Source: ET Infra
Shedding its earlier inhibition, Container Corporation of India Ltd (CONCOR) has decided to shift to the Gati Shakti Cargo Terminal (GCT) scheme for running terminals built on Indian Railways land, in a change of track that will potentially help the state-run rail hauler lower its land license fee (LLF) outgo by as much as Rs120 crore to less than Rs300 crore a year.
With the approval of its board, CONCOR has applied to the Ministry of Railways for migrating the licensing regime of its inland container depot at Tughlakhabad near Delhi to the new Railway land management policy/Gati Shakti Cargo Terminal scheme approved by the Union Cabinet in September 2022.
“The Chairman and Managing Director has written to the Ministry of Railways on switching to the GCT scheme and it is under consideration,” Manoj Dubey, Finance Director told analysts during the fourth quarter earnings call on 17 May. Spread over 195 acres in the heart of Delhi, Tughlakhabad is CONCOR’s flagship terminal.
In FY24, CONCOR paid Rs424 crore as land licence fee to the Ministry of Railways for running 26 terminals built on land leased from Indian Railways. These 26 terminals account for more than half of the annual revenue of CONCOR.
Out of the land license fee of Rs424 crore paid by CONCOR in FY24, the Tughlakhabad terminal alone accounts for Rs360 crore or some 60 percent of the total LLF payout.
The State-run rail hauler currently pays land lease charges at the rate of 6 percent per annum on the market value of industrial land with annual escalation of 7 percent, for terminals run on Indian Railways land.
In September 2022, the Union Cabinet decided that the land lease charges will be levied at 1.5 percent of the market value of industrial land per annum with annual escalation of 6 percent under the Gati Shakti Cargo Terminal scheme. The Indian Railways will lease land for running terminals under the scheme for a maximum of 35 years.
According to the policy, the terminals now operating on Indian Railways land have been given the option of migrating to the new land licensing regime. For this, it will have to go through a tendering process to avail the benefit of lower lease charges, in which the existing operator will have a so-called right of first refusal if it is not the highest bidder.
Finance director Dubey explained that the GCT scheme comprise a fixed LLF component levied at 1.5 percent of the market value of industrial land and a variable component linked to the number of trains operated.
“If we get into the GCT scheme within this financial year, the LLF for the Tughlakhabad terminal will come down drastically to around 60-65 percent of what we are paying now,” Dubey said.
Additionally, in FY24, CONCOR surrendered some 60,000 sq metres of land at the Tughlakhabad terminal to the Indian Railways, a move that has cut the LLF payout per the existing regime by about Rs30 crore a year.
“Based on the current regime, the total LLF payout will not be more than Rs420 crore for this fiscal. If CONCOR enters the GCT scheme for the Tughlakhabad terminal, the Rs360 crore LLF (for Tughlakhabad facility alone) will come down by 40 percent to nearly around Rs240-250 crore. So, about Rs100 crore savings will accrue only from Tughlakhabad terminal. And once we are able to do it for the Tughlakhabad terminal, the whole plan is to proliferate the same mechanism for the remaining 25 terminals run on IR land,” Dubey stated.
If things pan out as per plan, the total LLF payout will reduce by some Rs100-120 crore to less than Rs300 crore a year in the coming years, he said.
“Because the fixed portion (of the LLF) will come down to 1.5 percent of the market value of industrial land from the existing 6 percent and the variable portion is directly linked to the number of trains operated. If I run more trains, I pay. If I don’t run more trains, there is no extra variable payout. So, that’s a good scheme the government has launched, and we are very hopeful and willing to participate in that for the long term,” Dubey noted.
In May 2023, the then Chairman and Managing Director Kalyana Rama told ET Infra that CONCOR was “not eager” to shift to the new land licensing policy.
“Our business is now well set. We are not eager to just move to the new land licensing policy because that policy has got a lot of variables,” Kalyana Rama had said.
“We have to first surrender these terminals and subject them to bidding. So, somebody can come and start bidding along with us; we have only the right of first refusal to match the highest bid and retain the terminal/s. Suppose if somebody bids and it is in a position that I can’t leave it, then what,” he explained.
“As of now, we are continuing with the existing policy of 6 percent lease charges per annum on the market value of industrial land with annual escalation of 7 percent. Whereas in the new policy there are certain variables. So, at this moment, we are not taking any decision on migrating to the new land leasing policy. We will be evaluating the new policy and depending on that, will take a decision at the right time,” Kalyana Rama added.
CONCOR’s decision to migrate to the GCT scheme, though, will have a bearing on the planned privatisation of the Company, says industry sources.
Once the terminals move into the new land licensing policy regime, they will be covered under the PM Gati Shakti cargo terminals policy for railways which treats all such cargo terminals built on Indian Railways land, either partly or fully, as common user facilities.
An existing operator who wants to migrate, will have to return the terminal infrastructure as well as the land to IR. Then, it will undergo a bidding process in which the existing operator will have the right of first refusal to match the highest bid and retain the terminal.
“All Gati Shakti cargo terminals will be common user facilities. Any terminal which is now run by CONCOR and where CONCOR has a right to decide which trains to take and which operator to entertain, that right will be lost. It will become a common user terminal. Then, what is the point in someone participating in the bid to buy CONCOR,” said a consultant tracking the matter.
“The risk of converting the exclusive terminals of CONCOR into common user facilities will be a very big factor for buyers,” an executive at one of the container train operating firms, added.
Aside the risk of converting the existing terminals of CONCOR into common user facilities, the private owner of CONCOR will likely have to start paying Terminal Charges and Terminal Access Charges (TAC) – an extra expense – to Indian Railways as part of the bidding terms for individual cargo terminals.
The re-bidding of terminals run by CONCOR on IR land is expected to take place not for the 1.5 percent fixed lease charges, but on Terminal Charges (TC) for railway wagon traffic and Terminal Access Charges (TAC) for non-railway wagon traffic.
The bid is likely to be decided on the highest revenue an entity is willing to share with IR with respect to two variables – one, the TC for railway wagon traffic which are currently charged at Rs40 per ton and the second is TAC for non-railway wagon (private wagon) traffic, currently set at Rs1,60,000 per train.
Further, the bidding itself runs the risk of someone quoting an exorbitant rate which will then have to be matched by CONCOR by exercising the right of first refusal, if it chooses to continue running the terminal/s. The higher rates could hurt CONCOR’s margins. “Bidding and rates are one part of it. The bigger part of it is that the asset becomes a common user facility after that. After paying huge money to buy CONCOR, the private firm will have to give access to other operators also. So, why should he buy it?” said the executive with the private company mentioned earlier.
