*ater+ Some successful ,ro#ects

JUSCO was successful in supplying water to the non Tata Steel Jurisdiction areas at affordable prices. The extra water was obtained by having a more economical use of water in the Tata Steel areas by installing water meters. The problem of high access charges was solved by arranging for loans for the connection charge payable in easy installments. JUSCO has till now reported a near 1 ! collection from its users. JUSCO now has ta"en many other pro#ects$ namely in %ysore City$ Salt &a"e City Sector '$ (ol"ata and )aldia.

Slide: G.S. Basu, JUSCO; Mysore 24x7 Water Supply Pro e!t
"a#e o$ Pro e!t Jo' )es!riptio& Clie&t Salie&t *eatures 24%7 Water Supply per$or#a&!e 'ased #a&a(e#e&t !o&tra!t i& Mysore !ity Conversion of intermittent to -./0 continuous water supply system through systematic improvements and networ" rehabilitation %ysore City Corporation 1 (arnata"a *ater Supply 1 2rainage 3oard 4(U*S235 )ydraulic modeling$ 6etwor" design and preparation and implementation of Capital investment plan 7ehabilitation of citywide water distribution networ" 8 9bout : "m of pipeline 4dia. ;<= >< mm5$ 1. 3ooster ,ump houses$ 1. substations 1 related electrical wor"s Operation 1 maintenance of citywide water distribution system for ; years with fixed 1 performance lin"ed remuneration 1 ! deputation of govt staff to Jusco 3illing 1 Collection leading to increased revenue collections ?stablishment and %anagement of -./0 Customer Complaint centres 7s. 1;- million 0- %onths

+alue Co#pletio& ,i#e

-&dia.s lar(est /ater #a&a(e#e&t P0P0P Pro e!t till date !o1eri&( 2 #illio& plus populatio& a&d 234,444 ser1i!e !o&&e!tio&s

Slide: G. S. Basu, Pro e!t Stru!turi&( Su##ary

Per$or#a&!e 'ased Ma&a(e#e&t Co&tra!t

,hase 1+ Study ,hase 43aseline study5 ,hase -+ 7ehabilitaion ,hase ,hase >+ O1% ,hase 7emodeling 1 7ehabilitation of distribution networ"$ establishing 2%9s to convert intermittent to -./0 continuous water supply @ixed 1 ,erformance based fees

S5ari&( o$ 6is7s 'et/ee& Operator a&d U8B

Anvestment 4J66U7%5 7evenue collection 7is" with Operator 4limited5 ,erformance 7is" with Operator 2esign 1 Construction 7is" with Operator *ater supply operation 7is" with Operator 6on=performance with deputed Bovt staff

1. Tariff to be fixed by MCC 2. Operator to bill, collect and pass on the revenues to MCC

23444 pressurised 24x7 !o&&e!tio&s already !o##issio&ed

Slide: G. S. Basu, Se!tor 0 +, Salt 8a7e Pro e!t

"a#e o$ Pro e!t )e1elop#e&t 9 Ma&a(e#e&t o$ Water 9 Se/era(e "et/or7 at Salt 8a7e Se!tor0+ :;ol7ata< o& BO, 'asis $or =4 years 62AT9$ (ol"ata 4(%29 as Tech. @acilitator5 2esign and Construction of clear water UB7$ ,ump )ouse$ ?S7$ &aying of Clear *ater Transmission %ain 1 2istribution 6etwor"$ Anstallation of bul" 1 consumer meters 2esign and Construction of ST,$ A,S$ Sewerage 6etwor"$ O1% of all water 1 sewerage assets. 3illing and collection JUSCO='O&T9S Consortium shall design$ plan$ develop$ finance$ construct$ administer$ manage$ operate and maintain the ,ro#ect$ ,art=financing of pro#ect 4;<!5C 3alance ><! by J66U7% lowest water=cum=sewerage charges per (& criteria for bidder selection. Construction period = 1D months 8 8 7s. -; .0 million 7s. >. .0 million

Clie&t Jo' )es!riptio&

Salie&t *eatures

+alue Co&!essio& Period

*ater Supply Sewerage System > Eears

4 2st Water Se!tor P0P0P Pro e!t sa&!tio&ed u&der J""U6M Pro(ra#

Slide: G. S. Basu, Pro e!t Stru!turi&( Su##ary

Co&!essio& > BO,

Anvestment *ater 1 sewer networ" 2evelopment Operation 1 %aintenance Ancreasing service coverage and 7etail distribution 3ul" 1 consumer %etering 3illing 1 Collection

Ma or 6is7s /it5 t5e Operator

Anvestment ris" 2emand 7is" 7evenue 7is" ,erformance 7is" Construction 7is" Treated water availability

*ater Sector 7eforms and Antegrated *ater 7esource %anagement

*ater sector reform refer to the whole of a countryFs policies$ planning$ implementation$ and supporting activities to develop and manage its water resources and deliver water services to all users. 7eforms are premised on the need to address the current water crisis$ which is seen as essentially a crisis of governance that needs to be addressed through reforms in water resource management.

*ater Sector 7eforms and Antegrated *ater 7esource %anagement

Conservation *ater as a basic need *ater as an economic good Andividual property rights 2ecentraliGation and user participation Anstitutional reforms and privatiGation

6ational *ater ,olicies

1D:0 6ational *ater ,olicy - - 6ational *ater ,olicy+ There is stronger emphasis on principles underlying integrated water resource management. This document also has a focus of encouraging private sector participation. 6ational water policy provides that water should be allocated in the following order+ drin"ing water$ irrigation$ hydro=power$ ecology$ agro industries and non agricultural industries$ navigation and other uses.

