ppp 2013 topic 7only railways

8/12/2019 PPP 2013 Topic 7Only Railways

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JUSCO was successful in supplying water to the non Tata SteelJurisdiction areas at affordable prices.

The extra water was obtained by having a more economical useof water in the Tata Steel areas by installing water meters.

The problem of high access charges was solved by arranging forloans for the connection charge payable in easy installments.

JUSCO has till now reported a near 1! collection from its

users. JUSCO now has ta"en many other pro#ects$ namely in %ysore

City$ Salt &a"e City Sector '$ (ol"ata and )aldia.

*ater+ Some successful ,ro#ects


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Slide: G.S. Basu, JUSCO; Mysore 24x7 Water Supply Proe!t

"a#e o$ Proe!t 24%7 Water Supply per$or#a&!e 'ased #a&a(e#e&t !o&tra!t i&Mysore !ity

Jo' )es!riptio& Conversion of intermittent to -/0 continuous water supply system throughsystematic improvements and networ" rehabilitation

Clie&t %ysore City Corporation (arnata"a *ater Supply 2rainage 3oard4(U*S235

Salie&t *eatures )ydraulic modeling$ 6etwor" design and preparation and implementationof Capital investment plan

7ehabilitation of citywide water distribution networ" 8 9bout :"m ofpipeline 4dia. ;


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Slide: G. S. Basu, Proe!t Stru!turi&( Su##ary

Per$or#a&!e 'ased Ma&a(e#e&t

Co&tra!t ,hase 1+ Study ,hase 43aseline

study5

,hase -+ 7ehabilitaion ,hase

,hase >+ O% ,hase

7emodeling 7ehabilitation of

distribution networ"$ establishing

2%9s to convert intermittent to

-/0 continuous water supply

@ixed ,erformance based fees

S5ari&( o$ 6iss 'et/ee&

Operator a&d U8B Anvestment 4J66U7%5

7evenue collection 7is"with Operator 4limited5

,erformance 7is" withOperator

2esign Construction7is" with Operator

*ater supply operation7is" with Operator

6on=performance withdeputed Bovt staff

1. Tariff to be fixed by MCC

2. Operator to bill, collect and pass on

the revenues to MCC

2

3pressurised

24x7

!o&&e!tio&s

already!o##issio&ed

3


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Slide: G. S. Basu, Se!tor 0 +, Salt 8ae Proe!t

"a#e o$ Proe!t )e1elop#e&t 9 Ma&a(e#e&t o$ Water 9 Se/era(e"et/or at Salt 8ae Se!tor0+ olata< o& BO 'asis$or = years

Clie&t 62AT9$ (ol"ata 4(%29 as Tech. @acilitator5

Jo' )es!riptio& 2esign and Construction of clear water UB7$ ,ump)ouse$ ?S7$ &aying of Clear *ater Transmission%ain 2istribution 6etwor"$ Anstallation of bul" consumer meters

2esign and Construction of ST,$ A,S$ Sewerage6etwor"$ O% of all water sewerage assets.

3illing and collection

Salie&t *eatures JUSCO='O&T9S Consortium shall design$ plan$develop$ finance$ construct$ administer$ manage$operate and maintain the ,ro#ect$

,art=financing of pro#ect 4;

lowest water=cum=sewerage charges per (& criteriafor bidder selection.

Construction period = 1D months

+alue *ater Supply 8 7s. -;.0 million Sewerage System 8 7s. >.0 million

Co&!essio&Period

> Eears

st Water Se!tor P0P0P Proe!t sa&!tio&ed u&der J""U6M Pro(ra#4 4


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Slide: G. S. Basu, Proe!t Stru!turi&( Su##ary

Co&!essio& > BO

Anvestment

*ater sewer networ"

2evelopment

Operation %aintenance

Ancreasing service coverage and7etail distribution

3ul" consumer %etering

3illing Collection

Maor 6iss /it5 t5eOperator

Anvestment ris"

2emand 7is"

7evenue 7is"

,erformance

7is"

Construction

7is" Treated water

availability 5


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*ater sector reform refer to the whole of a countryFspolicies$ planning$ implementation$ and supportingactivities to develop and manage its water resources anddeliver water services to all users.

7eforms are premised on the need to address the currentwater crisis$ which is seen as essentially a crisis ofgovernance that needs to be addressed through reformsin water resource management.

*ater Sector 7eforms and Antegrated *ater 7esource

%anagement


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Conservation

*ater as a basic need

*ater as an economic good

Andividual property rights

2ecentraliGation and user participation

Anstitutional reforms and privatiGation

*ater Sector 7eforms and Antegrated *ater 7esource

%anagement


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1D:0 6ational *ater ,olicy

-- 6ational *ater ,olicy+ There is stronger emphasison principles underlying integrated water resource

management. This document also has a focus ofencouraging private sector participation.

6ational water policy provides that water should beallocated in the following order+ drin"ing water$ irrigation$

hydro=power$ ecology$ agro industries and non agriculturalindustries$ navigation and other uses.

6ational *ater ,olicies


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Several states follow a similar ordering scheme.

The main exception is %aharashtra policy$ which putsindustrial use before irrigation. This appears to be a direct

response to the *orld 3an"Fs critiHue of the fact thatindustrial use if often the last priority even though valueadded is usually greater than for water used in irrigation.

