The 7 September Cabinet decision on long-term leasing of Indian Railways land for setting up facilities under the Gati Shakti Cargo Terminals (GCT) policy raises many uncomfortable questions on the privatisation of Container Corporation of India Ltd (CONCOR), contrary to expectations that it will expedite the stalled strategic disinvestment process of the State-run rail hauler.
“The Cabinet decision clearly says that it will be applicable only to new terminals that are built on Indian Railways land. It doesn’t help existing terminals built on Indian Railways land and run by CONCOR or other State-owned entities. So, I wonder whether there will be any solution to the vexed land leasing issue that has halted the privatisation process of CONCOR,” said a former Indian Railways official.
CONCOR currently runs 61 inland container depots (ICDs) of which it pays land licensing fee (LLF) for 25 terminals because they are built on land leased from Indian Railways (IR).
The Cabinet approved policy allows leasing of IR land to set up cargo related activities for as much as 35 years (from the existing five years) at a land licensing fee (LLF) of 1.5 percent of the market value of land which will escalate by 6 percent annually.
Beginning April 1, 2020, the Railway Ministry decided to charge the annual LLF from CONCOR at the rate of 6 percent of the industrial land value per acre where the terminal is located, which will escalate by 7% annually.
Railway Minister Ashwini Vaishnaw told media on 8 September that the government has decided not to change the terms and conditions of existing cargo terminals built on IR land and run by State-owned firms, including CONCOR.
“For existing players, the terms and conditions, lease rates, and escalations will remain the same,” Vaishnaw said.
The Cabinet, according to Vaishnaw, also decided that existing terminals run on IR land will have the option of switching to the GCT policy to get the benefit of a lower LLF of 1.5 percent of the market value of land and escalating by 6 percent annually. For this, entities such as CONCOR that are running the terminals on IR land will have to surrender the facilities which will be auctioned by IR for 35 years through a transparent and competitive bidding process on the terms set by the new policy.
The bids will be decided on the highest Terminal Access Charge (TAC) and Terminal Charge (TC) that an entity is willing to share with the Indian Railways. CONCOR and other existing terminal operators, will have the right of first refusal (RoFR) to match the highest bid – in case it is not the highest bidder — if it desires to continue running the terminals built on IR land.
But, the biggest risk, perhaps, for CONCOR is that such a migration will re-designate the cargo terminals built totally or partially on IR land as ‘common user facilities’, per the new GCT policy. The GCT operator has to ensure non-discriminatory access for all rail customers/potential customers to such terminals. The GCT operator will not prevent any rail customer/potential customer from accessing the terminal (provided the facilities for handling their cargo exist at the terminal). Road access to the GCT will not be blocked by the GCT operator.
Moreover, if someone wants to ‘game’ the policy to hurt CONCOR, they will quote high TAC and TC (CONCOR does not pay these charges currently) which will have to be matched by CONCOR to retain the facilities. And to recover the high TAC and TC it is contractually mandated to pay IR, CONCOR will have to raise the freight rates, which, in turn, runs the risk of losing customers and cargo.
And, if CONCOR decides not to migrate to the new policy to reap the benefit of the lower LLF of 1.5 percent, it will continue paying the existing LLF of 6 percent of the market value that will escalate by 7 percent annually, on the 25 terminals built on IR land. This will be a competitive disadvantage to CONCOR, making its operations unviable, compared to private firms in the sector, most of whom have set up terminals on non-IR land and hence, are not required to pay LLF.
Further, if CONCOR decides not to switch to the new GCT policy straightaway, the 25 terminals run by the company on IR land will be subjected to a tender under fresh terms when their current lease term ends one by one, between now and 2025. In such an event, CONCOR – whether as a PSU or under a private management – will have to match the rates to continue running the facilities with the downside risks mentioned earlier.
“It will be a very difficult choice for CONCOR,” said the former IR official mentioned earlier. “I don’t think the government has really applied its mind on the situation. They have just gone ahead with the decision and now expect bidders to come for buying CONCOR,” he stated.
“If I was in CONCOR, I would do a review of all the existing facilities run on IR land under the changed circumstances, and close down those that would be rendered unviable because of the new policy,” he noted.
He, however, added that in the current scenario, CONCOR being a PSU and looking at all the other factors, would not even consider closing any facilities. This is despite the fact that it had surrendered 17 terminals when the Ministry of Railways altered the way LLF is levied on terminals run on IR land from April 2020.
Executives in the container train operating industry describe the Cabinet decision as “sham” which they say will not help the privatisation of CONCOR.
“I don’t think it will work out; it is reaching nowhere,” said an industry executive tracking the developments.
The government, according to this executive, took close to three years to reach a decision on LLF. “But the Cabinet decision is not solving the problem. Maybe, the government wants to send a message to the market that, ‘look we have taken the decision, but bidders are not interested, so what do we do now?’. Basically, I doubt whether they are keen on privatising CONCOR at all,” he remarked.
“This is a move to save the face of the government in the market by announcing that we have done everything from our side, but bidders are not ready to come forward,” he said.
The Cabinet decision shows the lack of clarity within the government on the privatisation of CONCOR.
“They want to do it; yet they don’t want to do it. The objective is not clear at all in terms of what they want. In this case, the objective is to raise over Rs16,000 crore and the government should work towards realising that amount. They have seen that at the current rate of land lease charges, it is just impossible. But, if you follow the new policy, face price rise, and then take a line, if someone questions you, that ‘what do we do, the private sector is so greedy that they are increasing the prices’,” he added. The question is whether the government is keen on privatising CONCOR or not. “I think, one way or the other, the government is trying to say we are keen on privatising CONCOR, but things are not going as per plan. In other words, they appear to be hesitant on privatising CONCOR.”