6ational *ater ,olicies+ ?xceptions

Several states follow a similar ordering scheme. The main exception is %aharashtra policy$ which puts industrial use before irrigation. This appears to be a direct response to the *orld 3an"Fs critiHue of the fact that industrial use if often the last priority even though value added is usually greater than for water used in irrigation. An )imachal ,radesh environment is specifically mentioned as one of the priorities$ something that all states do not do$ but tourism and environment are put as a single priority.

6ational *ater ,olicies

,olicies emphasiGe the need for involvement and participation in the planning$ design$ development and management of water schemes. )owever the scope of participation under these policies is sometimes narrow. An 7a#asthan participation addresses only irrigation water. @urther$ participation is restricted to farmers who are users of irrigation water and it covers only the management of irrigation systems$ particularly in the water distribution and collection of water charges.

Understanding *ater Conflicts+ Conflicts over ?Huitable 9ccess

This refers to conflicts between different users between the same "ind of use. ?xamples= conflicts between middle class localities and slums over drin"ing and domestic water and that between big farmers and small farmers over access to irrigation. To tac"le the conflicts over allocation and access we need a better concept of rights or entitlements to water.

Understanding *ater Conflicts+ Conflicts over competing uses

An this case we need to understand the relative priority of different uses and may not be reduced to seasonal issues alone. ?xamples are conflicts between agriculture and industry over water use$ rural and urban needs where rural needs are steadily losing out. There is a conflict between preserving the eco system and also the needs of people depending on the eco system for their livelihood.

Understanding *ater Conflicts+ Conflicts over water Huality

The main issue here is how and in what form do users return water into the ecosystem. ,olluted water returned by users cause problems to downstream users$ and the decreased fresh water availability causes economic loss$ social distress and ill health. ,ollution control boards have been unable to control this problem.

Understanding *ater Conflicts+ Conflicts over water Huality

Uncontrolled sand mining from river beds or sea beds has a deleterious effect on stream flows. 9part from ecological aspects$ they impact on stream flows and sandy aHuifers$ deepening of river beds$ sub surface intrusion of saline water in coastal areas and erosion of the ban"s$ it also has impacts on the livelihoods of local people$ for example with decreased availability of water for both domestic and irrigation purposes as the well near the ban"s going dry. )owever sand mining provides seasonal employment to locals and is sometimes a ma#or source of revenue for local village councils.

Understanding *ater Conflicts+ Conflicts over dams and displacement

This has become a ma#or issue$ since providing for water in the dry regions of the country has meant submergence of villages leading to displacement of local people.

Understanding *ater Conflicts+ Conflicts over privatiGation

-.I0 water schemes or bottled water schemes are expensive that tend to exclude the poor. There have been instances that when water has been privatiGed$ the private sector has been given access to assured water supply for purification$ which meant that fishermen were denied the rights to fish in the la"e or river. There were bans on new installation of tubewells$ and people from the down stream areas complained of depleting ground water table.

Understanding *ater Conflicts+ Trans 3oundary Conflicts

There have been conflicts between neighboring countries over access to water$ and also between states over sharing of water resources. There are intra states conflicts too$ within 9ndhra ,radesh$ Telengana region is fighting over illegal allocations to other more politically more powerful regions and almost war li"e situation exist over ,othireddy ,adu$ 7a#olibanda$ or ,olavaram. *ater is a contentious and bitterly fought issue between the bac"ward regions of %arathwada and 'idharba and the comparatively better placed South %aharashtra.

Understanding *ater Conflicts+ Conclusion

There is a need to stop viewing water flowing into the sea as water going waste. This approach has led to a water management strategy that is centred solely on dams. %any of our mega pro#ects be it dams or inter=lin"ing of rivers treat water from this perspective. 9nother Huestion is who pays for water and how muchJ So far the urban poor and rural areas have paid much more for water directly or indirectly$ for the water especially from public sources.

Andian 7ailways The transformation

?volution
%uch of the initial railroad construction was led by private firms including the ?ast Andia company. These constructions were financed through investments from capital mar"ets in ?ngland bac"ed by 3ritish government guarantees. The princely states of 3i"aner$ Bwalior$ Jodhpur$ among others financed their own railroads as well. ?ventually the crown realiGed that the incentive structure for private contractors did not encourage savings. This was primarily because all ris" was borne by the state that guaranteed a <! return on investment.

?volution
9lternatively the had provisions to buy bac" the infrastructure if it was unprofitable for the private firms that built it. 9dditionally the state provided land gratis and reHuired its mail to be carried free of charge. Such public=private collaboration in the nineteenth century resembles the contemporary cost plus models with an assured rate of return. 9fter the revolt of 1:<0$ the 3ritish government decided to ta"e over the tas" of railway construction and management. 9fter Andian independence in 1D.0$ there were about .- railways that were all nationaliGed and consolidated into one single enterprise.

Operational Crisis of the 1D: s

An the period following nationaliGation of the railways$ there were some critical technological improvements. The old stoc" consisted of less efficient and high maintenance technology. The new stoc" consisted of better technology. @urther goods accepted both wagon loads and train loads. This created operational inefficiencies. The old and new stoc"s of wagons with different types of couplings and bearings were #umbled to form freight trains. Operational and management practices caused uncertainties and long delays in the entire freight operations= power plants awaited coal supplies and transportation of essential commodities such as food grains and petroleum products were severely constrained.