An )imachal ,radesh environment is specifically

mentioned as one of the priorities$ something that allstates do not do$ but tourism and environment are put as asingle priority.

6ational *ater ,olicies+ ?xceptions


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,olicies emphasiGe the need for involvement andparticipation in the planning$ design$ development andmanagement of water schemes.

)owever the scope of participation under these policies issometimes narrow. An 7a#asthan participation addressesonly irrigation water. @urther$ participation is restricted tofarmers who are users of irrigation water and it covers onlythe management of irrigation systems$ particularly in the

water distribution and collection of water charges.

6ational *ater ,olicies


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This refers to conflicts between different users betweenthe same "ind of use.

?xamples= conflicts between middle class localities and

slums over drin"ing and domestic water and that betweenbig farmers and small farmers over access to irrigation.

To tac"le the conflicts over allocation and access we needa better concept of rights or entitlements to water.

Understanding *ater Conflicts+ Conflictsover ?Huitable 9ccess


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An this case we need to understand the relative priority ofdifferent uses and may not be reduced to seasonal issuesalone.

?xamples are conflicts between agriculture and industryover water use$ rural and urban needs where rural needsare steadily losing out.

There is a conflict between preserving the eco system and

also the needs of people depending on the eco system fortheir livelihood.

Understanding *ater Conflicts+ Conflictsover competing uses


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The main issue here is how and in what form do usersreturn water into the ecosystem.

,olluted water returned by users cause problems to

downstream users$ and the decreased fresh wateravailability causes economic loss$ social distress and illhealth.

,ollution control boards have been unable to control this

problem.

Understanding *ater Conflicts+ Conflictsover water Huality


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Uncontrolled sand mining from river beds or sea beds hasa deleterious effect on stream flows.

9part from ecological aspects$ they impact on stream flows

and sandy aHuifers$ deepening of river beds$ sub surfaceintrusion of saline water in coastal areas and erosion of theban"s$ it also has impacts on the livelihoods of localpeople$ for example with decreased availability of water forboth domestic and irrigation purposes as the well near the

ban"s going dry.

)owever sand mining provides seasonal employment tolocals and is sometimes a ma#or source of revenue for localvillage councils.

Understanding *ater Conflicts+ Conflictsover water Huality


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This has become a ma#or issue$ since providing for waterin the dry regions of the country has meant submergenceof villages leading to displacement of local people.

Understanding *ater Conflicts+ Conflictsover dams and displacement


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-I0 water schemes or bottled water schemes areexpensive that tend to exclude the poor.

There have been instances that when water has been

privatiGed$ the private sector has been given access toassured water supply for purification$ which meant thatfishermen were denied the rights to fish in the la"e or river.

There were bans on new installation of tubewells$ andpeople from the down stream areas complained ofdepleting ground water table.

Understanding *ater Conflicts+ Conflictsover privatiGation


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There have been conflicts between neighboring countriesover access to water$ and also between states oversharing of water resources.

There are intra states conflicts too$ within 9ndhra ,radesh$Telengana region is fighting over illegal allocations to othermore politically more powerful regions and almost war li"esituation exist over ,othireddy ,adu$ 7a#olibanda$ or,olavaram.

*ater is a contentious and bitterly fought issue betweenthe bac"ward regions of %arathwada and 'idharba andthe comparatively better placed South %aharashtra.

Understanding *ater Conflicts+ Trans3oundary Conflicts


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There is a need to stop viewing water flowing into the seaas water going waste.

This approach has led to a water management strategy

that is centred solely on dams. %any of our mega pro#ectsbe it dams or inter=lin"ing of rivers treat water from thisperspective.

9nother Huestion is who pays for water and how muchSo far the urban poor and rural areas have paid muchmore for water directly or indirectly$ for the water especiallyfrom public sources.

Understanding *ater Conflicts+Conclusion


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Andian 7ailwaysThe transformation


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%uch of the initial railroad construction was led by private firmsincluding the ?ast Andia company.

These constructions were financed through investments from capitalmar"ets in ?ngland bac"ed by 3ritish government guarantees.

The princely states of 3i"aner$ Bwalior$ Jodhpur$ among othersfinanced their own railroads as well.

?ventually the crown realiGed that the incentive structure for private

contractors did not encourage savings.

This was primarily because all ris" was borne by the state thatguaranteed a

?volution


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9lternatively the had provisions to buy bac" the infrastructure if itwas unprofitable for the private firms that built it.

9dditionally the state provided land gratis and reHuired its mail to becarried free of charge.

Such public=private collaboration in the nineteenth centuryresembles the contemporary cost plus models with an assured rateof return.

9fter the revolt of 1:


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An the period following nationaliGation of the railways$ there weresome critical technological improvements.

The old stoc" consisted of less efficient and high maintenancetechnology. The new stoc" consisted of better technology.

@urther goods accepted both wagon loads and train loads. Thiscreated operational inefficiencies. The old and new stoc"s ofwagons with different types of couplings and bearings were #umbledto form freight trains.

Operational and management practices caused uncertainties andlong delays in the entire freight operations= power plants awaitedcoal supplies and transportation of essential commodities such asfood grains and petroleum products were severely constrained.

