A Critique of the Initiative for Public–Private Partnership in Passenger Train Operations 1

Abstract

Keywords

Public–Private Partnership Railways Passenger Train Service Regulation Infrastructure

Public–private partnership (PPP) in the provisioning of passenger train operations has gained significance in the past two decades in many countries across the world. However, the inherent monopolistic nature of rail infrastructure and strong incentives for vertical integration due to economies of scope make this provisioning more challenging than other transport sectors (Gangwar & Raghuram, 2015; Gomez-Ibanez, 2009; Laurino et al., 2015). Consequently, railways are still a vertically integrated and monopoly player in many parts of the world, while multiple operators provide services in the road, aviation, and maritime. In all these sectors, the ‘service’ (trucking, airlines, shipping) side of infrastructure moved into privatization earlier than the ‘hardware’ (roads, airports, ports) side of infrastructure due to lower entry costs and deregulation. Investment in moving assets is considerably lower than the fixed infrastructure. Lower entry costs can accommodate multiple players bringing competition in services. Given the direct interface with the end customer, services also provide larger scope for differentiation and pricing. The hardware side is highly capital-intensive, so it remained solely with the government until suitable PPP models emerged in the late 1990s.

In all PPPs, there could still be scope for market failures in licensing, environmental impact, safety, security, pricing, service levels, and dispute resolution (Gangwar & Raghuram, 2015). To address this, the need for an independent regulator becomes critical to protect the interests of all stakeholders (ECMT, 2005; OECD, 2005).

In the Indian context, in the past two decades, there has been a significant thrust on private participation in provisioning infrastructure and services. While the other domains have moved significantly, railways has been a late starter. The attempts from Indian Railways (IR), counter conceptually, have been primarily on the hardware side and within that primarily in port connectivity projects, with the concessionaire including the port authority. For the concessionaire, the scope of these projects was initially limited to just financing. Other functions, including construction and operations and maintenance (O&M) were carried out by IR. Later projects, including the dedicated freight corridor (DFR), construction, and O&M, were handed over to the concessionaire without market access. Essentially, these can be viewed as engineering, procurement and construction plus contracts, with financing and O&M also included as the responsibility of the concessionaire. However, these projects are set in the monopsony situation where IR is the single buyer, thus not providing the concessionaire with the incentive to target services as per the needs of various market segments. The benefits of private participation could not be harnessed effectively in these projects.

Other hardware initiatives are in terminal development. IR has allowed private entities to develop freight terminals under the private freight terminal policy. More recently, private sector participation has been sought in developing and managing railway stations.

On the service side, the earlier initiatives of IR with private sector participation have been in the freight segment. The significant ones are container train operations and special freight train operations. In these initiatives, the engagement between the IR and container train operators (CTOs) and the level playing field with an established, large, and IR subsidiary incumbent have been major distortionary issues. These have been exacerbated in the absence of an independent regulator. On the passenger side, the services are solely provided by IR. There was an earlier attempt in 2019 to have two services managed by the Indian Railway Catering and Tourism Corporation (IRCTC), a subsidiary of the IR. While it is not a PPP, it did provide an opportunity for IR to have passenger train services managed by another entity, albeit a subsidiary.

The first initiative to permit the entry of the private sector for the provisioning of passenger train services in 2020 was a significant step. Even though it started with a lot of enthusiasm on the railways and bidders’ side, the bid response was very poor, making railways ultimately scrap the bids altogether. As the first significant initiative of railways in passenger services, the initiative offers important lessons for similar initiatives in the future.

This article examines the bid design, the bidding process, service issues, and the regulatory framework to identify the reasons for poor response. It also raises important questions for policymakers to reflect on.

PUBLIC–PRIVATE PARTNERSHIP IN PASSENGER TRAIN OPERATIONS

As part of a slew of ongoing reforms, the Ministry of Railways (MoR), Government of India, decided to open up passenger train operations to the private sector in the PPP mode in 2020.

The MoR identified around 150 routes with 304 services for operations by the private sector. These services were grouped into 12 clusters. Each cluster required the operation of a minimum of 12 train sets (also referred to as rakes). The clusters were Mumbai-1, Mumbai-2, Delhi-1, Delhi-2, Chandigarh, Howrah, Patna, Prayagraj, Secunderabad, Jaipur, Chennai, and Bengaluru. A key benefit to the IR was the additional investment of over ₹300 billion. A brief description and analysis of the clusters is given in Box 1.

Box 1.

Analysis of Clusters.

The MoR initiative for PPPs in passenger train operations included 304 services categorized into 12 clusters. We present an overall analysis in Annexure 1. The number of services varied across clusters from 12 (Delhi-2) to 40 (Patna).

In terms of distance, the total train km per week on offer was 1,149,570, varying from 78,498 (Delhi-1) to 122,654 (Bengaluru). The average distance per service across all clusters was 914 km, varying from 701 km (Delhi-1) to 1,405 km (Bengaluru). In terms of time, this initiative rendered a total travel time of 18,310:55 hrs per week, varying from 1,249:30 (Delhi-1) to 2,008:15 (Bengaluru). The average running time per service across all clusters was 14:47 hrs, varying from 11:09 hrs (Delhi-1) to 24:05 hrs (Bengaluru). The average speed across all services was 62.8 kmph, varying from 58.5 kmph (Secunderabad) to 68.4 kmph (Mumbai-2).