Operational Crisis of the 1D: s

%. S. Bu#ral ta"es over as chairman of the railway board and has a twofold strategy. @irst$ he segregated the old and new types of wagons= specifically the four wheelers from the eight wheelers$ screw coupling from centre buffer coupling and roller bearing from plain bearing. 9long with the separation of stoc"$ Bu#ral improved maintenance practices at the start of the train so as to abolish the practice of en route examination called Ksafe to runL at every . "m. This was replaced by an end to end examination. Second$ he abolished the practice of accepting less than a trainload of freight and introduced the concept of bloc" and Mpoint to pointF trains$ thus eliminating the need to halt trains en route. *ith the operational changes$ not only did trains roll faster$ but they also increased the amount of freight transported. There was a fourfold increase in freight carried in the decade following the reforms compared to the previous decade.

@inancial Crisis in -

An - 1 railways faced a severe financial crisis. At defaulted on the dividend payments to the government of Andia$ its cash balances shran" to a paltry 7s. ><D crore$ and the railways did not earn enough to replace aging assets resulting in large replacement arrears. The profitable freight business was recording a >! growth and its expenses grew faster than revenues. The financial condition was unsustainable and the railways was on the verge of ban"ruptcy. *ith the currency crisis in 1DD1$ the government of Andia started liberaliGation of the economy$ the reforms reduced the barriers to trade$ reduced tariffs on import of intermediate and finished goods.

@inancial Crisis in -

9s a result of these reforms$ firms began feeling the competitive pressures from domestic and international firms$ because in a liberal trade regime domestic prices of tradable goods and services converged with international ones. This is particularly true since the cost of international freight has been declining. An response to the stiff competition from domestic and international firms$ producers began reviewing their cost structures including total logistics costs= namely cost of transportation$ inventories$ multiple modal transfers$ delays and damages. There was a sharp decline in the ability and the willingness of the central government to provide budget support through fiscal transfers for capital expenditure needs or recurring expenses li"e the increase in wages due to the fifth pay commission.

@reight ?HualiGation Scheme

Under this scheme$ the cost of transport of some bul" commodities li"e steel and fertiliGers was neutral to the lead of transportation as the difference was paid by the excheHuer through a subsidy. The producers were not concerned about the costs of transportation because they could pass on these costs to the state. &iberaliGation began dismantling this arrangement. @irms became cost conscious and began see"ing cheaper transport services. @iercely competitive road transport was increasing acHuiring railway mar"et share. There were increasing competition from international logistics firms international logistics firms$ shipping industry and oil pipelines.

7a"esh %ohan Committee

The government appointed the 7a"esh %ohan Committee to suggest corrective measures. An the expert view there were five essential contradictions that the railways had to resolve. @irst$ the conflicting priorities between the politician and the bureaucracy. The Andian railways was heading towards a ban"ruptcy since ministers meddle with financial allocations resulting in poor choices of investment in politically motivated un=remunerative pro#ects. Cross subsidiGation of passenger fares through freHuent increases in freight tariffs was eroding the mar"et share in freight$ the profitable segment of the business. To subsidiGe sleeper class passengers$ premium class passenger segments were taxed$ due to which railways was losing customers to budget airlines. Second since policy ma"ing$ oversight functions$ railway ownership and management are all concentrated in a monolithic organiGation there is lac" of accountability.

7a"esh %ohan Committee -

Third$ the railways indulged in a variety of non=core activities that ranged from in=house manufacturing and maintenance of engines$ and carriages and even to catering. 9dditionally it was burdened with social obligations of running hospitals and schools$ yatri niwas hotels$ training institutions and providing employee housing. This distracted the railway authorities from the core business of running trains. @ourth$ there was a fiscal crunch due to declining budgetary support through central government transfers. To ma"e up the gap in investment needs$ the railways borrowed from the mar"ets. @inally$ there was an army of railway employees and their ever increasing salaries and pension liabilities. *here staff costs accounted for half the total costs$ the implementation of the fifth pay commission recommendations would act as the last nail in the coffin.

7a"esh %ohan Committee= 7ecommendations

1. Unbundle the institution into separate roles= policy ma"ing$ regulation and management= by corporatiGing railways and establishing an independent regulator$ specifically for tariff setting. -. ,rivatiGe non core activities li"e health care$ education$ production and maintenance of trains. >. 7educe the 1.; million staff by -<! per cent. .. 7educe cross subsidy$ hi"e fares for the second class passengers by :=1 per cent every year for five years. <. Separate social and commercial obligations.

?nter &aloo Eadav= the new 7ailway %inister

&alooFs position on policy issues was the converse of the recommendations proposed by the %ohan Committee and other international expert groups. Steps ta"en by him were exactly in contrast with what had been recommended. 7etrenchment was recommended$ but railways was used for employment generation. 7eplacing plastic cups by "ulhads 4clay pots5$ replacing synthetic upholstery with hand woven cotton cloth$ and hiring - $ coolies as railway staff for the post of gangmen 8 wor"ers for railway trac" maintenance. The experts had recommended a hi"e in loss ma"ing passenger segments and establishment of a tariff regulator. An contrast railways did the reverse$ reduced fares in each budget and in every travel class.