Operational Crisis of the 1D:s


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%. S. Bu#ral ta"es over as chairman of the railway board and has atwofold strategy. @irst$ he segregated the old and new types ofwagons= specifically the four wheelers from the eight wheelers$screw coupling from centre buffer coupling and roller bearing fromplain bearing. 9long with the separation of stoc"$ Bu#ral improvedmaintenance practices at the start of the train so as to abolish thepractice of en route examination called Ksafe to runL at every "m.This was replaced by an end to end examination.

Second$ he abolished the practice of accepting less than a trainloadof freight and introduced the concept of bloc" and Mpoint to pointF

trains$ thus eliminating the need to halt trains en route.

*ith the operational changes$ not only did trains roll faster$ but theyalso increased the amount of freight transported. There was afourfold increase in freight carried in the decade following thereforms compared to the previous decade.

Operational Crisis of the 1D:s


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An -1 railways faced a severe financial crisis. At defaulted on thedividend payments to the government of Andia$ its cash balancesshran" to a paltry 7s. >! growth and itsexpenses grew faster than revenues.

The financial condition was unsustainable and the railways was onthe verge of ban"ruptcy.

*ith the currency crisis in 1DD1$ the government of Andia startedliberaliGation of the economy$ the reforms reduced the barriers totrade$ reduced tariffs on import of intermediate and finished goods.

@inancial Crisis in -1


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9s a result of these reforms$ firms began feeling the competitivepressures from domestic and international firms$ because in a liberaltrade regime domestic prices of tradable goods and servicesconverged with international ones.

This is particularly true since the cost of international freight hasbeen declining. An response to the stiff competition from domesticand international firms$ producers began reviewing their coststructures including total logistics costs= namely cost oftransportation$ inventories$ multiple modal transfers$ delays anddamages.

There was a sharp decline in the ability and the willingness of thecentral government to provide budget support through fiscaltransfers for capital expenditure needs or recurring expenses li"ethe increase in wages due to the fifth pay commission.

@inancial Crisis in -1


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Under this scheme$ the cost of transport of some bul" commoditiesli"e steel and fertiliGers was neutral to the lead of transportation asthe difference was paid by the excheHuer through a subsidy.

The producers were not concerned about the costs of transportation

because they could pass on these costs to the state. &iberaliGationbegan dismantling this arrangement.

@irms became cost conscious and began see"ing cheaper transportservices.

@iercely competitive road transport was increasing acHuiring railwaymar"et share. There were increasing competition from internationallogistics firms international logistics firms$ shipping industry and oilpipelines.

@reight ?HualiGation Scheme


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The government appointed the 7a"esh %ohan Committee tosuggest corrective measures. An the expert view there were fiveessential contradictions that the railways had to resolve.

@irst$ the conflicting priorities between the politician and the

bureaucracy. The Andian railways was heading towards a ban"ruptcysince ministers meddle with financial allocations resulting in poorchoices of investment in politically motivated un=remunerativepro#ects. Cross subsidiGation of passenger fares through freHuentincreases in freight tariffs was eroding the mar"et share in freight$the profitable segment of the business. To subsidiGe sleeper class

passengers$ premium class passenger segments were taxed$ due towhich railways was losing customers to budget airlines.

Second since policy ma"ing$ oversight functions$ railway ownershipand management are all concentrated in a monolithic organiGationthere is lac" of accountability.

7a"esh %ohan Committee


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Third$ the railways indulged in a variety of non=core activities thatranged from in=house manufacturing and maintenance of engines$ andcarriages and even to catering. 9dditionally it was burdened withsocial obligations of running hospitals and schools$ yatri niwas hotels$training institutions and providing employee housing. This distractedthe railway authorities from the core business of running trains.

@ourth$ there was a fiscal crunch due to declining budgetary supportthrough central government transfers. To ma"e up the gap ininvestment needs$ the railways borrowed from the mar"ets.

@inally$ there was an army of railway employees and their everincreasing salaries and pension liabilities. *here staff costs accountedfor half the total costs$ the implementation of the fifth pay commissionrecommendations would act as the last nail in the coffin.

7a"esh %ohan Committee -1


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1. Unbundle the institution into separate roles= policy ma"ing$regulation and management= by corporatiGing railways andestablishing an independent regulator$ specifically for tariff setting.

-. ,rivatiGe non core activities li"e health care$ education$ production

and maintenance of trains.

>. 7educe the 1.; million staff by -

. 7educe cross subsidy$ hi"e fares for the second class passengers

by :=1 per cent every year for five years.


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&alooFs position on policy issues was the converse of therecommendations proposed by the %ohan Committee and otherinternational expert groups. Steps ta"en by him were exactly incontrast with what had been recommended.

7etrenchment was recommended$ but railways was used foremployment generation. 7eplacing plastic cups by "ulhads 4claypots5$ replacing synthetic upholstery with hand woven cotton cloth$and hiring -$ coolies as railway staff for the post of gangmen 8wor"ers for railway trac" maintenance.

The experts had recommended a hi"e in loss ma"ing passengersegments and establishment of a tariff regulator. An contrastrailways did the reverse$ reduced fares in each budget and in everytravel class.

