RAIL INFRASTRUCTURE

Financing by Multilateral Banks,

Issues of Co-financing, Blended
Finance & Private Sector Investment
By: RAJESH AGARWAL
April 19-20, 2018 Executive Director/MTP, Railway Board
Ahmedabad
Urbanization Scenario and Mobility Needs
By 2030, almost 60% of world’s population in urban areas

Almost 90% of urban expansion in next decade in developing world

India’s urban population projected to grow to about 473 million in 2021 and
820 million by 2051 against only 285 million in 2001

Cities must meet MOBILITY NEEDS of current and projected population

to support economic activity as distance will be measured in unit of time

RAIL BASED TRANSPORT SYSTEM - an affordable, environmental

friendly and efficient means for movement of people and goods
throughout India.

RAIL BASED TRANSPORT SYSTEM-a solution to the ever increasing

traffic in major cities.

ENORMOUS INVESTMENTS AND LONG GESTATION PERIOD.

Innovative financing models required to meet Infrastructure Growth
2
 Railway Track
TRACK - GROWTH
1951 1961 2016
ROUTE Km 53596 56247 (5%) 66687(24%)
RUNNING Km 59315 63602(7%) 92081(55%)
TRACK Km 77609 83706(8%) 119630(54%)
Note : Figures in bracket indicate %age increase over year 1951

Route Km
120000
Running Km
80000 Total Track Km

40000

0
1951
1961
2016
3
Investment Requirement in Railway Projects
Throw Forward : Rs. 5,84,000 Cr
New Line (NL) 18592 km Rs. 1,93,000 Cr
Double Line (DL) 21337 km Rs. 1,65,000 Cr
Gauge Conversion (GC) 8470 km Rs. 29,000 Cr
Metropolitan Transport Projects(MTP) 939 km Rs. 97,000 Cr
Station Redevelopment 400 Nos Rs. 1,00,000 Cr
• Implementation lagging due to land acquisition, clearances & lack of funds
• Additional demands from State Governments, Public Representative and
Industry for NL, GC, DL, MTP and Station redevelopment are further
aggravating the funding scenario and Project Backlog
• Requirement is felt for :-
Involving States in Project Planning, financing and Implementation
Speeding up the Development of Projects on State’s priority, WHY?
Benefit of Economic Development & Re-densification goes to State
Generating more financial resources through participation of
State, Financial Institutions & other Stakeholders
4
 INFRASTRUCTURE FINANCING

– In the spirit of Cooperative Federalism, seeking

greater participation of State(s) in Financing &
decision making process for Railway Project(s).
– Generating Investment through Banks, Ports, Mining
Companies, PSUs, Industries, Multi-lateral FI etc.
Financing Requires:
*Traffic Assurance
*Simplification of Project Appraisal and Sanction,
*Standard Concession Agreement
 JVCs between Railways & State Governments
• Development, implementation & financing of Mutually
Identified Viable Railway Projects
Objective • Critical connectivity / capacity enhancement projects to
be undertaken on Priority
• Incorporation & equity funding of
subsidiaries/special purpose vehicles (Project
JVC
SPVs) to undertake above Projects
Activities • Undertaking railway projects after establishing
viability and /or VGF
State JVC is a Govt Governed by the
Public limited JVC
PSU by virtue of its Board of Directors
company under the
shareholding :
Companies Act 2013
Ministry of Railways
& State Govt. to hold JVC will undertake
equity share in ratio projects through
of 49:51 in JVC Project SPVs
6
Implementation through Project SPVs
State JV Company to incorporate Project SPVs to implement identified rail projects
Viability of Projects
• Viable projects to be undertaken for optimal utilization of funds
• To ensure viability of projects, State Govt. may provide land free
of cost, if essential
• Project Scope may entail other non-railway revenue streams like
Commercial Exploitation of land for robust business model

Equity in Project SPVs is BLENDED by JVC and other investors

• MoR & State Govt. through JVC, to maintain MINIMUM 26%
equity share in Project SPV
• OTHER INVESTOR(S) CAN CONTRIBUTE EQUITY UP
TO A MAXIMUM 74%

PROJECT SPV MAY AVAIL DEBT FROM LENDERS

• Long term debt up to 25 years tenure based on economic life of
the project, its cash flows & viability will be arranged through
Multilateral Financing / Domestic Loan Syndication
7
Structure

GoI through MoR State Govt.

Equity Equity MOU/JV Agreement to be signed
upto 50% and amongst the equity shareholders of JVC
50% above
State JV Company
Concession Agreement Auth Cap 100 Cr
between MoR & Project SPV Domestic/Foreign
Equity Investors / FIs
Equity (min 26%)

Project SPV 1 Project SPV 2 Project SPV 3

Debt

Subordinate Debt
Lenders
Project

Project Implementation (Optional) by any agency Zonal Railways/

Operations by Zonal Railway but Maintenance (Optional) Other Agency
Structure has been depicted for a few Project SPVs only. There would be a portfolio of
Project SPVs under JVC
State Rail Development Scheme: Project Pipeline

Projects to be undertaken through State JVCs include

• Port & mines connectivity, new line, sub-urban etc
• Other critical projects jointly identified by MoR & State Govts.
• All states to have 30 year vision of State Rail Development Scheme
Existing new line, doubling and Gauge Conversion sanctioned
projects being developed by MoR may also migrate to the JVCs

70 Projects identified for study / development through respective State JVCs

State Number of State Number of
Projects Projects
Andhra Pradesh 05 Telangana 02
Odisha 06 Kerala 08
Gujarat 12 Haryana 11
Maharashtra 09 Chattisgarh 04
Tamil Nadu 10 Jharkhand 03 9
Capacity Building and JVC Formation
Cabinet approval for formation of JVC with states for
railway projects accorded in February 2016

Quarterly workshop on capacity building at IRICEN

JV Agreement signed with 11 State Govts.