While this was reflected in the varying profile across clusters, there was also variance across services within a cluster. The minimum range of distance across services within a cluster was 945 km (Delhi-1), while the maximum range was 3,322 km (Chennai). The minimum range of time across services within a cluster was 17:25 hrs (Mumbai-1), while the maximum range was 63:40 hrs (Chennai). The minimum range of speed across services within a cluster was 21.3 kmph (Jaipur), while the maximum range was 60.6 kmph (Prayagraj).

These parameters, announced in September 2020, were a modification over the earlier set of profiles announced in July 2020 after interacting with potential bidders. The primary nature of the modification (an increase of 80 services, from 224 to 304) was to bring in more short-haul services to improve the efficiency of rake utilization.

The above analysis brings out implications for market coherence and train set design coherence.

Source: Raghuram et al. (2020).

The MoR invited Request for Qualifications (RFQs) from private train operators (PTOs) for operating a set of passenger trains across the 12 clusters (also referred to as projects). Each RFQ was supported by a project information memorandum. A total of 15 bidders submitted 120 applications, out of which 13 bidders with 102 applications qualified. Qualified bids across bidders ranged from 1 to 12. The range of qualified bids across clusters was from 5 to 11 (MoR, 2020a). The actual bids were to be submitted by 12 January 2021. Subsequently, the awards were expected to be made within a month, after which the concession agreement (CA) was scheduled to be signed in the next month. The services were expected to begin by March 2023 and be fully operational by 2027.

The MoR had made a set of documents available for the bidders, which were also accessible in the public domain. These included a Draft Feasibility Report (DFR) prepared by Rites Limited and Deloitte Touche Tohmatsu India LLP (as consultants of this initiative), RFQ, and Project Information Memorandum documents for the 12 clusters, multiple Corrigenda from July to September 2020, and the Draft Concession Agreement (DCA). This article is based on data available in these documents.

Drivers for the Initiative

We see three drivers for this specific initiative, as stated by the MoR (MoR, 2020b).

Demand exceeds capacity: As per the Project Information Memorandum document of MoR, there were 590 million reserved passengers travelling by IR during 2018–2019. However, there were a further 88.5 million (15%) waitlisted passengers who could not be accommodated. As per DFR, on certain routes of the proposed initiative, the demand exceeded the train capacity by 30% (MoR, 2020c).

Benefits to the passenger: The MoR envisaged that with this initiative, next-generation coach technology would be introduced providing a higher service quality and reduced journey time.

Availability of track capacity due to DFCs: IR operates passenger and freight trains on a common track. Major routes are saturated. However, two DFCs (Mumbai area to Delhi area, and Howrah area to Ludhiana via Delhi area) were planned to be commissioned in 2021 (subsequently delayed to 2022). This would generate additional capacity on routes adjacent to the DFCs, allowing more passenger trains to operate.

FRAMEWORK FOR PUBLIC–PRIVATE PARTNERSHIPS IN PASSENGER TRAIN OPERATIONS

While the competition in the rail freight market is prevalent in many countries across the globe, the passenger rail market is dominated by state-owned railway operators. European Union has been promoting railway reform since 1990 with an objective to increase rail share, service quality, and reduce government subsidy, among others. UK, Germany, and Sweden are a few countries that are at the forefront of liberalization in rail passenger transport. These countries have created ‘competition for the market’ using competitive tendering approaches and direct award contracts. In Germany, regional/local rail passenger services requiring public subsidy are mandated to be awarded through competitive tendering (Link, 2016). The examples of direct ‘competition in the market’ are not many. Limited services in Italy, the Czech Republic, and Austria compete directly with the state-owned operators (Nash, 2019).

Regardless of the approach of competitive tendering, the issues important in any service PPP are listed below:

Bid Design: what is on offer, concession period, flexibility given to operators, entry costs, competition for the market and competition in the market, level playing field.

Bidding Process: selection of operators, licenses versus open competitive bidding, in case of open competitive bidding, one-stage or two-stage process, responsiveness to prospective bidders, adherence to timelines, basis of the award (financial capacity, prior experience, bid parameter).

Service Issues: fare and ticketing, terminals, schedule and stoppage, haulage and other charges, operations, and maintenance.

Regulatory Framework: areas for regulation (licensing, safety, security, environment, pricing, service levels, and dispute resolution).

We present the experience of container train operations using the above framework (Box 2). We then examine the PPP in passenger train operations on the parameters listed above.

Box 2.

Experiences from Container Train Operations.

The container train segment was the first significant initiative of MoR to bring in competition in train services. CONCOR, a subsidiary of IR, was the monopoly service provider of container train services. Post liberalization in this segment in 2006, 16 licenses were granted, including the incumbent CONCOR. We use the PPP framework to highlight relevant aspects with implications for passenger train operations.

Bid Design

Four categories of licenses were on offer. Category 1 was a pan-India license, while the other three were primarily based on the connectivity to sets of ports. A one-time registration fee of ‘500 million was payable for category 1 and ‘100 million each for other categories. The concession period was 20 years. Containers and flat wagons were to be procured by the CTOs, while the locomotives and crew were to be supplied by IR. CTOs were required to develop a rail-linked Inland Container Depot (ICD) within three years. Entry costs were estimated to be around ‘200–250 crore (considering ‘50 crore license fee, ‘100 crore for a medium-sized ICD, and ‘75 crore for five container rakes. Given the long gestation period and higher share of investment in fixed infrastructure (for the ICD), the entry costs were high.

