RAILWAYS. November 2010

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1 RAILWAYS November 2010

2 RAILWAYS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 2

3 ADVANTAGE INDIA Advantage India The Indian Railways comprises the world s fourth-largest rail network under a single management with a total track length of 64,000 km. The Indian Railways has launched fuel-efficient, recyclable and low-emission trains to achieve certified emission reduction credits. Environmentfriendly One of the largest rail networks in the world Significant government investments The GoI (Government of India) has proposed funds worth US$ 3.5 billion (INR billion) in its budgetary estimates (BE) to modernise and develop India s rail infrastructure. With a workforce of about 1.5 million, it is the world s second-largest employer. Catalyst for large-scale employment opportunities Advantage India Key facilitator of economic activity Huge capacity augmentation The Indian Railways plans to increase the capacity of its double/multiple lines from 18,000 km as on December 2009 to more than 30,000 km by The Indian Railways network transports 18 million passengers and more than 2 million tonnes of bulk freight every day. Sources: Indian Railways: Vision December 2009, Indian Railways website, accessed 11 November 2010; Rail contact 2008, Ernst & Young,

4 RAILWAYS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 4

5 MARKET OVERVIEW Market overview In 150 years of its existence, the Indian Railways has played an integral role in the development of India s industrial and economic landscape. It is the fourth-largest network in the world. The Indian Railways has attracted significant attention from overseas players recently due to its successful turnaround to profitability. In , its cash surplus before dividend and net revenue amounted to about US$ 6.17 billion and US$ 4.5 billion, respectively. As a result, Indian Railways ranked higher than many fortune 500 companies. The Indian Railways has a total network of about 64,000 kms (route kms), spread across 8,000 stations. Currently, it has 225,000 wagons, 45,000 coaches and 8,300 locomotives, and operates more than 18,000 trains every day. Comparison of India s rail network with other countries Countries Network length (kms) Number of employees United States 226, ,000 Russia 84,158 11,28,000 China 63,637 20,67,000 India 63,327 14,06,000 Canada 57,042 34,000 Germany 33,897 2,31,000 France 29,488 1,66,000 South Africa 24,487 36,000 Japan 20,050 1,32,000 Australia 9,639 13,000 The Indian Railways contributes 2.3 per cent of India s GDP. Source: White paper on Indian Railways, December 2009, Indian Railways website, accessed 11 November

6 In million tonnes MARKET OVERVIEW Market overview: performance of freight and passenger traffic (1/2) The Indian Railways transports about 40 per cent of India s total freight traffic and 20 per cent of the country s passenger traffic. The freight segment accounts for about 70 per cent of Indian railways overall revenues. In , its freight traffic amounted to 888 million tonnes and recorded an increase of 6.6 per cent over the previous year. The Ministry of Railways has set a freight-loading target of 944 million tonnes in the Union Budget This represents an increase of 54 million tonnes over revised estimates of Growth in freight traffic Source: White paper on Indian Railways, December 2009, Indian Railways website, accessed 10 November 2010.; Indian Railway Finance Corporation Ltd Annual report; Sector focus: Railways, Indian Infrastructure, August

7 In million MARKET OVERVIEW Market overview: performance of freight and passenger traffic (2/2) In , passenger traffic amounted to 7,442.6 million tonnes. Between and , suburban traffic increased from 3,329 million to 3,860 million and non-suburban traffic from 2,396 million to 3,581.8 million in the country. 8,500 6,500 4,500 2,500 Growth in passenger traffic 7, , , , , Source: White paper on Indian Railways, December 2009, Indian Railways website, accessed 10 November 2010.; Sector focus: Railways, Indian Infrastructure, August

