According to a study initiated by the FICCI Capital Goods Committee, Railway Station redevelopment projects will provide huge opportunities for Indian industry. It will also provide employment opportunities, both direct and indirect.
Indian Railways plans to redevelop 600 stations, entailing an investment of about Rs. 1 lac crore. Initial progress on this front has been slow due to muted response by industry players for the proposed PPP model to develop stations. However, the study points out that the recently introduced changes are expected to provide a fillip to developments. These changes include appointment of nodal agency for station redevelopment (Indian Railway Stations Development Corporation or IRSDC), longer lease periods of up to 99 years for developers, allowing multiple sub-leasing, allowing residential development, and simplified bidding procedures. IRSDC is planning to tap investment from private equity investors and pension funds for the initial pool of 10 stations, totalling to about Rs. 2,500-3,000 crore. “Industry players will have EPC opportunities for redevelopment of these stations,” the report says.
The study also carried out a ‘voice of industry’ with industry players who are pursuing or are interested in exploring business opportunities with Indian Railways and Metro corporations. According to this survey, Railway business is less cyclical compared to other industries and helps industry players beat the downturn in other sectors.
However, the industry voiced a pressing need for reforming commercial contracts used by Indian Railways and Metros. Most of the contracts have one-sided clauses e.g., flexibility provided to buyer (Railways) to modify procurement volumes by up to 30 per cent from original contract. For infrastructure execution contracts, most of the risk is passed onto EPC player without adequate compensation for scope changes or time delays for factors outside control of contractors such as not getting access to site in time. “Basis of reference/schedules of rates is often outdated, not reflecting current market levels. Onerous contract conditions such as simultaneous deduction of mobilisation advance and retention money make cash-flows negative in early stages of project execution,” says the report.
Industry also expressed dissatisfaction at frequent cancellations and retendering particularly for large projects. Many of large tenders in past were not concluded due to various reasons. Industry though ends-up spending precious resources in bid preparation.