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IAS Current Affairs: Build Operate Transfer & all other Participative Models of Indian Railways Fully Explained

IAS Current Affairs: February 18, 2016 
 
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TOPIC: Build Operate Transfer & all other Participative Models of Indian Railways Fully Explained

Recently, the first three projects to be taken up for development through the new build, operate, transfer (BOT) annuity model were identified by the Indian Railways.
 
The three targeted projects are developing third line between:
  1. Nagpur and Wardha (both in Maharashtra)
  2. Kazipet (Telangana) and Balharshah (Maharashtra)
  3. Bhadrak and Nergundi (both in Odisha).
These three projects will be taken up at an estimated total cost of around Rs 2,450 crore.
 
About BOT Annuity model: 
  • Under the BOT annuity model for rail projects, the private developer gets a revenue guarantee of 80 per cent of projected revenue at the time of bidding.
  • The developer gets a full right to revenue between 80 and 120 per cent and the Indian Railways do not take any share from it.
  • Only after the actual revenue is above 120 per cent, the additional receipts are shared with the Indian Railways in a staggered manner.
 
All Participative Models of Rail Connectivity FULLY EXPLAINED:
 
Other Railway Models framed by the Government:
 
The Indian Railways is facing a heavy resource crunch. It has an additional burden of Rs 32,000 crore towards the 7th Pay Commission recommendations.
 
Railways is focusing on raising funds through various channels, including the PPP route and forming joint ventures with the state governments. Also, there is a need to expedite few existing or soon to start Railway Projects. 
 
To address these challenges, Indian Railways has framed 6 models.
 
To attract private investments in railways, the government had framed five models:
  1. Non-government private line model
  2. Joint venture model
  3. BOT model
  4. Customer Funding Model or Capacity augmentation with funding provided by customers model 
  5. BOT Annuity Model or Capacity augmentation through annuity model.
 
Besides these 5 models, an additional model called the Engineering Procurement Contract Model has also been framed to expedite Railway Projects
 
Non-Government Private Line Model:
 
Facilities like sea ports, large mines, logistic parks, and other similar industries / industrial cluster which serve large number of customers require efficient rail connectivity.
 
These utilities serve various customers and are part of the logistic chain. For such facilities, provision of first/last- mile connectivity to the main railway line needs to be construed as an integral part of the main project.
 
Under Non-Government Private Line model, the rail connectivity to such utilities/clusters could be developed by the owner/ concessionaire of the facility as private railway line by acquiring land and making investment in the line. This would be declared as Non Government Railway for public carriage of mostly goods but also passengers (if needed).
 
The owner/developer of the Non-Government Railway will be a provider of fixed infrastructure.
 
Funding, construction, maintenance and renewal of assets will be done by the owner of the facility.
 
The infrastructure will be used by the Indian Railways for transport of goods including that of other customers, using their own freight wagons and locomotives.
 
Indian Railways will pay to such Non Government Railways user fee for usage of the
infrastructure.
 
Joint venture model:
 
In some railway projects, sanctioned or proposed to be sanctioned, it may be possible to identify the interested stakeholders who may participate in funding to expedite
execution. Such projects can be implemented through formation of a Joint Venture (JV) with equity participation by the strategic investors.
 
First, selection of private sector equity partners will be done through Expression of Interest (EOI) on the basis of pre-defined technical qualifications based on parameters like net worth, minimum threshold of equity participation etc. and second project can be assigned to the JV by Ministry of Railways on nomination basis
 
 
Build Operate and Transfer (BOT) Model:
 
For the projects where it is not possible to identify any stakeholder, a BOT type model is suitable. Under this model the concession is awarded through competitive bidding. The concessionaire will design, build, finance, construct and maintain the project line for a concession period of 25 years subject to variation based on actual traffic materialization vis-à-vis threshold traffic indicated at the time of bidding.
 
The bidding parameter will be Premium/grant (Viability Gap Funding).
 
Demand risk, is shared between concessionaire and MoR. Since such railway systems will be mostly embedded systems, Indian Railways will operate the trains on the rail system for ensuring interoperability. 
 
Customer Funded Model:
 
Some of the financially viable rail projects already sanctioned by Ministry of Railways need to be fast tracked to match with new capacities or expansions being planned by major customers.
 
It is proposed to take project advance from such customers who may be willing to come forward to invest in augmentation of the capacity.
 
In return, Railways will pay upto 7% of the amount invested through freight rebate on freight volumes moved on the project section every year till the funds provided by the project beneficiary is recovered with interest at a rate negotiated at the time of signing of the agreement. 
 
The project is to be treated as Railway Project after necessary due diligence and ensuring availability of fund on the basis of MOU/agreement entered into between Railways and customers. 
 
The money deposited would be spent by the Indian Railways for the sole purpose of the project. The Indian Railways will undertake construction and operation of the rail system. Indian Railways will make payment to the customer in the form of rebate.
 
BOT Annuity Model:
 
For projects where user charges cannot sustain the required private investment, an
alternative to the user charge based BOT model is required, to execute various
important projects of doubling, 3rd line, fourth line etc. The BOT Annuity model provides the framework to execute such projects which may not be covered under BOT model.
 
The Annuity model is also applicable to execute such projects where it may not be possible to find funding from any specific user.
 
Under this model, the construction risks are allocated to the concessionaire and other risks such as traffic risk and all direct & indirect political risks are assigned to the Authority.
 
Land and utility shifting for such projects will be done by Ministry of Railways or its entity.
 
Train Operations and Maintenance will be done by Ministry of Railways. Ministry of Railways will manage stations, signals, level crossing gates etc
 
Engineering Procurement Construction (EPC) Model:
 
Historically,  indian Railways had been undertaking construction projects through the conventional item rate contracts where the Government provides the detailed design as well as the estimates of quantities for different items of work (Bill of Quantities).
 
In the conventional Item Rate Contracts, payments to the contractor are made on the basis of measurements of the work done in respect of each item.
 
However, experience in railway projects shows that item rate contracts are prone to excessive time and cost overruns due to delays in design and drawing, variation in items and quantities and inadequate fund provisions as allocation of construction risks are largely to the Authority.
 
Considerable time of Project Engineers is consumed in dealing with variations in quantities, introduction of Non-Schedule Items and variation in contract price.
 
The growing requirements of the economy will necessitate faster expansion of the freight network through new capacity creation
 
The drawbacks of item rate contracting can be addressed by adopting the EPC approach that relies on assigning the responsibility for investigations, design and construction to the contractor for a lump sum price determined through competitive bidding.
 
The objective is to ensure implementation of the project to specified standards with a fair degree of certainty relating to costs and time while transferring the construction risks to the contractor.
 
The contractor has full freedom to plan the construction schedule for efficient use of its manpower, equipment and other resource while payments are linked to specified stages of construction as compared to payment for individual items/units under the item rate contract.
 
Awarding contract for a lump sum price ensures predictability and financial discipline, both for the contractor and the Government.
 
The contract price is subject to adjustment on account of price variation during the contract period as per specified formula. 
 

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