?nter &aloo Eadav the new 7ailway %inister

@urther$ the minister was of the opinion that as an elected representative of the people$ he was in=charge of the ministry of 7ailways$ and answerable to the people via ,arliament$ he could not devolve the role of determining tariffs to an autonomous entity= an independent tariff regulator. Thus he wanted independence from a regulator in deciding tariffs as opposed to independent regulation. The %ohan committee and international experts had recommended corporatiGation and divestiture from non=core businesses. )owever$ the minister planned new rail wheel factory in Chhapra$ a diesel factory in %aruhara and an electric locomotive factory all in his home state 3ihar. 9 fourth factory to manufacture railway coaches was to be built in 7ae 3areli the constituency of Sonia Bandhi.

.= ?nter &aloo Eadav the new 7ailway %inister

The railways acHuired sic" freight wagon factories from 3harat *agon and ?ngineering Company in 3ihar and from the %inistry of )eavy Andustries$ Bovernment of Andia. At also acHuired scrap and land from the 2almianagar industrial complex in 7ohtas to build factories for manufacturing essential components of all wagons. *hile the expert group saw these investments as a distraction from core business$ &aloo saw them as a political necessity. The %ohan committee had criticiGed investments in un=remunerative pro#ects li"e construction of new railway lines$ urban railway transportation$ and uni=gauge policy. )owever$ between - < and - :$ .1 new pro#ects were approved at the expense of 7s. 1 $< crores. 9dditionally experts expressed concerns about 7ailways giving priority to loss=ma"ing passenger trains$ as opposed to securing space for profit ma"ing freight trains. Eet$ 1< new passenger trains were announced.

.= ?nter &aloo Eadav the new 7ailway %inister

@inally experts had recommended that the 7ailways should isolate its total social burden and see" central government subsidies for the same$ the 7ailways substantially added social obligations$ even though the government lac"ed the fiscal space and willingness to offer subsidies. The expert group recommendations were textboo" solutions for restructuring the Andian 7ailways= unbundling and separation of social and commercial functions$ retrenchment$ independent regulation$ corporatiGation and fare hi"es. %uch of the proposed reforms would pose a burden to the common people$ at least in the short term$ which is why they were not done in the first place.

Crafting the Space for 7eform

Commercially Viable

Commercially Unviable

Outcome1:WinPoliticallyDesirable Win Outcome2: E clusively Commercial "eturns

Outcome3: E clusively!ocial "eturns

Politically Un#esirable

Outcome4:$ose$ose

?xamples
*in=*in+ Ancreasing the length of a popular passenger train enhances earnings per train$ and is welcomed by consumers because it helps to clear long waiting lists. ?xclusively commercial returns+ Ancreasing passenger fares in second class ordinary passenger trains. ?xclusively social returns+ %aintaining loss=ma"ing railway routes 4or opening new ones5 for marginal communities in remote areas.

Crafting the Space for 7eform

At was found that about : ! of the investments have little political repercussions. These allocations can be mar"et based and based on operational and commercial reHuirements such as route=wise planning of congested high=density networ"s where demand far exceeds supply. 7oute wise planning reHuires all departments to channel their efforts into getting all the technical and operational details right= from trac" stations$ and signaling to scheduling and running trains. 2espite discussions on this matter over decades$ the 7ailways was unable to act$ not because of political interference$ but because of deep rifts between functional silos that are organiGed into departments.

Crafting the Space for 7eform

Only --! of the mar"et revenue are politically sensitive$ coming from second class passenger fares. The rest 0:! of the revenue is from apolitical segment of customers= all freight$ parcel and high end passenger segments. This segment can be managed on commercial principles but the 7ailways lac"ed a business orientation in the past. The social cost of retrenchment$ divesting$ and other cost cutting measures are high and so they are politically infeasible operating expenses. )owever$ if the number of employees cannot be reduced$ but if trains carry more goods$ or there are more trains with the same number of employees$ unit costs decline. 7eformers focused on pro#ects that enhanced the capacity of the lucrative freight business. 9lternative routes for congested railway lines were discovered through route=wise planning for these gauge conversion wor"s.

Crafting the Space for 7eform

6early half of the gauge conversion pro#ects were helpful in capturing additional freight business and were therefore commercially viable. Some examples of alternative routes are lin"s to ports and connectivity to cement plants$ marble and granite Huarries. 9lthough revenues from running intra=city trains may be un= remunerative given that a number of people use it everyday$ there is a huge possibility of earning advertisement and sponsorship revenues. 3ased on the perception of affordability$ the railways charged less for transporting low value bul" commodities li"e iron and manganese ores than cement and steel. Commodity prices of iron ore was booming and there was no reason to "eep it low.

Crafting the Space for 7eform

Similarly food grains and fertiliGer transport was subsidiGed. )owever$ since food grains and fertiliGer prices are set by the Bovernment of Andia and the differential between the cost and the fair price is borne by the Bovernment$ there was no problem in raising the freight rate on these items. An conclusion the spirit behind the analysis was to accept the political engagement not as an interference but as a democratic mandate and wor" towards an inclusive transformation. An return for the bureaucracyFs acceptance of the political mandate$ the political leadership had to earn trust with self discipline$ namely with non=interference with day to day affairs of the bureaucracy.

3usiness ,ortfolio
@reight ;.! ,assenger >1! %iscellaneous <!

@reight+ An the early 1D: Fs the railways stopped accepting piecemeal freight and focus on hauling bul" commodities. 9fter that freight consisted of bul" commodities such as coal$ iron ore and other minerals$ food grains petroleum products$ fertiliGers$ iron steel and cement.

