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Open to talks with sovereign funds, PE firms: Suresh Prabhu

The ministry has been relying on Finance Ministry for financial support, but the Railways has adequate funds for at least 5 years, said Railway Minister Suresh Prabhu.

In an exclusive interview to CNBC-TV18’s Shereen Bhan, Prabhu said the national transporter is losing money due to lack of investment in scale of operations. He feels dedicated freight corridors will help bring in more investments. Even tax-free bonds are a good avenue available to Railways, he said.

Prabhu said the ministry is in advanced stage of negotiations with agencies like IMF and World Bank. Stating that the ministry is not ruling out any avenue of fund raising at this stage, the Prabhu said he is even open to talking to sovereign funds and private equity firms for funding. “The cycle of under-investing in Indian Railways is hopefully behind us,” the minister said.

Below is the transcript of the interview 

Q: The government has now decided to prorogue the Rajya Sabha session or this parliament session which means that you are going to be repromulagating the land ordinance? 

A: I can tell you something which I know, cannot tell you something which I don’t know. 

Q: You won’t say anything more than that? Repromulgation of the earlier ordinance or a new ordinance, what is the likelihood?

A: What I can tell you is that ordinance or otherwise it is very important for India that how do we progress? How do you remove poverty, how do you eradicate this ill that people have to keep suffering because of lack of employment opportunities? How to bring in more wealth to the rural population? How can their children to better education? All of that would need huge investment into infrastructure. However infrastructure investment is a financial issue. However what is important is the underlying issue that is land. Without land we cannot create infrastructure and without that we cannot remove poverty and all the social ills that we suffer from.

Q: Let us talk about the financial situation of railways. Rs 8.5 lakh crore that is what you have articulated over the 5 year period, Rs 4 lakh crore towards expanding and decongesting the network which is a key priority area for you that amounts to USD 138 billion over the next 5 years. Particularly for this year the railway capex is up 52 percent to ver Rs 1 lakh crore. You are now talking about budgetary support of Rs 40000 crore. You have of course talked about market borrowing, you have talked about infrastructure bonds, you have talked about tying up with people like the LIC where you have signed up an MOU worth Rs 1.5 lakh crore over the next 5 years, adequate funding in place now?

A: Absolutely. This is unprecedented that we are thinking of making such huge investments into railways. The question is whether we need it or not? First it is important to answer the question whether do I need this investment in railways or can railways live without investment? We have avoided this question for too long. We kept postponing this investment decision for too long a period. If you look at it many of the delays in the railways – the punctuality which has suffered, the accidents which happen, the time it takes, the speed has gone down. Goods trains have no timetable, the amount of money that we lose is all because of scale of operations, because we have no invested adequately into this. So, investment is needed. Then the question that follows is where do you get the money from? Traditionally railways have been relying on ministry of finance to give gross budgetary support. You must understand that ministry of finance is also under serious strain. We have given almost more than half of the money to the states now. So, therefore centres ability to put in money into some interesting project is also little bit under stress. In such a situation I must ask from finance ministry but must realise their limitation. Again the ministry of finance is also borrowing in the market. So, what we thought was we will rely on ministry of finance support but we will not restrict our investment only based on the amount of money that we get from there. So, we go beyond it. 

Having done that then we have to find the money outside. So, first we increase the size of the plan and now I a very happy to say that at least for the next few years we have enough money available with us – LIC for example 30 years maturity period, 5 years moratorium. World Bank, multilateral agencies like ADB, even private financing arm like IFC and others are more than willing to give us.

Q: But how much are they willing to commit or have they committed it yet?

A: At the moment we are at a very advanced stage of negotiation but we will definitely be able to reach that amount. I will tell you even if you take Rs 50,000-60,000 crore a year which ministry of finance will keep giving us that gives us Rs 3 lakh crore. Rs 150,000 crore has already come from LIC. Rs 1,50,000 or about that we have kept that for station development which is in fact completely private sector oriented. So we don’t have to take into consideration about that. Tax free bonds which Finance Minister has talked in his Budget that is again available to us.

Q: Are you going to exercise that means just yet or do you believe that you don’t need to?

