MoU signed between Ministry of Railways and Government of Telangana for “Formation of Joint Venture Companies

Memorandum of Understanding (MoU) between Ministry of Railways and State Government of Telangana for “Formation of Joint Venture Companies for Development of Railway Infrastructure in the State of Telangana” has been signed 11.02.2016.

Salient Features

  • In view of the growing demands for railway lines in various states and huge requirement of funds to execute them, Minister for Railways announced in his budget speech regarding setting up of Joint Ventures with states for focused project development, resource mobilization, land acquisition, project implementation and monitoring of critical rail projects.
  • 17 State Governments consented for formation of Joint Venture Companies in collaboration with the Ministry of Railways for development of rail infrastructure in their respective States.
  • MoUs have already been signed by the Ministry of Railways with the State Governments of Odisha, Maharashtra, Andhra Pradesh, Kerala and Chhattisgarh.
  • The MoU envisages formation of a Joint Venture companies having 51% stakes of the respective State Government and 49% stakes of Ministry of Railways. Thus, the JV companies shall be fully owned by the Government. The companies will primarily identify projects and possible financing avenues in addition to Govt of India and the State Governments. After finances for a project are tied up, project specific SPVs or special purpose vehicles shall be formed. These SPVs can have other stake holders from Industries, Central PSUs, State PSUs etc. However, the JV companies shall be  mandatory stake holders with minimum 26% shares in the SPVs.
  • The Ministry of Railways will sign a concession agreement of 30 years with the project SPV for safe and sound operation, revenue sharing and providing technical & marketing logistics to the SPV. The revenue sharing shall be based on already established formula being used for inter zonal apportionment of revenue.
  • The most important aspect of this MoU is that the ownership of the land shall vest with the SPVs which is a departure from previous practice. This will give financial leverage to the company to exploit commercial potential of the land.
  • At the end of concession period, the railways will have option to take over the assets at a nominal price. This is largely in line with average codal life of the assets as most of the assets will need large scale replacement after 30 years.
  • To expedite the projects, Railways have been trying to mobilize resources through other than Gross Budgetary Support. However, on the initiative of Minister for Railways Sh. Suresh Prabhu, Indian Railways have tied up funds for critical capacity enhancement project of doubling, third line , electrification etc. An MoU was signed with LIC of India and we have already taken first tranche of Rs 2000 Cr for these projects. This tied up loan will ensure dedicated and assured funding for such critical projects.
  • Indian Railways have targeted to commission 2000 Km New Lines, 4000 Km Gauge Conversion and 11000 Km Doubling/Tripling/ Quadrupling projects over 5 years i.e. from 2015-16 to 2019-20.
  • Formation of Joint Venture Companies with the State Governments will go a long way in faster commissioning of critical rail infrastructure projects as it will not only help in mobilization of funds but also in facilitating various clearances and land acquisition.

-Press Information Bureau

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