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Railway ministry signs MoU with Chhattisgarh govt to form JVs

10 February 2016

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

The MoU was signed on the basis of the railway minister's budget proposal regarding setting up of joint ventures with states for focused project development, resource mobilisation, land acquisition, project implementation and monitoring of critical rail projects.

By forming JVs with state governments, the railway ministry is also trying to unbundle the Indian Railways by creating manageable units.

The MoU will augment construction of new railway lines in Chhattisgarh and help explore full potential of natural resources of Chhattisgarh, railway minister Suresh Prabhu said after the signing of the MoU.

Speaking on the occasion, Prabhu said the railways has been working vigorously to reach every corner of the country through railway lines but the railways have yet to rise to people's expectations. In order to meet the demands of the people, he said, it is essential that state governments and the railway ministry become partners to develop the necessary infrastructure.

Prabhu further stated that in a state like Chhattisgarh with full of natural resources such as coal, etc, the creation of railway infrastructure will open up the potential for exploration and evacuation of natural resources to other parts, benefiting the whole country.

He said development of railway infrastructure in the state will not only help the people of the state in availing better transport but will also bring huge freight to the railways. He stated that working through JV companies will bring Railways to Ground Zero for effective implementation. He hoped early completion of formation of JV companies in the interest of the country.

In his address, chief minister Raman Singh said Indian Railways has already did commendable work in Bastar and Saguja districts of Chhattisgarh by developing new railway lines which helped Chhattisgarh a lot.

He said that 760 kilometers of additional railway lines have been constructed in Chhattisgarh in a very short span of time which in itself is a record, adding that the new initiative will not only improve transport system of Chhattisgarh but also help the state in exploring its full potential in better perspective.

The railway ministry has already signed similar MoUs with the state governments of Odisha, Maharashtra, Kerala and Andhra Pradesh.

The MoUs envisage formation of joint venture companies having 51 per cent stakes of the respective state government and 49 per cent stake of the ministry of railways.

The JV companies will be fully owned by the government. The companies will primarily identify projects and possible financing avenues in addition to government of India 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 should 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 an established formula being used for inter zonal apportionment of revenue.

The most important aspect of the MoU is that 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 the option to take over the assets at a nominal price. This is largely in line with average life of the assets as most of the assets will need large scale replacement after 30 years.

Railways at present has a huge backlog of ongoing new line, gauge conversion and doubling projects, needing about Rs3,50,000 crore to complete. With limited availability of funds, it has not been able to meet the aspirations of the people.

To expedite the projects, the railways have been trying to mobilize resources through other than budgetary support. Railways has also tied up funds for critical capacity enhancement projects. An MoU was signed with LIC of India and Railways has already taken the first tranche of Rs2,000 crore for these projects. This tied-up loan will ensure dedicated and assured funding for such critical projects.

The railways has targeted to commission 2,000 km new lines, 4,000 km gauge conversion and 11,000 km doubling / tripling / quadrupling projects over 5 years (ie from 2015-16 to 2019-20).

Formation of joint venture companies with the state governments will go a long way in faster commissioning of critical rail infrastructure projects as it will not only help in mobilisation of funds but also in facilitating various clearances and land acquisition.

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