There was no limit set by MoR on the number of licenses to be granted for any category, allowing direct competition among operators.

There was also competition with the incumbent player CONCOR, which had a large subsidized asset base (including rolling stock and terminals) and with proximity to IR. There was also competition with IR for containerizable commodities that moved in IR wagons. The deliberations during the policymaking process with the Planning Commission and other Ministries to provide a level playing field to new entrants resulted in measures such as train dispatching on a first come, first served basis and charges (license fee and haulage) being made applicable to CONCOR as well. However, there were still issues faced by the new operators. The bid design did not explicitly consider any further aspects of the level playing field in competition either with the incumbent CONCOR or with IR moving potentially containerizable cargo in their wagons.

To correct the level playing field (and before the planned privatization of CONCOR), the land lease charges for the CONCOR terminals are being increased to market rates. This has even resulted in CONCOR either trying to surrender about 20 terminals or increasing charges for customers (The Hindu Business Line, 2020; India Seatrade News, 2020).

Bidding Process

The license was open to all registered Indian private/public sector companies/Indian registered companies of foreign entities with turnover or net worth of a minimum of ‘1 billion.

Service Issues

There were no restrictions on the fare that the CTOs could charge their customers. There were no specifications on schedules. The trains could be operated from any origin to any destination (as specified by the CTO but within the scope of the license category) on a first come, first served basis, just like the IR operated their freight services.

Charges levied on CTOs by IR included haulage, maintenance, and terminal access. Though these were identified, the IR retained flexibility in modifying them.

There were frequent changes in haulage charges, which accounted for nearly three-fourth of the operating costs. The IR restricted certain commodities from moving in containers. Further, due to better service and lower ‘freight all kind’ (FAK) fare, when some of the IR’s rake load traffic started shifting from IR to the CTOs, the IR moved away from the FAK fare for haulage charges. They were concerned about not letting any of the full rake load movement of the IR move into the hands of the CTOs. Incentives were, however, maintained such that the charges would be FAK if a container train resulted from consolidation, with no one customer offering more than one-third of the train. Additional charges were introduced, including a surcharge of 2% on haulage and substantial increases for parking and stabling.

Maintenance: Rake maintenance was done by IR staff at designated facilities. The CTOs faced two issues. First, the designated facilities were often outside the main circuit of the rake on which it was operational, requiring significant empty run. Second, the examination could be done only by the railways train examiner (TXR) resulting in additional coordination and delays. CTOs could not hire their own TXR staff.

Terminals: Terminals are yards where the consolidation of cargo is done. While the CTO was required to develop one terminal, they needed access to other terminals depending on their customers’ requirements. Though IR authorized Zonal Railways to notify railway-owned terminals (goods sheds, railway sidings, unused railway lines, etc.) as a container rail terminal, only some were notified. Even in these, CTOs faced issues in handling containers due to poor infrastructure. There were private sidings with good infrastructure where the private siding owner was willing to provide access to the CTOs. However, the IR restricted private sidings for handling cargo of other customers stating contractual conditions. The CTOs could also use one another’s terminal as a business deal. But CONCOR, which already had about 60 terminals, was unwilling to provide access to the other CTOs.

Service levels by IR: The policy did not provide CTOs with any service level guarantees from IR. Specifically, in the absence of scheduled operations for freight trains in IR, CTOs did not get any assurance of transit times for their trains. This created problems for CTOs to ensure timely delivery to their customers and manage their logistics. The IR did come up with a scheme of providing an assured transit time for an extra charge, but the CTOs did not accept it since the penalty payment was not significant.

Regulatory Framework

There have been several issues that had implications for the delivery of services by CTOs. These included changing policies and unilateral decisions by IR on (a) haulage charge, (b) access to terminals for consolidation of cargo and applicable charges, (c) maintenance facilities for periodic examination of rakes, and (d) assured transit times. In the absence of an independent regulator, all such decisions were subject to conflict of interest. This created a difficult business environment for the CTO business.

The issues described above highlight the resistance of IR in providing an enabling environment for CTOs, which limits the full potential benefits that competition could bring to container train operations.

Source: Gangwar and Raghuram (2010).

ASSESSMENT OF THE PUBLIC–PRIVATE PARTNERSHIP INITIATIVE

This section assesses the PPP initiative against five criteria—the drivers of the initiative, bid design, bid process, service issues, and regulatory framework. For each criterion, important parameters having implications for the potential bidders have been identified from the documents released by MoR (Table 1).

Table 1.

Parameters for the Assessment of the Public–Private Partnership Initiative.

Drivers for Initiatives	Bid Design	Bid Process	Service Issues	Regulatory Framework
Demand exceeds capacity Benefits to the passengers Availability of track capacity due to DFC	Market & design coherence Entry costs Concession period Trainset features Issues of competition/level playing field with IR	Bidding process and timeline Bid criteria Financial capacity	Fare and ticketing Terminals, schedule and stoppages Haulage and other charges Operations and maintenance (O&M)

Where relevant, we will also draw lessons from our understanding of the PPP experience with CTOs in container train operations (Gangwar et al., 2012).