8 MARKET OVERVIEW Growth drivers Increased government expenditure on rail infrastructure The GoI has increased its allocation of funds to the Indian Railways to US$ 3.5 billion (INR billion) in its budgetary estimates (BE) for , which indicates a rise of about US$ 0.2 billion (INR 9.5 billion) or 6 percent from its estimates for Heightened private sector participation in the development of railway infrastructure The private sector s contribution to railway projects has increased considerably over the years from 0.6 per cent in the Tenth Five Year Plan ( ) to 4.1 per cent based on the revised estimates of the Eleventh Five Year Plan ( ). The Indian Railways has allowed private sector entities to operate container trains. Till date, concession agreements have been signed with 16 companies for the provision of container services. The Indian Railways plans to add 25,000 kms of new lines by 2020, with a major increase in Public Private Partnerships (PPPs). Furthermore, it aims to electrify 33,000 kms of its network by Growth in freight and passenger traffic Freight traffic has increased at a compound annual growth rate (CAGR) of 7.4 per cent between and Passenger traffic has increased at a CAGR of 6.7 per cent in the same period. 8

9 MARKET OVERVIEW Key trends Expanding scope of PPPs The Ministry of Railways has proposed the development of 50 world-class stations in the PPP mode to improve and enhance rail infrastructure in the country. Some recent PPP projects undertaken/under implementation include the construction of dedicated freight corridors (DFCs), the modernisation of metro stations and manufacture of rolling stock, including coaches, wagons and locomotives through special purpose vehicles (SPVs). Furthermore, to enhance private sector participation, the Indian Railways has introduced an R3i policy related to infrastructure. The policy aims to retain and increase the share of the railways in freight traffic. This policy is applicable for proposals for new lines, which are 20 kms or more in length. Increase in international investments The Indian Railways has attracted investments from overseas through strategic alliances with various countries. Bombardier Transportation (established in 1995), a subsidiary of Swiss-based Bombardier Inc, has set up a new facility at Savli in South Gujarat, to cater to orders worth US$ 137 million secured from the Delhi Metro Rail Corporation (DMRC). Rising demand for urban mass transportation The GoI has introduced several metro rail projects to improve connectivity between cities, to meet the rapid increase in the demand for urban mass transportation systems in the country. Metro projects have already been initiated in Delhi, Kolkata, Bengaluru, Chennai, Hyderabad and Mumbai. The development of metro projects is now being proposed for cities such as Jaipur, Lucknow, Ludhiana and Kanpur. 9

10 MARKET OVERVIEW Key trends: status of metro projects in India Name of project Cost of project (US$) Length of project (kms) Due date of completion Delhi Mass Rapid Transit System Phase I: 2.2 Phase II: 0.11 Phase 1: 65.1 Phase II: Phase I: Completed in November 2006 Phase II: Completed on 30 October 2010 Delhi Metro Phase-II to Gurgaon Qutub Minar Gurgaon Metro corridor operational on 21 June 2010 Chhattarpur Metro station operational on 26 August 2010 Kolkata Metro Rail Project Bengaluru Metro Rail Project September 2012 Hyderabad Metro Project Early 2013 Mumbai Metro Project Phase-II Chennai Metro Rail Project Between 2014 and 2015 Source: Ministry of Urban Development s FY09 annual report.; Project update, Delhi Metro Rail Corporation Ltd website, accessed 12 November 2010; Project highlights, BMRCL website, accessed 8 December 2010 Note: This is an indicative list. 10

11 MARKET OVERVIEW Key players Rail projects in India have typically been in the public sector domain. However, several public sector undertakings (PSUs) and private players are involved in allied activities such as track laying and maintenance; maintenance of coaches and wagons; construction of bridges, stations, signalling and telecommunications works). Company Container Corporation of India Limited Dedicated Freight Corridor Corporation of India Limited Rail Vikas Nigam Limited RailTel Corporation of India Limited Punj Lloyd Gammon Infrastructure Limited Kalindee Rail Nirman Engineers Sources: Relevant company annual reports and websites Note: This is an indicative list. 11 Key projects/services offered Setting up a multi-model logistics park (MMLP) in Rajasthan A DFC project Surat Hazira new line (Gujarat); Bharuch Samni Dahej gauge conversion (Gujarat); Delhi Rewari gauge conversion of second line, Rewari Phulera Ajmer gauge conversion Creation of optical fibre cable-based communication infrastructure for train operations Construction of an elevated metro rail viaduct in Delhi; construction of a 300-km dedicated eastern corridor Partial design and construction of a 4.7km viaduct; east-west corridor for Kolkata Metro Rail Corporation Limited Installation of signalling to double railway line between the Gooty and Pullampet section; gauge conversion of VilluPuram-Mayiladuthurai section; installation and commissioning of signalling and telecommunications facilities at NTPC