?nter &aloo Eadav= the new 7ailway %inister


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@urther$ the minister was of the opinion that as an electedrepresentative of the people$ he was in=charge of the ministry of7ailways$ and answerable to the people via ,arliament$ he couldnot devolve the role of determining tariffs to an autonomous entity=an independent tariff regulator. Thus he wanted independence froma regulator in deciding tariffs as opposed to independentregulation.

The %ohan committee and international experts had recommendedcorporatiGation and divestiture from non=core businesses.)owever$ the minister planned new rail wheel factory in Chhapra$ a

diesel factory in %aruhara and an electric locomotive factory all inhis home state 3ihar. 9 fourth factory to manufacture railwaycoaches was to be built in 7ae 3areli the constituency of SoniaBandhi.

?nter &aloo Eadav the new 7ailway %inister


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The railways acHuired sic" freight wagon factories from 3harat *agonand ?ngineering Company in 3ihar and from the %inistry of )eavyAndustries$ Bovernment of Andia. At also acHuired scrap and land fromthe 2almianagar industrial complex in 7ohtas to build factories formanufacturing essential components of all wagons. *hile the expertgroup saw these investments as a distraction from core business$ &aloo

saw them as a political necessity.

The %ohan committee had criticiGed investments in un=remunerativepro#ects li"e construction of new railway lines$ urban railwaytransportation$ and uni=gauge policy. )owever$ between -< and -:$1 new pro#ects were approved at the expense of 7s. 1$


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@inally experts had recommended that the 7ailways should isolateits total social burden and see" central government subsidies forthe same$ the 7ailways substantially added social obligations$ eventhough the government lac"ed the fiscal space and willingness tooffer subsidies.

The expert group recommendations were textboo" solutions forrestructuring the Andian 7ailways= unbundling and separation ofsocial and commercial functions$ retrenchment$ independentregulation$ corporatiGation and fare hi"es.

%uch of the proposed reforms would pose a burden to the commonpeople$ at least in the short term$ which is why they were not donein the first place.

.

-= ?nter &aloo Eadav the new 7ailway %inister


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Crafting the Space for 7eform

CommerciallyViable

CommerciallyUnviable

Politically DesirableOutcome 1: Win-Win

Outcome 3:Eclusively !ocial"eturns

PoliticallyUn#esirable

Outcome 2:EclusivelyCommercial"eturns

Outcome 4: $ose-$ose


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*in=*in+ Ancreasing the length of a popular passenger trainenhances earnings per train$ and is welcomed by consumersbecause it helps to clear long waiting lists.

?xclusively commercial returns+ Ancreasing passenger fares insecond class ordinary passenger trains.

?xclusively social returns+ %aintaining loss=ma"ing railway routes4or opening new ones5 for marginal communities in remote areas.

?xamples


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At was found that about :! of the investments have little politicalrepercussions.

These allocations can be mar"et based and based on operationaland commercial reHuirements such as route=wise planning of

congested high=density networ"s where demand far exceedssupply.

7oute wise planning reHuires all departments to channel theirefforts into getting all the technical and operational details right=from trac" stations$ and signaling to scheduling and running trains.

2espite discussions on this matter over decades$ the 7ailways wasunable to act$ not because of political interference$ but because ofdeep rifts between functional silos that are organiGed intodepartments.



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Only --! of the mar"et revenue are politically sensitive$ comingfrom second class passenger fares. The rest 0:! of the revenue isfrom apolitical segment of customers= all freight$ parcel and highend passenger segments. This segment can be managed oncommercial principles but the 7ailways lac"ed a businessorientation in the past.

The social cost of retrenchment$ divesting$ and other cost cuttingmeasures are high and so they are politically infeasible operatingexpenses. )owever$ if the number of employees cannot bereduced$ but if trains carry more goods$ or there are more trains

with the same number of employees$ unit costs decline.

7eformers focused on pro#ects that enhanced the capacity of thelucrative freight business. 9lternative routes for congested railwaylines were discovered through route=wise planning for these gaugeconversion wor"s.



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6early half of the gauge conversion pro#ects were helpful incapturing additional freight business and were thereforecommercially viable.

Some examples of alternative routes are lin"s to ports and

connectivity to cement plants$ marble and granite Huarries.

9lthough revenues from running intra=city trains may be un=remunerative given that a number of people use it everyday$ thereis a huge possibility of earning advertisement and sponsorshiprevenues.

3ased on the perception of affordability$ the railways charged lessfor transporting low value bul" commodities li"e iron andmanganese ores than cement and steel. Commodity prices of ironore was booming and there was no reason to "eep it low.



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Similarly food grains and fertiliGer transport was subsidiGed.)owever$ since food grains and fertiliGer prices are set by theBovernment of Andia and the differential between the cost and thefair price is borne by the Bovernment$ there was no problem inraising the freight rate on these items.

An conclusion the spirit behind the analysis was to accept thepolitical engagement not as an interference but as a democraticmandate and wor" towards an inclusive transformation.

An return for the bureaucracyFs acceptance of the political mandate$

the political leadership had to earn trust with self discipline$ namelywith non=interference with day to day affairs of the bureaucracy.



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@reight ;!

,assenger >1!