Drivers for the Initiative

Demand Exceeds Capacity

Based on the data provided by the IR, the national figure for the share of waitlisted to confirmed passengers was 15% in 2018–2019 (MoR, 2020b). The DFR provided data on waitlisted passengers for 224 services that were originally announced in July 2020. An analysis of this data for the 2019 calendar year indicated that the share of waitlisted to confirmed passengers was only 6.2% of the announced 224 services (MoR, 2020c). The lower unmet demand for the announced services compared to the national average implied that the services were not catering to the most congested routes. However, typically, a higher share of waitlisted passengers occurs on long-haul trains in the non-AC segment. The PTOs needed to see how to provide to this segment. It would be challenging to position and price the ‘premier’ concept of these trains (with all AC coaches) to the non-AC segment. Nonetheless, going after the unmet demand and modal shift of air passengers through improved and value-added services, including the introduction of the next-generation coach technology was an opportunity.

Benefits to the Passengers

In terms of efficiency enhancement, the rake utilization for the set of passenger train operations projects was expected to be over 1,000 km per day (Annexure 1). This could be contrasted with 533 km per day, which was the 2018–2019 rake utilization for broad gauge (MoR, 2020d). There were, though, many intercity trains that did about 1,000 km per day even then in IR. The Vande Bharat express from New Delhi to Varanasi was making a round trip of 1,538 km per day for five days a week. The Vande Bharat express from New Delhi to Katra was making a round trip of 1,310 km per day for six days a week. While driving the service profile for each cluster to increase rake utilization leads to efficiency, it could lead to concerns of incoherence in rake interiors (due to distinct types of services using the same rake) and punctuality, affecting effectiveness. For instance, Tatanagar was added to the Bangalore–Kolkata service in the revised list released in September 2020. While Bangalore–Kolkata (~1,940 km) is a long-haul service, Kolkata–Tatanagar (~250 km) is short-haul. Both services have different requirements regarding service levels, staff deployment, and rake interiors, leading to incoherency.

Availability of Track Capacity Due to DFC

The commissioning of the DFCs leading to the availability of track capacity was expected to benefit the Mumbai-2, Delhi-1, Delhi-2, Chandigarh, Patna, Prayagraj, and Jaipur clusters. The other clusters would have benefitted partially (Howrah) or not at all (Mumbai-1, Secunderabad, Chennai, and Bengaluru). Further, in most segments where the PTO services were being planned, including those not affected by the DFC, the line capacity utilization exceeded 100%. Some segments even exceeded 150%-line capacity utilization (MoR, 2020c). This could again have implications on punctuality.

Bid Design

Market and Design Coherence

Clusters with high variance in service distance or time or even in services like multiple nights, overnight, and day were potentially more difficult for the bidder. Typically, the longer service caters to the ‘economy-seeking social’ segment, while the overnight and short-day services cater to the ‘business’ segment. These segments would require vastly different efforts from the PTO in reaching out to the market, pricing, rolling stock, staff deployment, and service.

An added dimension of difficulty in nurturing a market and designing the rake interiors was if the to and fro services between the same terminals were from a different category of service, for example, ‘day’ on one way and ‘overnight’ on the other. The service and staff requirements would differ for the same round-trip segments. (There were at least 33 to and 33 fro services which were ‘day’ one way and ‘overnight’ in return (Raghuram et al., 2020).)

The PTO also had to worry whether the same rake could be used across services serving different market segments. (This issue was even more critical when in a round trip, one way is ‘day’ and the other is ‘overnight’). The challenge for the PTO would be to see if they could arrive at a flexible design for the interior of a train set. Of course, an interior design that accommodated sleeping for ‘overnight’ services could also be used for sitting for a fresh set of passengers of a ‘day’ service. However, it would not be ‘value adding’ from a customer service perspective.

Some of the clusters also had incoherence in spatial markets, where they were required to operate services in a region geographically away from the cluster headquarters, with no connection to the cluster region. (There were at least 14 to and 14 fro services of this nature, and operationally better served by another cluster (Raghuram et al., 2020).)

Concession Period

The concession period was fixed for 35 years from the appointed date. (This is the date on which financial closure is achieved or an earlier date that the MoR and PTOs may determine by mutual consent.) Though the rationale for 35 years concession period was not made explicit, it covered the life of the rolling stock. The committed aspect of the concession seemed to be the train services defined by the origin and destination and frequency of service with supporting rolling stock. There was marginal flexibility in schedules, stoppages, and train configuration subject to an annual ‘train operation plan’ review. More flexibility in service parameters could be provided based on defined triggers during the review. These would include the frequency of service, minimum length of the train, dropping a service or introducing a new service, and significantly changing timings and stoppages. On the other hand, the IR retained all flexibility, including that of introducing new train services within an hour of a PTO’s service, should the occupancy levels cross 80% over three continuous months. (Interestingly, in one of the notifications, the IRCTC decided to call off two services due to poor patronage, possibly due to COVID. It was significant that IRCTC seems to have decided on its own and informed the IR, possibly on force-majeure grounds).

Entry Costs

The entry cost was expected to range from ₹24 to ₹33 billion across the 12 clusters. This was to cover the investment requirements in rolling stock and required maintenance facilities, all of which were expected to happen by the 6th year of the concession. The bid security was ₹120 million at the request for proposal (RFP) stage. At a transactional level, the cost of RFQ was set at ₹236,000, while the cost for RFP was set at ₹472,000, inclusive of taxes.