Govt. of Andhra Pradesh, Jharkhand, MP &Telangana
are in process of incorporating the JVC
6 State
Govts., Chattisgarh, Gujarat, Haryana, Kerala, Odisha,
Maharashtra have incorporated JV Companies. A
similar company K-RIDE with Govt. of Karnataka
already exists.
10
Investment Rationale (JVC/SPV)
INVESTOR Equity /
Investment in JVC / SPV JVC
/ LENDER Debt
Instrument of Equity in the form of common
PROJECT
Investment shares & Preference shares / Debt
SPV

Association with  Easier & timely implementation of project due to government backing
Government of India  Clearance & approval process would be quicker and easier
 Land to be acquired by State Government under the Railway Act

 Tax benefits (like 80 I(a) etc.) given to infra projects resulting in higher returns
Need for  Relaxation of rules for infra projects (For eg: DCCO deferment up to 4 years
infrastructure for infrastructure projects vs. 2 years for non infrastructure projects)
projects in India  Presence of security facilitates funding by way of debt
 Private investment in railways permitted up to 100% in specified sectors

 JVC could be listed once it has built a portfolio of railway projects

Numerous exit
 Investment in JVC would result in diversification of risk as the funds would
options for equity
be used in various projects

 Viable projects (with IRR of at least 12% as prescribed by IR) would

High Returns
increase the probability of achieving high returns
Investment Rationale (Project SPV)
JVC
Investment in : Project SPV
Instrument of Blended finance (Equity through
Investment : Govt & Pvt) / Debt through INVESTOR Equity / Debt PROJECT
Co-financing, Multilateral finance / LENDER SPV

 Investment made after assessing the future cash-flows of the project

Individual Projects thus giving the investor more control over the end-use of funds
 Returns achieved would be project based
 Sale to strategic buyers or financial buyers
Numerous exit  Reduction up to 74% of equity invested can be done
options for equity  Further reduction is possible with approval from MoR

 Participative Policy to attract private investment

Participative Model  Based on the model, 50% - 95% of revenue would be shared with
Project SPV

 Viable projects (with IRR of at least 12% as prescribed by Indian

High Returns Railways) would increase the probability of achieving high equity
returns
12
Project SPV under JVC: Case for example
CHHATTISGARH RAILWAY CORP. LTD.
JVC (CRCL)
49:51 BETWEEN MoR & CHH

PROJECT SPVs
Chhattisgarh West Chhattisgarh Central
Rail Corridor Ltd. Rail Corridor Ltd.

PROJECTS- Katghora-Kartala- Kharsia-Naya Raipur-

IPA GIVEN Dongargarh(277 km) Durg (289 km)

COST Rs. 4821 cr. Rs. 4900 cr.

EQUITY TO 20:80 to 30:70 20:80 to 30:70

DEBT RATIO

JVC’s EQUITY Rs. 500 cr. to Rs. 800 cr.

Contact :
MoR’s EQUITY Rs. 300 cr. Shri. Sanjay Rastogi,
Managing Director, CRCL
SPV PARTNERS IDENTIFICATION IN PROCESS 9560595034 13
Mumbai Urban Transport Project(s)

JVC
Mumbai Rail Vikas
Corporation

PROJECT SPVs
MUTP 3 MUTP3A

PROJECTS- Airoli-Kalwa, Panvel Karjat, Fast Harbour, Panvel-

IPA GIVEN Virar Dahanu, Rolling Stock Virar, CBTC, RS etc

COST Rs. 10500 cr. Rs. 54000 cr.

EQUITY TO 40:60
DEBT RATIO

JVC’s EQUITY Rs. 4500 cr.

Contact :
MoR’s EQUITY Rs. 2250 Shri. R S Khurana,
Managing Director, MRVC
LENDERS World Bank, AIIB, ADB, LEASE 9004441113 14
Gujarat Project(s)

JVC
Gujarat Rail Infrastructure
Development Corporation (GRIDE)

PROJECT SPVs
Bahuchara G RCL Other spv

PROJECTS- Katosan Road-Becharaji- Vayor-Koteshwar, Chhara

IPA GIVEN Chanasama-Ranuj GC Port etc

COST Rs. 500 cr. Rs. cr.

EQUITY TO 100% euity

DEBT RATIO

JVC’s EQUITY Rs. 500 cr.

Contact :
MoR’s EQUITY Rs. 110 Shri. Santosh Kumar,
Director(P&P), GRIDE
SPV PARTNERS GoG (21), GIDC(26),MarutiSuzuki ltd(33) 9106628537 15
16