%iscellaneous

@reight+

An the early 1D:Fs the railways stopped accepting piecemealfreight and focus on hauling bul" commodities. 9fter that freight

consisted of bul" commodities such as coal$ iron ore and otherminerals$ food grains petroleum products$ fertiliGers$ iron steel andcement.

3usiness ,ortfolio


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The expert committee attributed the declining mar"et share in bul"

commodities to cross=subsidiGation of passenger services by freight$ poorHuality of services$ and the national highways expansion= the goldenHuadrilateral and its diagonals made the road sector more competitive.

3ut these factors affected all commodities eHually$ mar"et share of

finished steel and cement has been declining since 1DDFs$ during thesame period$ the share of iron=ore$ coal and other minerals remainedstable.

3oth iron ore and steel are heavy commodities. 3ut there is a distinctionas well. To transport iron=ore for a firm li"e Tata Steel in Jamshedpur$ therailways provides door to door service$ from the mine pithead to thefactory. Thus for Tata Steel$ the total logistics is eHual to the rail freightcharges and other costs are negligible. @urther$ rail freight charges aresubstantially lower than truc" transport charges. Therefore the 7ailwayshad a comparative advantage in the transportation of iron ore over shortdistances and could increase freight charges.

3usiness ,ortfolio


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@or the transportation of steel$ the 7ailways provides station to station

service to ?ssar Steel$ a private steel company. An addition to the railfreight$ incremental costs are due to multiple transfers$ bridging$warehouse fees and other expenses.

These additional costs add up as a significant component of the total

logistics cost$ and can exceed the cost of rail freight itself.

Therefore 7ailways is uncompetitive transport service provider for adistance of 0


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DD! of the passenger business is politically sensitive. )owever$ this

segment offers several opportunities to increase earnings and reducelosses.

The yield per train depends not only on the number of coaches in a train$the combination of coaches that form a train$ occupancy rates$ and the

number of seats in a coach.

At is not true that the occupancy rates in all trains is 1!. At is so for pea"tourist seasons. So demand modeling to maximiGe occupancy rates holdsimmense potential for higher earnings.

,assenger 3usiness


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The combination of coaches that constitute a train has an impact on

profitability.

Of the seventeen coaches in a 7a#dhani train$ two coaches provide norevenue and two offer very little revenue.

These include two pantry cars and two power cars cum bra"e vans. Theremaining thirteen coaches include seven three tier$ five two tier and two=first class coaches.

Thus the profitability of a train can be improved by manipulating the way in

which coaches are added or subtracted.

9 train with 1; coaches runs at a loss. 9s coaches are added to the train$ itbrea"s even at - coaches.

*ithout increasing passenger fares$ as the length of a train is increased to- coaches.

,assenger 3usiness


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The Andian 7ailways was transformed between - to -:. At graduated

from near ban"ruptcy in -1 to USN ; billion annual cash surplus in -:.

At was mainly done through running faster$ heavier and longer trains.

The Turnaround


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Tat"al Service+ 9 limited number of seats were given at a higher price a few

days before the #ourney date. This lead to more revenue.

9uto Upgradation Scheme+= An case of vacant seats in higher classes$some lower class passengers were randomly selected and upgraded to ahigher class. This ensured that waiting lists were cleared$ and the train runs

at full capacity.

Some Annovations in the ,ricing Strategy


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Container Corporation of Andia &imited 4CO6CO75

Andian 7ailway Catering and Tourism Corporation &imited4A7CTC5

,,, in @ood ,laGas

,,, in budget hotels and Eatri 6iwas

,,, in internet tic"eting

Some ,,, ,ro#ects of Andian 7ailways


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3an"ruptcy to 3illions+ )ow the Andian 7ailways Transformed$ by Sudhir

(umar and Shagun %ehrotra$ Oxford University ,ress

7eferences


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Andian 7ailways has recently opened up containermovement in Andia to private sector participation.

?arlier it was exclusively reserved for Container Corporation

of Andia 4CO6CO75.

CO6CO7 is a public sector enterprise under the %inistry of7ailways$ Bovernment of Andia$ started operations in 1D:D$

and was set up with the ob#ective of developing modernmultimodal transport logistics and infrastructure to supportAndiaFs growing international trade as well as encouragecontaineriGed movement within the country.

,rivate ,articipation in Andian 7ailways+ The case ofcontainer movements


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The %odel

Under the mechanism introduced for container segment$applicants have to pay a registration fee while applying.

9ll the entrants including CO7CO7 are reHuired to signa %odel Concession 9greement 4%C95 with Andian7ailways.

,rivate ,articipation in Andian 7ailways+ The case ofcontainer movements

6otable features of the %odel Concession 9greement


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Anterested companies can ta"e route=specific or all=Andia permission by ma"ing a one=time paymentof 7s 1=


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9lthough$ a total of 1< players have bought the license for operations in thecontainer sector$ only 0 have started operation after more than a year of openingup of the sector. The reasons for low participation are as follows+

8a&d+ 2espite having the reHuisite license to operate container trains$ : of theparticipants have been unable to start their operation primarily due to lac" of

terminal facilities and rail=lin"ed AC2s 4Anland Container 2epot5.

The %inistry of 7ailways$ in its policy mentions that the operators should buildtheir own AC2s within the first few years.

)owever$ sta"eholders have expressed concern that cost of procuring land for

operations has become a ma#or entry barrier for these private players.

