Privatization of Container Train business in India

Economic growth and trade expansion in recent years have enhanced the relevance of railways as a critical element in the globalisation of the Indian economy. In particular, this sector has witnessed significant interest from both domestic as well as foreign investors following the policy initiatives taken by the Government of India to promote public private partnerships in infrastructure.

In India, railways are government owned and operate under the Ministry of Railways (MoR). It is a vertically integrated organization controlling its own facilities, performing all operating and administrative functions and unilaterally determining what services to provide. The top management of IR also functions as the secretaries of the MoR, thereby bundling the roles of licensor, infrastructure service provider, operator, and regulator.

With a view to attracting a greater share of container traffic and introducing competition in rail freight services, in January 2006 the Ministry of Railways allowed the entry of private and public sector operators to obtain licenses for running container trains on the Indian Railways (IR) network. The scheme was opened to all Indian companies, including subsidiaries of foreign companies registered in India, having a minimum annual turnover of Rs 1 billion. The validity for permission was for 20 years, further extendable to another 10 years, on the same terms and conditions under a Model Concession Agreement (MCA).The period of concession would start from the date of signing of the agreement.

This initiative was the first significant move of its kind where private parties were allowed to make entry in the domain of railway operations with direct customer interfacing. The response to the policy was good and 15 new entrants obtained licenses to run container trains and one more player Arshiya international joined later in 2008.

The MCA provides for non-discriminatory scheduling of trains as among different operators, public and private. All container trains will be scheduled on a first-come-first-served basis, thus providing a level playing field to all operators including the incumbent public sector operator. There is no restriction on the frequency and number of trains that a Concessionaire can offer to the Railway Administration for haulage.

The entire network of IR was classified and grouped into four categories based on existing and anticipated traffic volumes of ports. A onetime registration fee of Rs 50 crores (for category I license) or Rs 10 crores (for category II, III, and IV license) was payable to MoR.

Category I covers JNP/Mumbai Port - National Capital Region (NCR) rail corridor and beyond. This category also includes all domestic traffic.

Category II covers Rail corridors serving JNP/Mumbai Port and its hinterland in other than NCR and beyond. This category will also include all domestic traffic except on category I routes.

Category III covers Rail corridors serving the ports of Pipavav, Mundra, Chennai/Ennore, Vizag and Kochi and their hinterland. This category will also include all domestic traffic except on category I routes.

Category IV covers Rail corridors serving other ports like Kandla, New Mangalore, Tuticorin, Haldia /Kolkata, Paradip and Mormugao and their hinterland and all domestic traffic routes. This category will also include all domestic traffic except on category I routes.

According to the agreement locomotives would be provided by the Railway Administration to haul trains on a non-discriminatory basis on payment of notified charges. For delay in supply of locomotives beyond twelve hours, the Authority would provide a rebate equal to 2% of the haulage charges payable by the Concessionaire.

Haulage charges for movement of containers on the railway network informally would be prescribed by the Railway Administration from time to time, and would be applicable to all operators on a nondiscriminatory basis.

The Railway Administration would haul Concessionaire trains carrying notified commodities at the tariff specified for such commodities. Operators had to pay haulage charges to IR for using its infrastructure. IR reserved the right to determine haulage charges. Trains would be dispatched on a nondiscriminatory ‘first come first served’ basis.

The MCA was signed with operators on 4th January 2007. Thus, of the 16 operators, 12 got the category I license, two operators got category III and other two operators got category IV. None had sought the category II license. Most of the companies created subsidiaries to undertake container operations. The 16 CTOs and their respective category licenses are as follows:

• Adani Logistics Ltd (Adani Group)- Category I
• CONCOR (IR Public Sector Undertaking)-Category I
• Container Rail Road Services (DP World)-Category I
• CWC (CWC Public Sector Undertaking)-Category I
• Freighstar (ETA Group)-Category I
• Gateway Rail Freight ltd (Gateway Distriparks)-Category I
• Hind Terminals (Sharaf Group (UAE) and MSC Agency)-Category I
• India Infrastructure and Logistics (APL India)           -Category I
• Reliance Infrastructure (Reliance (ADAG))-Category I
• SICAL Logistics-Category I
• Boxtrans (India) Logistics Services (JM Baxi & Co)-Category III
• Pipava Railway Corporation Ltd (PRCL)-Category III
• TransRail Logistics Ltd (Delhi Assam Roadways)-Category IV
• Innovative B2B Logistics Solutions (Bagadiya Shipping & Bothra Brothers (P) Ltd)         -Category IV
• KRIBHCO Infrastructure Ltd (KRIBHCO (Public Sector Undertaking))-Category I
• Arshiya Rail Infrastructure (Arshiya International)-Category I

Gateway Rail Freight Pvt Ltd was the first private operator to run a container train. They flagged off their first train on 3rd May, 2006, using a CONCOR rake. The first privately owned container train by a private operator was flagged off by Innovative B2B Logistics Solutions on 30th October, 2006.