3usiness ,ortfolio
The expert committee attributed the declining mar"et share in bul" commodities to cross=subsidiGation of passenger services by freight$ poor Huality of services$ and the national highways expansion= the golden Huadrilateral and its diagonals made the road sector more competitive. 3ut these factors affected all commodities eHually$ mar"et share of finished steel and cement has been declining since 1DD Fs$ during the same period$ the share of iron=ore$ coal and other minerals remained stable. 3oth iron ore and steel are heavy commodities. 3ut there is a distinction as well. To transport iron=ore for a firm li"e Tata Steel in Jamshedpur$ the railways provides door to door service$ from the mine pithead to the factory. Thus for Tata Steel$ the total logistics is eHual to the rail freight charges and other costs are negligible. @urther$ rail freight charges are substantially lower than truc" transport charges. Therefore the 7ailways had a comparative advantage in the transportation of iron ore over short distances and could increase freight charges.

3usiness ,ortfolio
@or the transportation of steel$ the 7ailways provides station to station service to ?ssar Steel$ a private steel company. An addition to the rail freight$ incremental costs are due to multiple transfers$ bridging$ warehouse fees and other expenses. These additional costs add up as a significant component of the total logistics cost$ and can exceed the cost of rail freight itself. Therefore 7ailways is uncompetitive transport service provider for a distance of 0< "m or less$ even for longer distances$ its competitiveness is mediocre.

,assenger 3usiness
DD! of the passenger business is politically sensitive. )owever$ this segment offers several opportunities to increase earnings and reduce losses. The yield per train depends not only on the number of coaches in a train$ the combination of coaches that form a train$ occupancy rates$ and the number of seats in a coach. At is not true that the occupancy rates in all trains is 1 !. At is so for pea" tourist seasons. So demand modeling to maximiGe occupancy rates holds immense potential for higher earnings.

,assenger 3usiness
The combination of coaches that constitute a train has an impact on profitability. Of the seventeen coaches in a 7a#dhani train$ two coaches provide no revenue and two offer very little revenue. These include two pantry cars and two power cars cum bra"e vans. The remaining thirteen coaches include seven three tier$ five two tier and two= first class coaches. Thus the profitability of a train can be improved by manipulating the way in which coaches are added or subtracted. 9 train with 1; coaches runs at a loss. 9s coaches are added to the train$ it brea"s even at - coaches. *ithout increasing passenger fares$ as the length of a train is increased to -. coaches.

The Turnaround
The Andian 7ailways was transformed between - . to - :. At graduated from near ban"ruptcy in - 1 to USN ; billion annual cash surplus in - :. At was mainly done through running faster$ heavier and longer trains.

Some Annovations in the ,ricing Strategy

Tat"al Service+ 9 limited number of seats were given at a higher price a few days before the #ourney date. This lead to more revenue. 9uto Upgradation Scheme+= An case of vacant seats in higher classes$ some lower class passengers were randomly selected and upgraded to a higher class. This ensured that waiting lists were cleared$ and the train runs at full capacity.

Some ,,, ,ro#ects of Andian 7ailways

Container Corporation of Andia &imited 4CO6CO75 Andian 7ailway Catering and Tourism Corporation &imited 4A7CTC5 ,,, in @ood ,laGas ,,, in budget hotels and Eatri 6iwas ,,, in internet tic"eting

7eferences
3an"ruptcy to 3illions+ )ow the Andian 7ailways Transformed$ by Sudhir (umar and Shagun %ehrotra$ Oxford University ,ress

,rivate ,articipation in Andian 7ailways+ The case of container movements

Andian 7ailways has recently opened up container movement in Andia to private sector participation. ?arlier it was exclusively reserved for Container Corporation of Andia 4CO6CO75. CO6CO7 is a public sector enterprise under the %inistry of 7ailways$ Bovernment of Andia$ started operations in 1D:D$ and was set up with the ob#ective of developing modern multimodal transport logistics and infrastructure to support AndiaFs growing international trade as well as encourage containeriGed movement within the country.

,rivate ,articipation in Andian 7ailways+ The case of container movements

The %odel Under the mechanism introduced for container segment$ applicants have to pay a registration fee while applying. 9ll the entrants including CO7CO7 are reHuired to sign a %odel Concession 9greement 4%C95 with Andian 7ailways.

6otable features of the %odel Concession 9greement

Anterested companies can ta"e route=specific or all=Andia permission by ma"ing a one=time payment of 7s 1 =< crore depending upon the extent/scope of service. Operating permission would be granted for - years$ which can be further extended to another 1 years to transport export=import 4?OA%5 and domestic traffic. The private operator will have to ma"e their own arrangements for a rail=lin"ed Anland Container 2epot 4AC25 by leasing it from AC2 owners or by creating their own. The private operators also have to procure flat wagons for transporting containers$ whereas 7ailways would provide locomotives. @inal freight tariffs for the containeriGed traffic will be left to the individual operator. ,layers can exit operations by transferring the permission to another eligible operator.

,roblems of ,rivate ,articipation in Container %ovements

9lthough$ a total of 1< players have bought the license for operations in the container sector$ only 0 have started operation after more than a year of opening up of the sector. The reasons for low participation are as follows+ 8a&d+ 2espite having the reHuisite license to operate container trains$ : of the participants have been unable to start their operation primarily due to lac" of terminal facilities and rail=lin"ed AC2s 4Anland Container 2epot5. The %inistry of 7ailways$ in its policy mentions that the operators should build their own AC2s within the first few years. )owever$ sta"eholders have expressed concern that cost of procuring land for operations has become a ma#or entry barrier for these private players.