,roblems of ,rivate ,articipation in Container %ovements


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8a&d

Some sta"eholders have also mentioned that with land pricesspiraling at strategic places$ it is hard to set competitive prices fortheir services.

These AC2s have to be rail lin"ed and therefore land is reHuired atstrategic locations and often such areas belong to A7.

,rivate sta"eholders stressed upon the need for

government/7ailways help in acHuisition of land on the same termsas it is given to CO6CO7.



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Co#petiti1e&ess a&d ra&sit i#e Guara&tee

One of the "ey concerns of the private players is the competitivepressure applied by the roadways on the railways container movements.

The players feel that the scope of profitability in the mar"et will primarily

depend on the competitiveness of railway with respect to roads.

,rivate sta"eholders expressed their concern over A7 not giving them theguarantee of transit time.

Transit time guarantee is the assurance by the railways to deliver thecontainer within the stipulated time since the A7sF locomotives within theirsystems pull the container wagons.



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Co#petiti1e&ess a&d ra&sit i#e Guara&tee

An the absence of transit time guarantee private players are finding itdifficult to compete with roads.

@urthermore$ private sta"eholders have claimed that although thereis no transit time guarantee in the agreement$ CO6CO7 due to itsrelationship with 7ailways has been able to ensure the timelydelivery of their containers.

A7 is of the view that given the congestion on trac"s presently transittime guarantee can be given only after the construction of 2edicated@reight Corridors 42@Cs5.


, bl f , i , i i i i C i %


56/81

8a! o$ a 8e1el Playi&( *ield

CO6CO7$ since its inception$ benefits from a close relationship with theAndian 7ailways.

Andian 7ailways owns ;>! of CO6CO7Fs eHuity.

Andian 7ailways has provided land for construction of terminals.

The 7ailways maintains CO6CO7Fs wagon fleet.

Officers on deputation from the Andian 7ailways hold senior and middlemanagement positions in CO6CO7.

Tata ?nergy 7esource Anstitute 4T?7A5 officials doing this study identified thefollowing areas where the present mechanism lac"s a level playing field.

,ayment %echanism

9llocation of &and


, bl f , i t , ti i ti i C t i % t


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8a! o$ a 8e1el Playi&( *ield: ,ayment %echanism

9t present$ CO6CO7 pays its haulage charges to the 7ailways in advance$ on afortnightly basis or has the option to raise a credit of 1< days.

On the other hand$ new container operators have to follow a longer process and payhaulage charges on a per train basis.

9s they do not "now the precise weight of their goods that has to be carried$ they cannotdecide on the total amount for which the draft has to be made.

)ence$ new container operators get their containers weighed in the presence of the

7ailwaysF goods cler" and pay the reHuired amount through demand drafts.




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8a! o$ a 8e1el Playi&( *ield: ,ayment %echanism

Such long process for settling accounts is expected to lead to time andresources loss for the affected parties$ and may affect theircompetitiveness vis=P=vis the incumbent.

At is suggested that the Andian railways may consider adopting the sameprocess for account settlement.

Officials from A7 have stated that given the long relationship with CO6CO7

the ris" of default with latter is less.




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8a! o$ a 8e1el Playi&( *ield:9llocation of &and

Several of CO6CO7Fs terminals are situated on leased railway=land$ whichwas granted to CO6CO7 on its inception and owing to old lease agreement$ isat a very nominal cost compared to current real estate prices.

The new entrants in the sector have to pay a much higher price if they are toprocure land given the current real estate prices.

Biven this tremendous cost advantage it is very hard for the new operators tocompete with CO6CO7 in terms of operational cost.

The entrants feel that the 7ailways should provide them land on the sameterms that it extends to CO6CO7$ which is not the case presently.




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?'use o$ )o#i&a&!e: ,ricing and 2iscounts

CO6CO7 with D


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?'use o$ )o#i&a&!e: ,ricing and 2iscounts

,rivate operators claimed that as CO6CO7 owing to wider scale of operation canundercut prices 4to retain its customer base5 where it feels the competitivepressure and compensate the loss by hi"ing prices in the mar"et segment whereprivate cannot efficiently compete with the former.

9lso in order to capture higher volumes$ deter competition and gain mar"et share$CO6CO7 has been increasing discounts on the high traffic routes of 6ationalCapital 7egion 46C75 to J6,T/%undra ,ort/,ipavav ,ort.

)owever$ with CO6CO7 having a considerable advantage in the initial stageswith respect to lower operating cost$ it is imperative for the policyma"ers toprotect the new entrant from the ill affects of predatory pricing$ if adopted byCO6CO7.




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?'use o$ )o#i&a&!e:9ccess to Anfrastructure

CO6CO7 also en#oys a distinct strategic advantage by virtue of its 4AC25locations$ which have railhead connection and which therefore eliminatesmultiple handling and transportation.

%a#ority of CO6CO7 terminals are rail=lin"ed$ with rail as the main carrier forhaulage.

Biven current level of land prices$ it would be difficult and in some casesunnecessary$ to duplicate infrastructure.

9t present$ if the new container operators want to use CO6CO7 owned AC2sfor running container trains$ they have to pay access charges.


