Monetise assets of Railways
By S N Mathur | Published: 24th November 2012 12:00 AM |
The Union Cabinet’s go-ahead to private sector investment in railways has opened a window of opportunity to unlock value of its surplus assets. The Kelkar Committee on fiscal consolidation has, inter alia, recommended monetisation of government’s land holdings for financing its infrastructure needs, especially in urban areas. This has led to a flurry of activity in this direction by various public sector undertakings. Air India, for one, has been quick to announce its plans to monetise 105 realty assets — through outright sale, joint development and leasing — to earn around Rs 5,000 crore over the next few years.
Railways too has made public its programme of leasing land parcels spread over 1,500 hectares in the next two-three years to earn more than Rs 5,500 crore. The Rail Land Development Authority (RLDA), set up by the Ministry of Railways for undertaking commercial development of surplus land, has identified 136 sites that is not required for operational purpose in the near future. Nearly 700 hectares of this land is as yet not fit for commercial use because of encroachments and other technical inadequacies. For the moment, the RLDA is likely to invite bids for 52 land parcels only, based on an assessment of their revenue earning potential.
After the defence forces, the railways is the largest owner of land in the country, holding 4.23 lakh hectares of land. Of this, 3.78 lakh hectares is under operational and allied usages and 43,000 hectare is lying vacant. The expert group on modernisation of railways, under the chairmanship of Sam Pitroda, had also suggested exploitation of railway’s land bank for speedy development, growth and improved customer service, and reckoned that monetisation of surplus land could mobilise Rs 50,000 crore.
Achieving the target of Rs 50, 000 crore will, however, require the railways to set right some of the inherent deficiencies that have persisted in their land administration machinery, and maintenance of land records. A recently conducted performance audit by CAG on land management in railways had showed up inconsistencies in reporting facts and figures on basic data pertaining to land holdings, vacant land, encroachments, land plans and verification of records with state revenue authorities.
The railways will have to first ensure that these deficiencies are removed and their records get reconciled with those of the revenue authorities, before building up on their plans for sale or lease of vacant land areas. Take the case of disposal of the prime piece of railway land in Bandra (East), Mumbai that railways had put up for sale several years ago. The RLDA were not able to sell this plot despite making several attempts to do so in the past. In 2008, the bid had to be called off due to a dispute about the title to the land. Some of the major developers backed out because of the high reserve price and a slowdown in the real estate market.
In seeking to complete their land monetisation programme, there also is a general need for the railways to understand the investment characteristics of the assets it is looking to sell and to position them to maximum market appeal. While the railways has so far followed the upfront lease premium model, it could also consider adopting other transaction structures, similar to the traditional sale-leaseback model, which can provide railways with substantial capital funding, with net capital costs below the current levels. The sale proceeds could be deployed on other projects where returns may be higher. Also, partnerships or revenue sharing agreements may provide equally viable alternatives.
In 2011, the government had banned all transfer of government-owned land, except to another government department, which meant that any project that required alienation of land, either through lease or sale, would require the approval of the Cabinet. This was leading to long delays in awarding concessions for infrastructure projects. The ban has now been relaxed by allowing land alienation, without prior Cabinet approval, for three categories of projects, including development and use of railway land by the RLDA. This should come as a welcome relief to the railways, and will be helpful in expediting land transactions — after clearing up other legal or administrative constraints that have hindered such transfers.
There is another class of unutilised assets that can also unlock revenue for the railways. With the railways focused on high-density main line traffic, serving the regional and non-strategic branch lines that serve small clusters of commuters remains an uneconomic proposition. A review of such branch lines during 2009-’10 revealed that 102 of these were uneconomical and railways incurred a loss of `1,198 crore on this account. If these were to be offered on long-term lease, it is not unlikely that some financial and infrastructure investors may show interest in acquiring these lines and operating them. An initiative of this kind has been taken by South Africa’s premier transport utility, the Transnet, which has decided to make all 7,300 kms of its branch railway lines available — for both passenger and freight services — as concessions to private investors to operate over a fixed, long-term period. At least three branch lines were expected to be concessioned by the end of 2011.
In transferring its assets to the private sector, the government may be accused of selling the ‘family silver’, but the evidence from countries which have engaged in such transfers is that public will accept well managed and effectively communicated transfers. If the public gets informed of why the transfer is necessary, and how the sale proceeds will be used in funding new infrastructure, much of the criticism will get answered.
S N Mathur is former MD, Indian Railways Finance Corporation.