A: Absolutely, I am just telling you about the amount of money that we need and how we are going to raise it. Then of course the infrastructure investment fund that Finance Minister has talked about to create that Rs 20,000 crore of our own money contribution leverage 10 times by overseas funds like Blackrock and other. So that gives us Rs 2 lakh crore and maybe half of that we can draw from it. So you can imagine the money is available, what is important is why this is necessary. One, I have told you that we have deferred this decision.

Once you make that investment the scale of operation will go up. We have talked about in the next five years one billion tonnes of cargo to be taken to 1.5 billion tonnes of cargo. Of course that depends largely upon the dedicated freight corridor coming in. We have already told them strict deadlines, three years period they must complete it and actually we are also trying to work out if there are some early completion of contracts we could think about incentivising them and I said dedicated freight corridor means first dedicate yourself to the freight corridor. So that is what I told my people there.

So if you do this 1.5 billion tonnes of cargo if you start handling with more or less this type, look at the profitability of railways because as you know more than 50 percent is salaries.

Q: So you are saying money is not a challenge. Do you then need to look for pension funds because that is something that you have articulated, do you need to talk to sovereign wealth funds again something that you have articulated, the Qataris I understand are interested?

A: That is right, they are also keen. I am not ruling out anything. What I am saying is this is very clearly a financial cost. We have kept options open. So firstly, why I am telling you this money is available that means now at least we are sure that we can make that investment. I had to give a clear signal to my team here that okay we have the money available, now plan it. That was a problem earlier, they said why do you plan, what is the point of preparing such detailed project report because nothing is available, no money is there. Now they are very sure about it. You will be surprised.

I will tell you something very interesting if you permit for a minute. I told my team before I presented the budget that we want to increase the tonnage handling capacity by about close to 9-10 percent which is more than double of the last five years. Everybody said how is it possible; I appointed an internal team, Mr Jamshed who is the additional member of traffic and his team from all over the country, all insiders, not a single outsider people who are actually operating the system are going to implement this. They presented a report to me today, 1,200, they said 100 percent we will do it. Then I had a review meeting with the zones which actually we are going to do it. The zones are saying not only we will do this we will do more than this for which I am promising them something in return that we will complete some of these small little things because congestion is going to remain for a while. Despite these congestions they are going to achieve this, what is important is therefore when you have a clear signal I have taken the responsibility we will arrange the finances now they are implementing this. So this is a very good thing.

Q: So, you are saying the cycle of under-investing in the Indian Railways, that story hopefully is now behind us. Let me then talk to you in terms of your ability to be able to execute on the ground because that is the big question mark at this point in time. You sanctioned 77 projects; the aim is 9,400 km of doubling, tripling, and quadrupling of lines as well as electrification. This is the promise that you have made, are you going to be able to achieve these targets?

A: Let me tell you how I am doing it so let us wait for the result but I will tell you what we are doing. First of all whatever we have said in the railway budget, each of that point is under implementation. In fact yesterday we had a meeting with all the people about each and every small little statement that has been made in the railway budget, how we are going to implement it , responsibility has been put. We have now prepared a software so each of these programs will be monitored, each person who is supposed to implement it he is going to update it constantly. Every 15 days there will be an update. 

Now this particular projects will not, all of them may not be completed in one year, all these projects because they have a life maybe two years, some will take three years, some may happen in six months like for example looping etc might happen little sooner but we will definitely try to complete it in the three years period all of these projects but next year we will start more but these projects how we are going to implement it is therefore this overall implementation—we are asking the PSUs like Ircon, like Konkan Railway and others to also implement project with us. Each of the zonal railways they are also going to implement it. For them to implement it in a faster way we already delegated powers to them, now we are also thinking of delegating powers of estimates to them. So, therefore they will be empowered—I am still struggling with an idea to be implemented is can we incentivise them? If suppose we implement a project well in time, can we not give them a small incentive?

Q: What kind of incentive are you talking about?

A: Maybe say one percent of the cost of project, something we need to work out. Why I am saying this, if there is a overrun of 200-300 percent there is no penalty but at least if we implement in time why not incentivise them. So, something like this I am still thinking of doing it, I do not know how we can make it happen in the system that we have but still we are working on it. 

Q: So, you are saying that the sanctioned projects will be executed within the timelines that you have set out?

A: Not necessarily all of them in a years’ time.

Q: In this year?

A: Yes, in a years’ timeframe.

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