,roblems of ,ri ate ,articipation in Container %o ements


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?'use o$ )o#i&a&!e:9ccess to Anfrastructure

The level of access charges$ as decided by CO6CO7 4even for the AC2s onstrategic places built upon 7ailways land5$ is considered very high.

%C9 states explicitly that new operators have to build their own AC2s/terminals or

will have to lease the existing ones.

)owever$ a fair access policy for all the AC2Fs developed by the incumbent onrailways land can promote competition where duplication of such infrastructure maybe not feasible

An order to solve these issues$ it may be best to appoint an independent regulator toloo" after the interests of the private players as well as the government.



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Co#petitio& Co&!er&s i& Pu'li! Pro!ure#e&t

,rocurement in the Andian 7ailways also suffers from such anti=competitive practises$ li"e any other public procurement.

9udit reports by the Comptroller and 9uditor Beneral 4C9B5 of Andiasubmitted to ,arliament during earlier years have been highlighting anti=competitive practices in 7ailways procurement.

These anti competitive practices manifest themselves primarily in the form

of collusion amongst vendors. Corruption has further aggravated thisproblem.

7ailways have initiated a number of corrective steps and issued directivesfor streamlining the procurement processes to bring about efficiency in

material management.

,rocurement in Andian 7ailways

,rocurement in Andian 7ailways+ 2ecentraliGing


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7ailway 3oard decentraliGed procurement of < stores items and gave powers

to B%s of Gonal railways and 7,Us to procure items at their level.

3efore the decentraliGation$ the advantages 4of centraliGed procurementsystem5 such as cost effectiveness of bul" purchase were overshadowed

by the long time ta"en in processing and finaliGation of tenders at the apex

level and inability to monitor vendor performance and behavior at the deliverylevel.

The primary aim of decentraliGation was to expedite the procurement processand ensure timely availability of material by bringing the procuring authority

closer to the end user 4Gonal railways/7,Us5.

2ecentraliGed procurement was aimed to give the Gonal railways/ 7,Us bettercontrol over the procurement process resulting in reduced lead=time$ timelyavailability of material and better management of supplierFs performance.

y gStores ,rocurement 4-15



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An the centraliGed procurement regime$ Qonal 7ailways and 7,Us sent their

reHuirements to the 7ailway 3oard$ which consolidated the reHuirementsand floated tenders for the consolidated reHuirements$ thus resulting infewer interactions between the competing firms in the mar"et.

Though the tendering process in the decentraliGed period had been

expedited$ the benefits of the time gained have been eroded by the lac" ofinformation sharing by the Qonal 7ailways and 7,Us.

The 7ailway 9udit 7eport 4-;5 highlighted wide variations in the rates forthe same items in the same year between various Gonal railways/ 7,Us

indicated the existence of bid rigging.

y gStores ,rocurement 4-15= Criticisms



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An 1 out of the 1D items reviewed in the 7ailway 9udit -;$ the variation

between the maximum and minimum rates finalised over various Gonalrailways/ 7,Us ranged between D0 per cent and 101 per cent over pre=decentraliGed period prices.

The same vendors bidding for different Gones and 7,Us Huote different

prices.

To reduce the power of cartels the procurement officials should reduce thenumber of opportunities in which these firms meet. This might be achievedfor example$ by holding fewer$ larger tenders$ as was the case in the

centraliGed procurement in railways or by devising mechanism of efficientinformation sharing between different Gones and 7,Us.

y gStores ,rocurement 4-15= Criticisms

,rocurement in Andian 7ailways+ 'endor 2evelopment


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7ailway 3oard issued directives to establish 'endor 2evelopmentCells 4'2C5 in all Gones/7,Us to carry out vendor rating for assessingthe technical and financial capability of firms both in terms of Hualityand Huantity and to strengthen the control over vendors and suppliers.

An addition to this the source approving authorities were reHuired tomaintain files containing records of Huality and delivery performancesof the vendors.

These files were to form inputs to the tender accepting authorities at

the time of consideration of future tenders.

y pCell 41DDD5

,rocurement in Andian 7ailways+ Clause against cartel


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To deal with carteliGation in the procurement procedure 7ailway 3oard issuedinstructions to include the following conditions in all tender documents+

*herever all or most of the approved firms Huote eHual rates and cartel formationis suspected$ 7ailways reserve the right to place order on one or more firms withthe exclusion of the rest$ without assigning any reasons there for.

@irms are expected to Huote for a Huantity not less than


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9nother way to put a cap on anti=competitive practices is to moderniGe public

procurements procedures. Andian 7ailways have implemented e=procurementin the 6orthern 7ailways in %ay -< and is planning to expand it to twelvemore Gones and 7,Us in the 7ailways by end of -:.

At facilitates wider range of participation as the submission of bids is

conducted through Anternet thereby attracting bidders from far=flung areas andalso by reducing cost of bid preparation thereby attracting smaller bidders.

At also$ limits information available to the cartels. The electronic submission ofbids by the vendors restricts ability of cartels to monitor new entrants and

deviation by the cartel members.

