PM Network - December 2014

Risky Propositions

PPP rail projects aren’t likely to sell themselves because of India’s poor track record on railway projects, including rampant delays due to land acquisition problems and costly time and budget overruns. The PPP model has worked well for port and road projects but is relatively uncommon in rail. The government’s database lists 1,339 PPP projects—eight of which are railway projects. Five of those have been completed, while three remain under construction due to delays. One project began in 2007 but stalled in 2009 due to objections from people whose land had been acquired for the project. The government only recently approved compensation payments.

Success for future PPP projects comes down to how well the government crafts contracts, industry analysts say. It must correctly define technical specifications, accurately estimate project costs and detail all risks the private sector is expected to assume.

theEdge

“The private sector will only take on certain types of risks,” says Arvind Mahajan, head of infrastructure and government services, KPMG, a PMI Global Executive Council member, Mumbai, India. Mr. Mahajan says the private sector is well-suited to take on the operation of rail lines or to replicate successful projects such as the Delhi Metro, but it is less equipped to handle land acquisition, safety issues or first-time initiatives like high-speed rail, for which cost and project outlays are difficult to estimate.

Abhaya Agarwal, partner, infrastructure and PPP advisory, Ernst & Young, New Delhi, India, says the state-owned Indian Railways should dem-

India’s railway system has no high-speed lines—but that could change if investors respond to the government’s call for private and foreign funding.

INTO HIGH GEAR

“If there is a
good project
with low risk,
I don’t think
there will be
any dearth of
investment.”
—Abhaya Agarwal, Ernst &
Young, New Delhi, India

Mumbai-Ahmedabad line: The 545-kilometer (339-mile)

“showpiece project” that Prime Minister Modi is keen on would be the country’s first high-speed line. A study of the INR600 billion project is scheduled to be completed in May 2015.