Pandemic slows privatisation of train services

IRCTC has requested the Railway Board to waive fixed charges worth Rs 27.93 crore for the period the three trains -- 2 Tejas and  Kashi Mahakal Express -- were non-operational owing to the national lockdown.

Indian Railway Catering and Tourism Corporation (IRCTC), the Indian Railways’ wholly-owned listed subsidiary, is eyeing partnerships to offset recurring costs incurred in train operations, which is part of its two-year-old diversification from core catering and ticketing businesses.

To this end, it is courting public sector undertakings such as Bharat Heavy Electricals (BHEL) and others to create a special purpose vehicle for the routes for which IRCTC has bid.

The Railway ministry opened bids for public private partnerships in passenger train operations in July 2021 and received bids to operate 29 pairs of trains with around 40 modern rakes that would entail an investment of Rs 7,200 crore.

Initially, in July 2020, the ministry had offered 12 clust­ers for bids but Megha Engi­neering and Infrastructure, a Hyderabad-based infrastructure project execution major, and IRCTC were the only two bidders.

This will not be IRCTC’s maiden attempt at train operations.

It started India’s first premium train — IRCTC Tejas Express — on the Delhi-Lucknow route in October 2019, followed by Tejas Express on the Ahmedabad-Mumbai route in January 2020.

A third train service, on the Varanasi-Indore line (Kashi Mahakal Express), began in February 2020.

These IRCTC trains were “nominated” by the rail ministry as a way of kicking off the “privatisation” process in train services.

The idea was to offer full-fare, premium airline-like services.

For IRCTC, this implied that the option of cross-subsidising fares through freight movement, as is the case with Indian Railways-run trains, was not available.

To make a distinction from other rail services, these IRCTC trains have exclusive reservation counters at stations.

Passengers get complimentary travel insurance of Rs 25 lakh per traveller with a coverage of Rs 1 lakh for every household in the event of a theft or robbery during the travel period.

Passen­gers are also compensated for train delays.

The trains are leased to IRCTC and the subsidiary pays the Rail­ways fixed and variable charges for operating them.

But the offerings on IRCTC’s “corporate trains” come at a cost to passengers.

Because of the dynamic train fare system, passengers shell out an average 1.5 times the fare to avail of these superior services.

This also makes premium train operations a tricky business.

Unlike air travel, passengers baulk at shelling out extra for train journeys, especially on popular routes on which there are multiple trains to a destination on the same day.

IRCTC, therefore, ends up facing recurring costs with no assurance of recoveries.

While the other trains run by the Indian Railways get budgetary support from the Centre to offset losses, IRCTC has to absorb these costs like any other corporation.

The pandemic added to IRCTC’s pressures.

In a statement to BSE, IRCTC said it has cited force majeure to request the Railway Board to waive fixed charges worth Rs 27.93 crore for the period the three trains were non-operational owing to the national lockdown and other restrictions owing to Covid-19.

Despite this request, IRCTC said it has made full provision for these charges for the Tejas and Kashi Mahakal trains for 2020-21.

This is where IRCTC’s need for an investor comes in.

“IRCTC’s business model does not focus on capital expenditure, only operational enhancements,” an official aware of IRCTC’s functioning explained.

“Whether it be BHEL or any other company, IRCTC wants someone to put up with the fixed costs and lower the financial risk,” the official added.

According to an analyst tracking IRCTC, “It was tricky from the start.

"IRCTC’s private trains started two months before the pandemic.

"Initially, the company said the response was better than expected and had stated 12 to 18 months to break even.

"On the Mumbai-Ahmedabad route, IRCTC was close to achieving break-even within two months of operations.

"Then the pandemic hit and everything went off the table.”

IRCTC said that it has started bookings on the two Tejas trains from August 7.

“Fares on IRCTC trains will be anywhere between Rs 900 and Rs 1,500 a berth.

"But it will be a function of demand and per-seat costs can go up further.

"IRCTC would break even at 60 to 70 per cent occupancy in a train,” the analyst added.

Things might be different this time around with the government initially wanting to bid out as many as 151 trains for private operations.

“For some reason many reputed private companies wanted to participate, but now only public sector undertakings appear to have made the cut,” the analyst said.

In October last year, L&T Infra­stru­c­ture Development Projects, IRB Infra­structure Developers, GMR High­ways, BHEL and IRCTC had figured among the list of companies that expressed interest for private participation in operation of passenger train services.

Spain’s Construc­ciones y Aux­iliar de Ferrocarriles, had also figu­red in the list of companies that responded to the rail ministry’s Request for Qualifications.

Had all the routes got bids and were awarded, the estimated investment would have been to the tune of Rs 30,000 crore.

As of now, however, IRCTC remains the sole “showcase” of the railway ministry’s so-called privatisation of train services.

Photograph: PTI Photo