Compared to CTOs, the entry costs for PTOs were about three times higher on a time-indexed basis. The higher entry costs were justified on the grounds of ensuring the entry of serious players. The entry costs might also not be a barrier for serious entrants, given that most of the investment was in rolling stock rather than fixed infrastructure. In the case of CTOs, a higher share of investment went for the fixed infrastructure, restricting their flexibility for business.

Train Set Features

The RFQ stated that the train sets must be fully air-conditioned and designed to operate at a maximum service speed of 160 kmph (RDSO, 2020). The average speed as per the proposed schedule was between 58.5 and 68.5 kmph on all routes across clusters. Only 21 of 304 services had an average speed of 80 kmph or more (Raghuram et al., 2020). It was thus not clear to what extent the higher speed capability of the PTO train sets would be used. The MoR’s view was that since the rail network is in continuous upgradation mode, the higher speed capability would keep getting used increasingly.

The maintenance requirements were such that the period between successive schedules would require a minimum of 31 days or 40,000 km of travel, whichever was later.

All this was estimated to cost ₹100 million per coach. This cost was at least three times more than the rolling stock used for Rajdhani/Shatabdi trains. The indigenously designed T 18 coaches cost ₹60 million.

Each trainset was to have a minimum length equal to 384 m (about 16 LHB coaches of 24.7 m length buffer to buffer) and a maximum not exceeding the longest passenger train operating on the respective route. The maximum length was 535.2 m for most of the services. Some services had a lesser maximum length specified (401.4 and 423.7 m) (MoR, 2020e). The concessionaire might decide the configuration of the trains based on demand. The minimum could be restrictive on-demand grounds if there were periods when the occupancy could warrant a lesser train length. Even if the CA were to have a minimum haulage charge for the allotted line capacity irrespective of the minimum train set length, the PTO might like to reduce the length to save on operating costs.

The concessionaire could procure trains and locomotives through leasing or ownership from any source, provided the equipment was compatible with the specifications and standards stipulated in the CA.

Issues of Competition/Level Playing Field with IR

With the scope for multiple bidders for each cluster, competition for the market was expected. The RFQ further allowed bidders to submit bids for more than one cluster. Though it was originally envisaged to limit the number of clusters to three in the event of any bidder emerging as the highest bidder for more than three clusters, a corrigendum dated 30 July 2020, removed this restriction. This implied that all 12 clusters could, in principle, be awarded to a single bidder if the bidder emerged as the highest bidder for all clusters. While bidders planning to submit multiple bids would benefit from this change, in the extreme case, this could lead to the entry of only one player. This could compromise any competition by benchmarking and capacity building for the future.

While the clusters were designed with minimal geographical overlap and thus minimizing competition in the market (among the PTOs), there would still be duopolistic competition with IR trains.

In terms of the level playing field, at an operational level, the PTOs shall have non-discriminatory access. However, as already mentioned, IR retained the flexibility to change its service parameters. Even where there was a restriction on introducing new trains by IR, it was technically possible for IR to introduce a train from a neighbouring origin and/or to a neighbouring destination. It was important to question why similar flexibility could not be provided to the PTOs to respond to market forces, except on technical grounds (like maximum speed and platform/loop length).

In terms of pricing passenger services, IR had the benefit of cross-subsidy from surpluses in freight operations. As per IR’s statement in publicly available passenger tickets, no more than 60% of the costs of passenger services were recovered through the fare. On the other hand, PTOs would be compelled to charge a fare which, after revenue share, covered all operating costs and provided a surplus for the expected return on investment. Consequently, the fare structure for PTOs would be higher than IR’s. This would have to be matched with superior services to justify the value for money for end-users. For this positioning, the PTOs would also have to deal with competition from airlines.

Bidding Process

Bidding Process and Timeline

Private parties for each cluster had to be selected through a two-stage competitive bidding process. These were the qualification and bid stages. The bidders would be pre-qualified and shortlisted in the qualification stage based on their financial capacity. In the bid stage, the RFP would be issued to selected bidders. The award would be made based on the revenue share offered.

Compared to earlier initiatives, including container train operations, the bidding process and bid documents reflected well-thought-out planning and detailing. The MoR had been responsive to the bidders in extending the original due date for the submission of the application. While initially, the MoR provided a comprehensive dataset for only one year (2019); subsequently, data for five calendar years 2015–2019 were also provided. The dataset listed the number of waitlisted passengers, the number of confirmed passengers, earnings from waitlisted and confirmed passengers for each month, train, class, embarking station, and disembarking station on each service.

Two pre-application conferences were organized as per schedule. The DCA and DFR were made available before the second pre-application conference. Along with that, the various dates for the bid stage events had been moved forward, including the bid due date. This reflected the confidence that the MoR had gained in this process. If this was in response to the pre-application queries, it was welcome. On the other hand, such changes could affect the bidders’ expectation of reliability and make the pre-bid analysis more challenging.

Bid Criteria

The bid parameter was a ‘share of gross revenue’. In principle, gross revenue would include revenues from the operation of the trains, provision of services, and/or any other activity related to the project, including ancillary facilities. The gross revenue would exclude pass-through charges like station user fees and taxes and non-operating income, for example, from the sale of assets and interest/dividend. The final definition of gross revenue was detailed in the CA.