,roblems of ,rivate ,articipation in Container %ovements

8a&d Some sta"eholders have also mentioned that with land prices spiraling at strategic places$ it is hard to set competitive prices for their services. These AC2s have to be rail lin"ed and therefore land is reHuired at strategic locations and often such areas belong to A7. ,rivate sta"eholders stressed upon the need for government/7ailways help in acHuisition of land on the same terms as it is given to CO6CO7.

,roblems of ,rivate ,articipation in Container %ovements

Co#petiti1e&ess a&d ,ra&sit ,i#e Guara&tee One of the "ey concerns of the private players is the competitive pressure applied by the roadways on the railways container movements. The players feel that the scope of profitability in the mar"et will primarily depend on the competitiveness of railway with respect to roads. ,rivate sta"eholders expressed their concern over A7 not giving them the guarantee of transit time. Transit time guarantee is the assurance by the railways to deliver the container within the stipulated time since the A7sF locomotives within their systems pull the container wagons.

,roblems of ,rivate ,articipation in Container %ovements

Co#petiti1e&ess a&d ,ra&sit ,i#e Guara&tee An the absence of transit time guarantee private players are finding it difficult to compete with roads. @urthermore$ private sta"eholders have claimed that although there is no transit time guarantee in the agreement$ CO6CO7 due to its relationship with 7ailways has been able to ensure the timely delivery of their containers. A7 is of the view that given the congestion on trac"s presently transit time guarantee can be given only after the construction of 2edicated @reight Corridors 42@Cs5.

,roblems of ,rivate ,articipation in Container %ovements

8a!7 o$ a 8e1el Playi&( *ield CO6CO7$ since its inception$ benefits from a close relationship with the Andian 7ailways. Andian 7ailways owns ;>! of CO6CO7Fs eHuity. Andian 7ailways has provided land for construction of terminals. The 7ailways maintains CO6CO7Fs wagon fleet. Officers on deputation from the Andian 7ailways hold senior and middle management positions in CO6CO7.

Tata ?nergy 7esource Anstitute 4T?7A5 officials doing this study identified the following areas where the present mechanism lac"s a level playing field. ,ayment %echanism 9llocation of &and

,roblems of ,rivate ,articipation in Container %ovements

8a!7 o$ a 8e1el Playi&( *ield: ,ayment %echanism 9t present$ CO6CO7 pays its haulage charges to the 7ailways in advance$ on a fortnightly basis or has the option to raise a credit of 1< days. On the other hand$ new container operators have to follow a longer process and pay haulage charges on a per train basis. 9s they do not "now the precise weight of their goods that has to be carried$ they cannot decide on the total amount for which the draft has to be made. )ence$ new container operators get their containers weighed in the presence of the 7ailwaysF goods cler" and pay the reHuired amount through demand drafts.

,roblems of ,rivate ,articipation in Container %ovements

8a!7 o$ a 8e1el Playi&( *ield: ,ayment %echanism Such long process for settling accounts is expected to lead to time and resources loss for the affected parties$ and may affect their competitiveness vis=P=vis the incumbent. At is suggested that the Andian railways may consider adopting the same process for account settlement. Officials from A7 have stated that given the long relationship with CO6CO7 the ris" of default with latter is less.

,roblems of ,rivate ,articipation in Container %ovements

8a!7 o$ a 8e1el Playi&( *ield: 9llocation of &and Several of CO6CO7Fs terminals are situated on leased railway=land$ which was granted to CO6CO7 on its inception and owing to old lease agreement$ is at a very nominal cost compared to current real estate prices. The new entrants in the sector have to pay a much higher price if they are to procure land given the current real estate prices. Biven this tremendous cost advantage it is very hard for the new operators to compete with CO6CO7 in terms of operational cost. The entrants feel that the 7ailways should provide them land on the same terms that it extends to CO6CO7$ which is not the case presently.

,roblems of ,rivate ,articipation in Container %ovements

?'use o$ )o#i&a&!e: ,ricing and 2iscounts CO6CO7 with D<! mar"et share is no doubt in a dominant position 27. %ost of the present of the built AC2/Terminals used for container purposes belong to CO6CO7. Biven the enormous infrastructure base of CO6CO7$ private players feel that it is hard for them to compete with CO6CO7 in prices of the final services$ until they build a sound infrastructure base. 9t present$ private players are simply following CO6CO7Fs lead in setting prices.

,roblems of ,rivate ,articipation in Container %ovements

?'use o$ )o#i&a&!e: ,ricing and 2iscounts ,rivate operators claimed that as CO6CO7 owing to wider scale of operation can undercut prices 4to retain its customer base5 where it feels the competitive pressure and compensate the loss by hi"ing prices in the mar"et segment where private cannot efficiently compete with the former. 9lso in order to capture higher volumes$ deter competition and gain mar"et share$ CO6CO7 has been increasing discounts on the high traffic routes of 6ational Capital 7egion 46C75 to J6,T/%undra ,ort/,ipavav ,ort. )owever$ with CO6CO7 having a considerable advantage in the initial stages with respect to lower operating cost$ it is imperative for the policyma"ers to protect the new entrant from the ill affects of predatory pricing$ if adopted by CO6CO7.

,roblems of ,rivate ,articipation in Container %ovements

?'use o$ )o#i&a&!e: 9ccess to Anfrastructure CO6CO7 also en#oys a distinct strategic advantage by virtue of its 4AC25 locations$ which have railhead connection and which therefore eliminates multiple handling and transportation. %a#ority of CO6CO7 terminals are rail=lin"ed$ with rail as the main carrier for haulage. Biven current level of land prices$ it would be difficult and in some cases unnecessary$ to duplicate infrastructure. 9t present$ if the new container operators want to use CO6CO7 owned AC2s for running container trains$ they have to pay access charges.

