The Indian Railways has taken a gamble, deciding to forgo close to Rs 700 crore a year that it collects from companies running freight businesses on its network. Under a new cargo policy, which came into effect on December 15, owners of private sidings, or short railway tracks, and private freight stations — about 1,200 in total— will no longer have to pay land licensing fees for using railway tracks that connect their private sites to the nearest rail line.
However, this pre-Christmas gift comes with a caveat. The Railways reserves the rights to allow another private terminal to share the same track. In other words, the connecting railway line, built with the resources of a freight terminal owner, will now be railway property.
The cargo policy was rolled out after the railway board had approved a 76-page document titled Gati-Shakti Multimodal Cargo Terminal (GCT) policy on the premise that the national transporter will now focus more on leveraging its land resources rather than simply earning some money out of it, according to an officer close to the development. So, the decision to forgo a sizable fixed earning, that too at a time when the pandemic has eroded its revenue base, is based on a risky calculation that such a waiver will woo more private players into cargo terminal businesses, which in turn will augment the Railways’ freight movement and revenue. And that will not only offset the losses to be incurred due to the waiver, but will fetch more profit.
In 2020-21, the Railways loaded 1,233 million tonnes of materials, earning Rs 1.17 lakh crore, a marginal 3% rise in revenue over 2019-20.
“Thanks to this policy, we are expecting 20 to 50 new cargo stations to be added every year. If one rake (with 59 wagons in it) makes a trip daily, the Railways on an average gets a business of 1 million tonnes from a single freight terminal. In value terms, it [one terminal] can fetch revenue of Rs 100 crore and a net margin of Rs 30 crore,” says the officer, explaining the Railways’ math behind this curious move.
The Railways is India’s biggest landlord, with the Ministry of Defence coming a distant second. The Railways owns 4,780 sq km of land — it is spread across the country but together it is 30% bigger than the state of Goa. Out of this, 510 sq km is lying vacant, according to data available till March 31, 2019. In other words, the Railways is sitting on vacant land parcels equivalent to more than one-third of Delhi. The same set of data shows 821 hectares of land is under encroachment.
The question is, shouldn’t the national transporter monetise its vacant land, a portion of which is lying in the heart of big towns and cities? Or, as some insiders argue, should it concentrate more on its core businesses, i.e. carrying freight and people, ignoring the incremental revenues that it might fetch from its land reserves?
Former railway board chairman and CEO, VK Yadav, argues that a proper monetisation of railway land is possible only if the functioning of the Rail Land Development Authority (RLDA) is streamlined even as he supports the cargo policy. “As private parties won’t need to pay any land licensing fee under the new cargo policy, it will definitely encourage them to open more freight terminals. Railways’ revenue will increase,” he says.
FREIGHT AT THE END OF THE TUNNEL
Though the new policy could erode a substantial share of revenue being generated from railway land — the exact percentage is not readily available — another former railway board chairman, Vivek Sahai, backs the policy on the ground that it will leverage existing land resources to augment the transporter’s core business, i.e., freight. “Railways earn mainly from two sources — freight and passengers. Of the two, the freight business, any move to lessen the burden on private players will ultimately help increase the Railways’ share of freight business vis-a-vis the roads,” he adds.
There are two ways in which railway land is monetised — leasing and licensing. In the case of leasing, the recipient needs to pay an amount upfront to use the land for 35 years. A private party has to pay 99% of the amount at the outset. In the case of licensing, as licensing fee, a private party pays 6% of the land’s market value, which gets escalated annually before being adjusted to a new market rate every five years. “The Railways is planning to reduce that amount too, from 6% to 3%, but that proposal has to be approved by the cabinet,” says another officer.
Over 1,100 existing private sidings in India — by cement, steel, coal and power plants, among others — have been licensed. The companies set up a terminal on their private land but use railway land to build a connecting line for which they pay land licensing fees. The new policy says companies will be able to use the railway line without paying any licensing fee. The only difference is that from now on the connecting line will be railway property.
The new policy supersedes the Private Siding Policy 2016 and the Master Circular on Private Freight Terminal 2020. The Railways has, however, given an option to the existing private players to either migrate to the new mechanism or continue with the same terms and conditions.
“The Railways collects about Rs 800 crore annually as land licensing fee. It will now lose 80-90% of that,” says an officer from the Railways’ freight marketing wing. It roughly translates into a loss of Rs 640-720 crore to the exchequer.
However, the Railways will continue to collect some amount of licensing fee — for instance, for placing oil pipelines in railway land. Also, a private party has to pay licensing fees to build terminals on railway land.
ET approached the owners of two freight stations to get their feedback. One is not aware of the new policy, while the other, a Faridabad-based dry port (inland container depot) owner, says his team is still examining the pros and cons of the policy. Zonal railways, meanwhile, are planning to organise interactive sessions from next week to sensitise private players about the policy, says a senior officer.
Railways’ attempts to monetise land have not paid dividends so far. It tried station redevelopment, but only Habibganj station in Madhya Pradesh could be revamped on a public-private partnership mode. SS Khurana, who headed the railway board back in 2009-10, says in cities such as Delhi and Mumbai, efforts should be made not only to leverage vacant land but also vacant air space over railway land. “In such projects, the states concerned should be given equity and roped in,” he suggests.
For a government entity that owns hundreds of square kilometres of vacant land parcels, what Railways needs is a holistic land monetisation plan as well as speedy implementation. Maybe a policy like Gati Shakti, however risky it might seem, could put it on the right track.
Source : Economic Times