In the pre-application conference meetings, bidders raised concerns about the financial viability of the clusters. They had requested that negative bids (subsidy by the authority to the concessionaire for an unviable project) be considered. Such bid criteria allowing negative bids had been implemented successfully in the case of roads, telecom, and the Ude Desh ka Aam Naagrik—Regional Connectivity Scheme. The IR ruled out the possibility of any subsidy. Therefore, it was possible that there could be no bidders or a single bidder for some of the clusters.

Financial Capacity

The RFQ document specified a minimum net worth of 50% of the indicative project cost of a cluster at the close of the preceding financial year. In the case of a consortium, the combined financial capacity of those members, who shall have an equity share of at least 26% each in the special purpose vehicle (SPV), should satisfy the conditions of eligibility stated above, provided that each such member shall, for 1 year from the date of commercial operation of the project, hold equity share capital not less than (a) 26% of the subscribed and paid-up equity of the SPV and (b) 5% of the estimated project cost specified in the CA.

The financial capacity requirements were intended to bring in medium and large enterprises. This would be aligned with the capability and reputational requirements for a significant customer-facing PPP.

Service Issues

Fare and Ticketing

The PTO was free to set the fare without seeking approvals or setting an upper limit. Moreover, the PTO was permitted to sell tickets on its website if integrated with the IR passenger reservation system. As per the DFR, the PTOs were prohibited from selling waitlisted or RAC tickets. This might affect the occupancy of trains. In a competitive market, the operators should be taking this call, as was the case in the airline sector. Since the PTOs must integrate with the IR passenger reservation system, they could be subject to the limitations of the system. This might restrict the flexibility of PTOs in offering value-added services such as preferential seating, pre-booking of on-demand services, and so on. This would also make integrated search optimization capabilities with other modes for reservation more difficult.

Terminals, Schedule, and Stoppages

PTOs were given access to IR stations, including terminals, for which the charges were included in the haulage. This minimized the risk of terminal access, which was significant in the case of CTO business. The departure and arrival times at the origin and destination were specified as per the RFQ. The project information memorandum stated that the running time taken by a train should be within plus or minus 10% of the fastest train of IR on that route. While the PTO could select the location of the stoppage, the number could not exceed the number of existing stoppages of the fastest train of the IR. Changes could be proposed through an annual ‘train operation plan’ by the PTO. This would then be considered and approved by the IR, only if the travel time would not increase by more than 15 min and the time at origin and destination stations were not modified by ±30 min. IR was not subject to maintaining the same ‘train operation plan’ for a year like PTOs and therefore had the flexibility to change the profile of its services.

Though access to stations was provided for, enhancing customer experience at stations might not be easy given that facilities such as waiting rooms and platforms would be common. This was further exacerbated since there were many stations where the train timings could be ‘inconvenient’ (say, middle of the night). Other potential bottlenecks could be due to the time taken to fill up the water tanks and the evacuation of train toilets at stations.

Turnaround times at terminals would be an important parameter for operational flexibility and punctuality. This could also be examined as a function of the travel times of the incoming service, the logic being that we would need more turnaround time after a long-haul service.

Haulage and Other Charges

The charges payable by PTOs to IR were as follows: (a) haulage (access to infrastructure such as track, terminals, signalling & associated maintenance, loco pilot, and guards), (b) cost of traction, and (c) other support services such as maintenance, washing, and so on.

The haulage charge was a function of distance and the length of the train, with an applicable minimum haulage charge for a 384 m length train and increasing proportionately after that. Haulage was fixed at ₹512 per running km before inviting the bids. Since the total train kilometres in each cluster was known, a fair estimation of haulage cost could be made for each cluster. An increase in haulage was linked to the All India Consumer Price Index for Industrial Workers index, for which the rationale had been provided in the DFR.

While IR ensured the provision of electric traction, charges for traction were to be paid on actuals by the PTO (MoR, 2020c). IR could charge station user fees apart from the station access charges, which were part of the haulage. All other costs towards customer-related services were to be borne by the PTO.

Making the charging structure and charges available in advance mitigated the risks for the bidders.

Operations and Maintenance

The O&M of the PTO trains were to be governed by the standards and specifications given in the CA. IR was to provide the loco pilot, assistant loco pilot, and guard. The PTO was responsible for training the crew for operating its rolling stock. This arrangement would address operational risks. However, there were issues with performance. The rest of the staff, including onboard and on the ground, would be that of the PTO.

The key performance indicators for PTOs had been specified in the DCA. These included punctuality, reliability, and upkeep of trains, among others. In addition, the DCA also referred to how accidents would be addressed. The responsibility for punctuality and accidents could be with the IR or PTO and would need to be determined. While reliability and upkeep could be well within the control of PTOs, the punctuality of trains would be a function of the efficient working of PTO and IR. As per the DCA, PTOs would have to ensure 95% guaranteed punctuality (train arrival at destination station not delayed by more than 15 min or earlier by more than 10 min), failing which damage charges would be levied.

The damage charges were higher for PTOs compared to IR in case of a reduction in punctuality. If there was a 1% reduction in punctuality due to reasons attributable to PTO, it would pay damages to IR as indexed haulage charges for 200 km. If the same reduction in punctuality happened due to reasons attributable to IR, the damage payable to PTO would be indexed haulage charges for 50 km.

In the absence of an independent regulator, responsibility for both punctuality and accidents could become an issue.