,roblems of ,rivate ,articipation in Container %ovements

?'use o$ )o#i&a&!e: 9ccess to Anfrastructure The level of access charges$ as decided by CO6CO7 4even for the AC2s on strategic places built upon 7ailways land5$ is considered very high. %C9 states explicitly that new operators have to build their own AC2s/terminals or will have to lease the existing ones. )owever$ a fair access policy for all the AC2Fs developed by the incumbent on railways land can promote competition where duplication of such infrastructure may be not feasible An order to solve these issues$ it may be best to appoint an independent regulator to loo" after the interests of the private players as well as the government.

,rocurement in Andian 7ailways

Co#petitio& Co&!er&s i& Pu'li! Pro!ure#e&t ,rocurement in the Andian 7ailways also suffers from such anti= competitive practises$ li"e any other public procurement. 9udit reports by the Comptroller and 9uditor Beneral 4C9B5 of Andia submitted to ,arliament during earlier years have been highlighting anti= competitive practices in 7ailways procurement. These anti competitive practices manifest themselves primarily in the form of collusion amongst vendors. Corruption has further aggravated this problem. 7ailways have initiated a number of corrective steps and issued directives for streamlining the procurement processes to bring about efficiency in material management.

,rocurement in Andian 7ailways+ 2ecentraliGing Stores ,rocurement 4- 15

7ailway 3oard decentraliGed procurement of .< stores items and gave powers to B%s of Gonal railways and 7,Us to procure items at their level. 3efore the decentraliGation$ the advantages 4of centraliGed procurement system5 such as cost effectiveness of bul" purchase were overshadowed by the long time ta"en in processing and finaliGation of tenders at the apex level and inability to monitor vendor performance and behavior at the delivery level. The primary aim of decentraliGation was to expedite the procurement process and ensure timely availability of material by bringing the procuring authority closer to the end user 4Gonal railways/7,Us5. 2ecentraliGed procurement was aimed to give the Gonal railways/ 7,Us better control over the procurement process resulting in reduced lead=time$ timely availability of material and better management of supplierFs performance.

,rocurement in Andian 7ailways+ 2ecentraliGing Stores ,rocurement 4- 15= Criticisms

An the centraliGed procurement regime$ Qonal 7ailways and 7,Us sent their reHuirements to the 7ailway 3oard$ which consolidated the reHuirements and floated tenders for the consolidated reHuirements$ thus resulting in fewer interactions between the competing firms in the mar"et. Though the tendering process in the decentraliGed period had been expedited$ the benefits of the time gained have been eroded by the lac" of information sharing by the Qonal 7ailways and 7,Us. The 7ailway 9udit 7eport 4- ;5 highlighted wide variations in the rates for the same items in the same year between various Gonal railways/ 7,Us indicated the existence of bid rigging.

,rocurement in Andian 7ailways+ 2ecentraliGing Stores ,rocurement 4- 15= Criticisms

An 1 out of the 1D items reviewed in the 7ailway 9udit - ;$ the variation between the maximum and minimum rates finalised over various Gonal railways/ 7,Us ranged between D0 per cent and 101 per cent over pre= decentraliGed period prices. The same vendors bidding for different Gones and 7,Us Huote different prices. To reduce the power of cartels the procurement officials should reduce the number of opportunities in which these firms meet. This might be achieved for example$ by holding fewer$ larger tenders$ as was the case in the centraliGed procurement in railways or by devising mechanism of efficient information sharing between different Gones and 7,Us.

,rocurement in Andian 7ailways+ 'endor 2evelopment Cell 41DDD5

7ailway 3oard issued directives to establish 'endor 2evelopment Cells 4'2C5 in all Gones/7,Us to carry out vendor rating for assessing the technical and financial capability of firms both in terms of Huality and Huantity and to strengthen the control over vendors and suppliers. An addition to this the source approving authorities were reHuired to maintain files containing records of Huality and delivery performances of the vendors. These files were to form inputs to the tender accepting authorities at the time of consideration of future tenders.

,rocurement in Andian 7ailways+ Clause against cartel formation 4- -5

To deal with carteliGation in the procurement procedure 7ailway 3oard issued instructions to include the following conditions in all tender documents+ *herever all or most of the approved firms Huote eHual rates and cartel formation is suspected$ 7ailways reserve the right to place order on one or more firms with the exclusion of the rest$ without assigning any reasons there for. @irms are expected to Huote for a Huantity not less than < per cent of tendered Huantity. Offers for Huantity less than < per cent of tendered Huantity will be considered unresponsive and liable to be re#ected in case cartel formation is suspected. 7ailways$ however$ reserve the right to order on one or more firms any Huantity.

The firms that Huote in cartel may be warned that their names are li"ely to be deleted from list of approved sources.

,rocurement in Andian 7ailways+ %oderniGing ,rocurement ?=procurement

9nother way to put a cap on anti=competitive practices is to moderniGe public procurements procedures. Andian 7ailways have implemented e=procurement in the 6orthern 7ailways in %ay - < and is planning to expand it to twelve more Gones and 7,Us in the 7ailways by end of - :. At facilitates wider range of participation as the submission of bids is conducted through Anternet thereby attracting bidders from far=flung areas and also by reducing cost of bid preparation thereby attracting smaller bidders. At also$ limits information available to the cartels. The electronic submission of bids by the vendors restricts ability of cartels to monitor new entrants and deviation by the cartel members. %oreover$ due to electronic nature of this medium it is easier to conduct Huantitative analysis of the bidding data. The firms that Huote in cartel may be
warned that their names are li"ely to be deleted from list of approved sources.