12 RAILWAYS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 12

13 INDUSTRY INFRASTRUCTURE Industry infrastructure (1/2) Rolling stock * Year Total Wagons (four-wheeler units) 19,992 18,681 21,933 22,753 24, ,474 Diesel multiple units Electric multiple units (EMUs) ,300 Main line electric multiple units (MEMUs) Coaches 2,623 2,684 2,881 3,101 3,193 14,482 Electric locomotives Diesel locomotives *Upgradation/expansion setting up of PU/Workshops 13

14 INDUSTRY INFRASTRUCTURE Industry infrastructure (2/2) On an average, 220 kms of new lines are added on an annual basis in the country. Between and wagons (four-wheeler units) have increased at a CAGR of 4.8 per cent. Between 2008 and 2009, 797km of railway lines have been electrified with an investment of US$ 0.16 billion (INR 7.80 billion). Growth in fixed infrastructure (in kms) Year Total New lines ,093 Gauge conversion ,082 1, ,717 Doubling ,687 Railway electrification ,150 Sources: White paper on Indian Railways, December 2009, Indian Railways website, accessed 24 January 2010; Railways: Economic Survey , Government of India: Union budget and economic survey website, accessed 14 January 2010 * Includes replacement of rolling stock 14

15 POLICY AND REGULATORY FRAMEWORK Government initiatives: the Dedicated Freight Corridor The Indian Railways has initiated its most ambitious project DFCs to augment its capacity and enhance the quality of its services. Dedicated Freight Corridor: The Dedicated Freight Corridor Corporation of India Limited is a special purpose vehicle (SPV) set up under the administrative control of the Ministry of Railways, which is responsible for implementing the DFC project. The SPV plans to construct dedicated freight lines along the eastern (Ludhiana to Dankuni) and western parts (Mumbai to Dadri/Tughlakabad) of India, extending for a total length of 3,287 kms. The total cost of the project is US$ 10.3 billion (INR billion). The funds for the project will be arranged through internal generation, domestic/external borrowing and multilateral agencies. Construction work for the project has been initiated and it is scheduled for completion in Source: Railways: Economic Survey , Government of India: Union Budget and Economic Survey website, accessed 24 January

16 POLICY AND REGULATORY FRAMEWORK Government initiatives: other measures (1/2) Freight incentive schemes The Indian Railways offers upgrades and frequent traveller schemes to commuters to encourage them to travel by rail. Wagon Investment Scheme The Indian Railways has launched its Wagon Investment Scheme in 2005 to offer freight rebates and supply a guaranteed number of rakes for a period of 7 to 15 years for different types of wagons. The Ministry of Railways has also, in its Budget , proposed to set up five wagon factories in Secunderabad, Barddhaman, Bhubaneshwar/Kalahandi, Guwahati and Haldia under the JV/PPP mode. This is expected to help the Indian Railways meet its economy s transportation requirements. Izzat Scheme The Ministry of Railways in its Budget , announced Izzat Scheme of uniformly priced monthly seasons tickets (MSTs) costing US$ 0.5 (INR 25) for people working in the unorganised sector, who have a monthly income of less than or equal to US$ 31.2 (INR 1,500). The issue of MSTs under this scheme commenced in1 August

