Railway ministry signs MoU with Telangana govt for infrastructure JV

12 Feb 2016


The ministry of railways on Thursday signed a memorandum of understanding (MoU) with the government of Telangana for the formation of joint venture companies for development of railway infrastructure in Telangana.

The MoU is in line with railway minister's budget announcement regarding setting up of joint ventures with states for focused project development, resource mobilisation, land acquisition, project implementation and monitoring of critical rail projects.

Speaking on the occasion, chairman of the railway board A K Mital stated that Railways has a big shelf of projects valuing about 3,50,000 crore. Last year, the railways had sanctioned additional lines of 9,000 kilometres. However, railways has not been able to meet expectations from various states for new railway lines, he added.

The  formation of JV companies is expected to meet the demands of the states, he said.

So far, he said, 17 states have consented for formation of JV companies in their respective states and five states, including Andhra Pradesh, Kerala, Maharashtra, Chhattisgarh, Odisha, have already signed MoUs with railway ministry in this regard.

The MoU will help in putting the execution of railways projects on fast track. It would also help to take into account the priorities of the states because these projects will be finalised in consultation with the states as there would be offices from state governments as well as Railways in the new company which will be formed.

The JV companies will primarily identify projects and possible financing avenues in addition to the central government and the state governments. After finances for a project are tied up, project specific SPVs or special purpose vehicles will be formed. These SPVs can have other stake holders from industries, central PSUs, state PSUs etc. However, the JV companies shall be mandatory stake holders with minimum 26 per cent shares in the SPVs.

The ministry of railways will sign a concession agreement of 30 years with the project SPV for safe and sound operation, revenue sharing and providing technical and marketing logistics to the SPV. The revenue sharing will be based on already established formula being used for inter zonal apportionment of revenue.

The ownership of the land shall vest with the SPVs, which is a departure from previous practice. This will give financial leverage to the company to exploit commercial potential of the land. This is likely to result in making project viable which are otherwise not viable.

At the end of concession period, the railways will have option to take over the assets at a nominal price. This is largely in line with average codal life of the assets as most of the assets will need large scale replacement after 30 years.

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