,rocurement in Andian 7ailways+ %oderniGing ,rocurement ?=procurement

3roadly$ from the case studies of different procurement agencies$ which have adopted e=procurement$ across the world following "eys benefits have achieved+
@all in the average prices 7ise in the number of participants @all in the cases of anti=competitive practices 9ndhra ,radesh is one state which adopted ?=procurement in a big way and gained immensely.

Types of competition in 7ailways

-&ter0#odal !o#petitio&$ which is Huite significant in the in the goods segment which can be transported through different modes. Therefore$ 7ailways compete with other modes of transport such as roads$ waterways that are effective substitutes for 7ailways. 7oads can be used to transport almost all "inds of goods except the heaviest bul" commodities$ for which waterways can be the option.

Types of competition in 7ailways

i&tra0#odal !o#petitio&0 competition within the sector 9cross countries this was introduced by inviting private sector participation in rail sector$ which was otherwise a government monopoly. To identify specific areas where competition can be introduced$ it is necessary to understand the structure of the rail industry. The rail industry is basically a cluster of different activities. The most important of these activities are construction and maintenance of rail infrastructure 4trac"s$ signals$ depots etc.5 and operation of trains.

Types of competition in 7ailways

The rail infrastructure involves a large fixed cost and a comparatively small marginal cost of operation. Since trac" infrastructure is widely ta"en as a Mnatural monopolyF the scope$ for competition in this segment is limited. On the other hand$ the train operations are limited in economies of scale and are potentially competitive by nature.
The governments across the world have introduced various measures for introducing competition. The ma#or measures include vertical separation$ vertical integration with access regulation and vertical integration with horiGontal separation.

,ro Competition 7eforms

'ertical Separation 'ertical Antegration with horiGontal separation 'ertical Antegration with access regulation 9utonomous 7egulator

'ertical Separation
At has been seen$ from different competition studies 4not only in railways5 that a vertically integrated operator has a strong incentive to discriminate against other train operators if the service provided by other operators directly compete with service of the integrated operator 4for instance$ an integrated freight service operator discriminating against a non=integrated freight service operator5. Therefore$ certain changes maybe necessary to promote new entrants in train operations to encourage competition.
'ertical separation involves separation 4in ownership5 of trac" infrastructure and train operations. An this "ind of a separation$ competition occurs between different train operators on the trac"$ which is provided by an independently owned entity.

'ertical Separation
One of the main reasons for separating infrastructure from train operations is to eliminate any possible discrimination against other train operators and to provide level playing field to all the operators on the infrastructure. %oreover$ vertical separation also leads to transparency in financial flows. Through$ creation of two independent organiGations$ government can better target its subsidies for enhancing infrastructure and other relevant services. This will prevent infrastructure subsidies being utiliGed for subsidiGing train operations. 'ertical separation can be done either by separating accounting arrangements or through separation of management.

'ertical Separation= 2rawbac"s

@irst is the increase in transaction costs. @or instance$ maintenance of trac" leads to delays and cancellation of certain services. An such a case the independent trac" owner may have difficulties in cancelling certain services$ as it does not "now the true profitability of services. Second$ efficient pricing of use of trac" is not possible in case of vertical separation. This is because$ trac" operator may not be able to price access to trac" efficiently as it may not "now the nature of goods being carried. @or eg. @reight operator transporting coal needs to be charged different prices than a freight operator carrying automobiles. Third$ there is a loss of economies of scope$ which arises from the #oint operation of trac"s and trains. Therefore$ it can be argued that separation is sub=optimal and erodes the competitiveness of railways against other modes
of transport.

'ertical Antegration with horiGontal separation

Under this approach$ the rail industry remains vertically integrated but it is divided into several route=based companies that operate in specific geographic mar"ets. )ere the scope for competition is limited. %ore specifically$ competition is enhanced in only those cities that are located on the border of two regions .

'ertical Antegration with access regulation

Under this approach$ the incumbent remains vertically integrated 4although there may be limited amount of horiGontal separation5$ but it is reHuired to provide access to its trac" to other competing train operators under regulated terms and conditions. An this approach$ there is scope for competition between the non=trac" owning train operators and the vertically integrated incumbent. )ere$ the incumbent has an incentive to provide non=discriminatory access to the trac"s to competing train operators where they do not compete directly with it. On the contrary$ if the operators compete directly with the incumbent$ it has a strong incentive to limit access. 9ccess charges are monitored by an independent regulator$ which ensures non= discriminatory access to incumbentFs trac"s.

9utonomous 7egulator
9n important aspect that reHuires due consideration while developing railways sector is the establishment of a railways regulator. ?xistence of an independent regulator is essential to ensure non= discriminatory access to infrastructure and facilities and to monitor anti= competitive behavior among the mar"et players. At is important to note that the role of a regulator should not be limited to monitoring access charges$ Huality standards should also be set and service provided by the operators should be monitored. The presence of a regulator is also important to safeguard interests of the consumers and enhance overall efficiency and performance of the railways. 9ccess charges are monitored by an independent regulator$ which ensures non=discriminatory access to incumbentFs trac"s.