The maintenance of the trains was the responsibility of the PTO. The IR would provide a berth in the existing maintenance depot or space for a new maintenance depot nearby on an ‘as is where is’ basis. As already stated, maintenance of the trains would be scheduled after 31 days or travel of 40,000 km of the previously scheduled maintenance, whichever is later. The IR would provide washing lines in its existing coaching depots for washing the trains at nominated terminals as per the schedule and stabling lines for placing trains when idle.

Every cluster had a primary maintenance depot, managed by the PTO, at the nodal location. Since not all services originated or terminated at this location, the PTO would be constrained to design rake links so that every rake could visit the maintenance depot or do empty runs from a terminal to the depot.

Regulatory Framework

The biggest gap in the PPP initiative was the lack of an independent regulator. Currently, the MoR and the IR are the same body, leading to a conflict of interest. The experience of CTOs, as described in Box 2, brings out this issue. We provide examples of international experiences of rail regulators from two countries in Box 3. We address the regulatory concerns of licensing, safety, pricing, service levels, and dispute resolution. (In service PPPs, security and environment are still growing concerns and are often regulated under service levels.)

Box 3.

International Experience.

United Kingdom

The Office of Rail and Road (ORR) is an independent regulator for rail and road sectors. In rail, it is a combined economic, and health and safety regulator for the network. It monitors and regulates the entities that operate rail infrastructure and all passenger and freight train operating companies (TOCs). Network Rail is the monopoly operator of the railway network in UK, including tracks, signalling, stations, bridges, tunnels, and so on. ORR’s functions include promoting competition, protecting rail passengers (ensuring accurate and timely information by TOC, annual reports focusing on the performance of TOC and Infrastructure Managers), promoting investment in the rail network, and rail investigations. ORR is vested with economic and competition functions and powers to address the barriers to market entry and tackle any incumbent advantages arising from ownership of key facilities and infrastructure. It also regulates the health and safety of the mainline rail network and is vested with investigative and enforcement powers.

Licensing: One of the core statutory functions of ORR is to grant licenses for railway businesses. A license is required to operate a train, station, network, or light maintenance depot. The network and station license to Network Rail is monitored by ORR. TOCs apply to ORR. Upon approval, an agreement is signed between Network Rail and the TOC. If the regulator establishes any breach of a license obligation, then the Act provides ORR with the power to make a final order to require the licensee to secure compliance or enables ORR to impose a penalty.

Safety: Any health and safety-related incident is investigated by ORR. Rail accidents are also independently investigated by a British government agency, The Rail Accident Investigation Branch (RAIB). ORR has a statutory obligation to respond to RAIB recommendations and take action.

Pricing: ORR is responsible for establishing the charging framework and the specific charging rules governing the determination of the charges to be set by Infrastructure Managers. Each Infrastructure Manager is responsible for determining the charges for the use of its railway infrastructure in accordance with the applicable framework. It ensures that applicants and TOCs are treated fairly. ORR holds Network Rail accountable against the network license, reviews access charges every five years, and monitors its performance.

Service Levels: ORR monitors and enforces the performance of network operators and TOC. Infrastructure Managers establish a performance scheme as part of the charging system to encourage the minimization of disruption and improve the network’s overall performance. This performance scheme may include penalties for actions that disrupt the operation of the network, compensation arrangements for undertakings that suffer from disruption, and bonuses that reward better than planned performance.

Dispute Resolution: ORR investigates complaints about the behaviour of industry parties and companies who are in breach of competition law. It has the power to impose a penalty on a ‘relevant operator’ who has breached or is breaching a decision, direction or notice issued by ORR.

Australia

Australia’s rail network is divided into four zones (South Wales, Queensland, Victoria, Western Australia). Each zone has a distinct economic regulator. There is a single safety regulator, ‘The Office of the National Rail Safety Regulator (ONRSR)’ which defines the safety standards and monitors compliance with norms.

Licensing: The zonal economic regulators grant approvals for access arrangements and third-party access to railway infrastructure and associated facilities.

Safety: ONRSR conducts rail safety operations in coordination with relevant ministries (such as Rail Industry Safety and Standards Board (RISSB) and National Transport Commission, Australian Transport Safety Bureau) and primary stakeholders such as TOCs and unions. The key focus areas include track worker safety, level crossing safety, contractor management, and control assurance.

Pricing: Zonal economic regulators ensure non-discriminatory access to third parties.

Service Levels: Zonal economic regulators enforce regulatory compliances on railway infrastructure operators and TOCs. Random surveys are conducted by independent market research consultants at least once in every quarter of the concession period to ensure customer satisfaction.

Dispute Resolution: Arbitration of dispute is done by the zonal economic regulators.

Source: MoR (2020b) and ORR (2016, 2017).

CONCLUSIONS AND QUESTIONS

Though the initial response from the bidders was good, it did not sustain. In the first (qualification) stage, 120 applications were received from 15 bidders before the RFQ application submission deadline of 7 October 2020. After evaluation, 13 bidders with 102 applications qualified to submit the final bid. In the second (bid) stage, only five applications were received from two bidders (IRCTC and Megha Engineering) for three clusters. Table 2 gives the details of the bids that were opened on 23 July 2021. The winning bidder for each cluster was IRCTC, a public sector undertaking under MoR.

Table 2.

Details of Bids Received in the Second Stage.

Bid Parameter	No of Services	Average Distance (km)	Revenue Share (%)
Cluster/Bidder			IRTC	Megha Engineering
Mumbai-2 (Western Railway)	30	793	18.0
Delhi-1	16	701	15.3	2.16
Delhi-2	12	1,028	6.3	0.54

Source: Gurung (2021).

