic transportnetwork development plan that is stable and predictable.

Bolstering capacity for planning, preparation & implementationof PPP transactions reduce risks.

Development of necessary legal and regulatory framework Simple & transparent bidding procedures Standardised Concession Agreements equitable risk sharing Dispute resolution defined procedures & speedy resolution

Preconstruction land acquisition, utility shifting Clear understanding of and safeguarding against contingentliabilities.

Finally, last but not least, mechanisms to safeguard against

moral hazards created by long-term nature of the contracts!


30/33


30

World Bank Involvement


31/33


31

World Bank PPP Assistance in Ind ia

Capacity Building for PPPs at national & state levels Capacity building for Viability Gap Funding

Guidelines, etc. PPP Appraisal Unit in Planning Commission Model

Concession Agreement reviews, guidelines

Indian Infrastructure Finance Corporation (IIFCL) Examining possibility of assistance to IIFCL

Resources India : Addressing Supply Constraints to

Infrastructure Financing

India : Building Capacities for PPPs


32/33


32

World Bank Assistanc e

Funding for Investment

Guarantees Technical Assistance

Knowledge Bank


33/33

Thank You

Visit our Website at

www.worldbank.org/ sartransport
http://www.worldbank.org/sartransporthttp://www.worldbank.org/sartransport

indian railway ppp concession ing final

Documents