%oreover$ due to electronic nature of this medium it is easier to conductHuantitative analysis of the bidding data. The firms that Huote in cartel may bewarned that their names are li"ely to be deleted from list of approved sources.

y g?=procurement

,rocurement in Andian 7ailways+ %oderniGing ,rocurement


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3roadly$ from the case studies of different procurement agencies$ which

have adopted e=procurement$ across the world following "eys benefitshave achieved+

@all in the average prices

7ise in the number of participants

@all in the cases of anti=competitive practices

9ndhra ,radesh is one state which adopted ?=procurement in a big way andgained immensely.

y g?=procurement

Types of competition in 7ailways


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-&ter0#odal !o#petitio&$ which is Huite significant in the in the goods

segment which can be transported through different modes.

Therefore$ 7ailways compete with other modes of transport such as roads$waterways that are effective substitutes for 7ailways.

7oads can be used to transport almost all "inds of goods except theheaviest bul" commodities$ for which waterways can be the option.

yp p y



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i&tra0#odal !o#petitio&0competition within the sector

9cross countries this was introduced by inviting private sector participationin rail sector$ which was otherwise a government monopoly.

To identify specific areas where competition can be introduced$ it isnecessary to understand the structure of the rail industry.

The rail industry is basically a cluster of different activities. The mostimportant of these activities are construction and maintenance of railinfrastructure 4trac"s$ signals$ depots etc.5 and operation of trains.



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The rail infrastructure involves a large fixed cost and a comparatively small

marginal cost of operation.

Since trac" infrastructure is widely ta"en as a Mnatural monopolyF thescope$ for competition in this segment is limited.

On the other hand$ the train operations are limited in economies of scaleand are potentially competitive by nature.

The governments across the world have introduced various measures forintroducing competition. The ma#or measures include vertical separation$ vertical

integration with access regulation and vertical integration with horiGontalseparation.

,ro Competition 7eforms


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'ertical Separation

'ertical Antegration with horiGontal separation

'ertical Antegration with access regulation

9utonomous 7egulator

'ertical Separation


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At has been seen$ from different competition studies 4not only in railways5

that a vertically integrated operator has a strong incentive to discriminateagainst other train operators if the service provided by other operatorsdirectly compete with service of the integrated operator 4for instance$ anintegrated freight service operator discriminating against a non=integratedfreight service operator5.

Therefore$ certain changes maybe necessary to promote new entrants intrain operations to encourage competition.

'ertical separation involves separation 4in ownership5 of trac" infrastructure and

train operations.

An this "ind of a separation$ competition occurs between different train operators onthe trac"$ which is provided by an independently owned entity.

'ertical Separation


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One of the main reasons for separating infrastructure from train operations

is to eliminate any possible discrimination against other train operatorsand to provide level playing field to all the operators on the infrastructure.

%oreover$ vertical separation also leads to transparency in financial flows.

Through$ creation of two independent organiGations$ government canbetter target its subsidies for enhancing infrastructure and other relevantservices.

This will prevent infrastructure subsidies being utiliGed for subsidiGing trainoperations.

'ertical separation can be done either by separating accountingarrangements or through separation of management.

'ertical Separation= 2rawbac"s


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@irst is the increase in transaction costs. @or instance$ maintenance of

trac" leads to delays and cancellation of certain services. An such a casethe independent trac" owner may have difficulties in cancelling certainservices$ as it does not "now the true profitability of services.

Second$ efficient pricing of use of trac" is not possible in case of vertical

separation. This is because$ trac" operator may not be able to priceaccess to trac" efficiently as it may not "now the nature of goods beingcarried. @or eg. @reight operator transporting coal needs to be chargeddifferent prices than a freight operator carrying automobiles.

Third$ there is a loss of economies of scope$ which arises from the #ointoperation of trac"s and trains. Therefore$ it can be argued that separationis sub=optimal and erodes the competitiveness of railways against other modesof transport.

'ertical Antegration with horiGontal separation


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Under this approach$ the rail industry remains vertically integrated but it is

divided into several route=based companies that operate in specificgeographic mar"ets.

)ere the scope for competition is limited. %ore specifically$ competition isenhanced in only those cities that are located on the border of two regions.

'ertical Antegration with access regulation


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Under this approach$ the incumbent remains vertically integrated 4although theremay be limited amount of horiGontal separation5$ but it is reHuired to provideaccess to its trac" to other competing train operators under regulated terms andconditions.

An this approach$ there is scope for competition between the non=trac" owning trainoperators and the vertically integrated incumbent.

)ere$ the incumbent has an incentive to provide non=discriminatory access to thetrac"s to competing train operators where they do not compete directly with it.

On the contrary$ if the operators compete directly with the incumbent$ it has a

strong incentive to limit access.

9ccess charges are monitored by an independent regulator$ which ensures non=discriminatory access to incumbentFs trac"s.

9utonomous 7egulator


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9n important aspect that reHuires due consideration while developing

railways sector is the establishment of a railways regulator.

?xistence of an independent regulator is essential to ensure non=discriminatory access to infrastructure and facilities and to monitor anti=competitive behavior among the mar"et players.

At is important to note that the role of a regulator should not be limited tomonitoring access charges$ Huality standards should also be set and serviceprovided by the operators should be monitored.

The presence of a regulator is also important to safeguard interests of theconsumers and enhance overall efficiency and performance of the railways.

9ccess charges are monitored by an independent regulator$ which ensures

ppp 2013 topic 7only railways

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