This outcome was disappointing, since IRCTC was a subsidiary, and MoR need not have gone through a bidding process. MoR finally scrapped the bids in December 2021. From the assessment in the previous section, the following issues emerge that need to be addressed in future bids.

The design of each cluster was driven more by the supply-side (efficiency) logic rather than demand-side (effectiveness) logic. The real need was for bidders to be sufficiently empowered to reach out to and nurture market segments. Would it have been better to design a cluster of services that address similar market segments? Should clusters be geographically contained? Should clusters be designed so that services overlap to enable competition, at least on important routes? It is important that there is logical consistency in following through a principle.

From the MoR’s perspective, it would be important to examine whether the services on offer are aligned with reforms being considered in the structure of passenger train operations, including the ‘hub and spoke’ concept and the ‘zero-based’ timetable.

Should the MoR permit viability gap funding or a negative revenue share? This has happened successfully in other infrastructure sectors like roads and aviation. The real question is whether the outflow from the IR would be lower than what it would have incurred to provide the same services.

Given the complexity of railway operations, can all parameters affecting the stakeholders be anticipated for the duration of the concession? If not, it is vital that the Concession Agreement provides flexibility, including change of the parameters of services based on triggers.

What has often been repeated is that MoR has an inherent conflict of interest since there is no separation among the various roles of IR—policymaker, operator, competitor, or the regulator. An independent regulator would be required at the earliest time to address this.

In conclusion, while there is significant interest among private players in wanting to participate in passenger train operations, the bid design, bidding process, service issues, and regulatory framework need changes for private play to be incentivized.

Annexure 1.

Overall Analysis of Clusters—September 2020.

1	2	3	4	5	6	7	8	9	10	11
Cluster	Location	No. of Services	Train km per Week	Distance: Average (km)	Distance: Range (km)	Train hours per Week	Running Time: Average (hrs)	Running Time: Range (hrs)	Speed: Average (km/hr)	Average Speed: Range (km/hr)
1	Mumbai-1	16	102,156	1,000	1,446	1,594:45	15:52	17:25	64.1	25.6
2	Mumbai-2	30	96,042	793	1,416	1,404:00	12:34	25:25	68.4	49.9
3	Delhi-1	16	78,498	701	945	1,249:30	11:09	18:05	62.8	27.6
4	Delhi-2	12	86,366	1,028	1,634	1,351:00	16:05	22:20	63.9	33.8
5	Chandigarh	22	93,662	778	1,086	1,495:50	12:32	19:00	62.6	37.1
6	Howrah	36	101,036	815	1,710	1,528:25	12:40	24:05	66.1	36.2
7	Patna	40	94,888	1,122	2,190	1,546:25	18:55	40:05	61.4	24.0
8	Prayagraj	38	89,786	1,102	3,249	1,507:35	19:39	63:05	59.6	60.6
9	Secunderabad	24	79,824	882	1,701	1,364:20	15:09	30:25	58.5	23.6
10	Jaipur	24	85,511	915	2,207	1,308:20	16:06	38:50	65.4	21.3
11	Chennai	28	119,444	885	3,322	1,901:10	15:16	63:40	62.8	33.2
12	Bengaluru	18	122,654	1,405	3,114	1,998:15	24:55	62:15	61.4	32.5
		304	1,149,867	914	3,322	18,249:35	14:47	63:40	63.0	60.6

Source: Columns 3–4: Corrigendum 5 (dated 18 September 2020). Columns 4–11: Raghuram et al. (2020).

Footnotes

DECLARATION OF CONFLICTING INTERESTS

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

FUNDING

The authors received no financial support for the research, authorship and/or publication of this article.

Notes

G. Raghuram is Distinguished Visiting Faculty at the Gati Shakti Vishwavidyalaya and Professor Emeritus at the Gujarat Maritime University. He has been Director, IIM Bangalore, from February 2017 to July 2020. Earlier, he was a Professor and Chairperson of the Public Systems Group at IIM Ahmedabad. He has been Dean (Faculty) at IIM Ahmedabad, Vice-Chancellor of the Indian Maritime University and Indian Railways Chair Professor. He specializes in infrastructure and transport systems, and logistics and supply chain management. He conducts research on the railway, port, shipping, aviation, and road sectors. He has published over 35 refereed papers in journals and written over 160 case studies. He has published six co-authored books.

e-mail: graghu@iimb.ac.in

Rachna Gangwar is a transport and logistics professional with over 20 years of experience in academia and industry. She has held teaching, research and consulting positions at University of Karlsruhe Germany, Indian Institute of Management Ahmedabad, Adani University Ahmedabad, Institute of Management Technology Ghaziabad, Manipal University Jaipur and PTV AG Germany. Her areas of teaching and research focus on transport policy, public-private partnerships, urban transport systems, and logistics and supply chain management.

e-mail: rachna015@gmail.com

Charu is a doctoral student in the Entrepreneurship area at IIM Bangalore. Her research interests include entrepreneurial process and digital entrepreneurship. Prior to her doctoral studies, Charu worked as a research associate in IIM Bangalore and Indian School of Business, Hyderabad. Charu has a Bachelor’s in commerce from Shri Ram College of Commerce, Delhi University and a Master’s in International Business from Department of Commerce, Delhi University.

e-mail: charu.rastogi21@iimb.ac.in

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