Framework for structuring public private partnerships in railways implications for Indian railways

Abstract

Development of railways only with public resources is a challenge for many governments across the world. Public Private Partnerships (PPPs) have emerged as a way forward for additional resources, and increased market orientation. However, these are complex arrangements and can create potential problems if not properly structured and administered. The objective of this research is to develop a framework that would assist policy makers in structuring an effective PPP for railways. From the literature, it is evident that integrated projects in large railways systems are not feasible due to higher commercial risks. Integrated projects also suffer from implicit cross subsidization since the railway infrastructures are highly capital intensive, are typically common to multiple revenue sources, and fare box revenues are generally not sufficient to recover these investments. This is being addressed by various unbundling approaches in recent PPPs. The common unbundling is between infrastructure, operations, and services. This research explores the potential of unbundling the railway system into over 40 elements wherein an element is the smallest unit that can principally be given to a party for execution. Examples of elements are superstructure, signaling and telecommunications, control centers etc. There would then be significant horizontal and vertical interfaces between these elements, based on their functionalities. Since a sustainable PPP would limit the number of interfaces due to transaction costs and risks, there would need to be entities wherein an entity is a set of elements bundled together horizontally and/or vertically to extract the best value in a PPP. Examples of entities are PRCL, DFCCIL, Western Railways etc. The governing principles for bundling of elements into an entity would be scale economies (horizontal integration), scope economies (vertical integration), need for competition (horizontal disaggregation), level playing field, transactional transparency, and need for specialization (vertical dis