Railways desperately need a shared vision on PPPs

While detractors of Mamata Banerjee may view the 2011-12 Railway Budget as populist, my own view is that it is a brave budget with an attempt to invest Rs57,000 crores during 2011-12.

In terms of explicit announcement, the budget does focus on ‘populist’ passenger services, though there is a fair bit in terms of new projects that address the much required capacity and safety concerns.

Does the budget have a Bengal-centric flavour? Unfortunately, yes. I hope we will see the day when this not even raised as an issue.

The most important lever for railways, namely public-private partnerships, or PPPs, has not been dealt with appropriate focus.

The experience with PPPs has not been a great success so far.

The most important dimension that needs to be addressed for a smooth way forward is to have a shared vision as to why the railways needs PPPs.

The logic for this should be more than just resource mobilisation. It needs to focus on the complementing need of entrepreneurial and managerial energies that private parties can bring in to make rail-based transport value-adding for the end user.

There is a need to develop well-written contracts that act as a precise policy and regulatory framework between the railways and private parties.

Three such model documents for container train operation, redevelopment of railway station, and procurement-cum-maintenance of locomotives have been prepared in the recent past by the Planning Commission.

Given the current internal structure and orientation (strong cadre culture, hierarchy orientation and top management structure) of the railways, it would be very daunting for private players to develop PPPs.

Apart from the spectre of dealing with a large ‘machinery’, the popular perception is that there are issues of one-sided contracts, interpretations of unclear implications going in favour of the railways and the conflict of interest due to it playing the role of licensor, operator and regulator.

On a positive note, there has been reinforcement at the political level on the issue of PPPs. However, the railways would need to develop a more flexible approach based on not just a political language of PPP, but creating an organisation that listens to, learns from and is responsive to a variety of stakeholders including customers, other affected and involved entities, and partners in PPPs.

A good start is in top management restructuring. It is important to begin immediately with a separation in the railways’ roles of licensor, operator and regulator. 

In parallel with this, the railway board members’ roles should be redefined towards strategising for key market segments rather than as the current cadre based functional supremo.

Corporatisation (for business focus and managerial autonomy) need not be limited to non core operations. In fact, the very essence of PPPs (corporatised through SPVs) in core activities is to bring in the business focus and managerial autonomy.

While the budget is brave in stepping up investments, it is far from the railways’ own vision of investing Rs140,000 crore on the average per year during this decade. The best way for this to happen is by leveraging PPPs by creating an investment friendly climate.

The writer is a professor at the Indian Institute Management, Ahmedabad