17 POLICY AND REGULATORY FRAMEWORK Government initiatives: other measures (2/2) Key modernisation initiatives The very small aperture terminal (VSAT) hub system (a two-way satellite ground station) has been installed to ensure rail connectivity in remote areas. Integrated security systems have been implemented in trains and at railway premises. A modern signalling system, a train-protection warning system and a special railway safety fund have been initiated for passengers security. e-ticketing and unreserved ticketing services (UTS) have been introduced to facilitate faster and flexible issue of online and unreserved tickets. As of November 2009, UTS were available at 2,911 locations (with about 6,239 counters across the country). Automatic ticket-vending machines have been installed at 375 locations. Passenger facilities and catering services have also been considerably improved. Of the 594 stations identified for the upgrade in passenger amenities through the Model Station Scheme, 426 stations have already been modernised. The Indian Railway Catering and Tourism Corporation has been set up to provide catering services, economy hotels and food plazas at major stations. In July 2010, the Ministry of Railways introduced a new catering policy, the Catering Policy 2010, which aims to provide hygienic, good quality and affordable food to commuters by adopting the best trade and hospitality industry practices. Source: Railways Economic Survey and , Government of India: Union Budget and Economic Survey website, accessed 11 March

18 RAILWAYS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 18

19 INVESTMENTS Investments According to the Planning Commission s estimates, the investment in the Indian Railways in the Eleventh Five Year Plan is expected to be about US$ 54.5 billion, as compared to US$ 24.9 billion in the Tenth Plan. Projected investment in the Indian Railways during the Eleventh Plan Total Eleventh Plan Rolling stock 67,550 77,860 89, , , ,290 Capacity augmentation 65,820 85, , , , ,700 Safety and other works 138, , ,970 21, , ,290 Investment in PSUs 16,010 17,290 18,670 20,160 21,780 93,900 DFCs 11,310 20,460 37,040 62, , ,000 Metro rail projects 42,820 48,430 53,780 59,310 67, ,910 Total (INR million) 342, , , , ,010 2,618,080 Total (US$ million) 7, , , , , , Source: Projections of investment in Infrastructure during the Eleventh Plan, Secretariat for Infrastructure, Planning Commission website, accessed 26 January

20 RAILWAYS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 20

21 POLICY AND REGULATORY FRAMEWORK Regulatory framework The GoI controls the country s railways sector through the Ministry of Railways. The Indian Railways is divided into 16 zonal offices, each of which is divided into 68 divisions. The Railway Board administers the Indian Railways operations and project management functions. 21

22 RAILWAYS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 22

23 OPPORTUNITIES Opportunities (1/2) High demand for metro trains The GoI has introduced a number of metro rail projects to improve connectivity within cities to meet the rapid increase in the demand for urban mass transportation systems in the country. As of 31 March 2010, the total cost incurred on metro projects in Delhi, the NCR and other cities such as Bengaluru, Chennai, Mumbai and Kolkata was US$ 14.7 billion (INR billion). Furthermore, funds worth US$ 0.20 billion (INR10.0 billion) have been announced for metro projects in the Budget Significant investments in infrastructure proposed by the Government Funds worth US$ 3.5 billion (INR billion) have been allotted to the Indian Railways in the BE of , indicating a rise of about US$ 0.2 billion (INR 9.5 billion), as compared to the estimates of The GoI has planned substantial investments in the Indian Railways to modernise India s rail infrastructure, thereby creating avenues for the growth for companies engaged in the manufacture of wagons and coaches and the construction of bridges and stations. Provision of rail connectivity to special economic zones The GoI is planning to enable rail and port connectivity to enhance the competitiveness of SEZs. As of 27 August 2010, 363 SEZs had been notified and the Board of Approvals had granted formal approvals to 577 SEZs in the country. The GoI also foresees tremendous potential in joint ventures (JVs) and strategic alliances for linking SEZs to railheads and ports. Sources: Budget speech, Ministry of Railways website, accessed 17 August 2010; Energy, Infrastructure and Communications, Union Budget and Economic Survey website, accessed 17 August 2010; Fact sheet on Special Economic Zones, SEZs in India website, accessed 12 November

24 OPPORTUNITIES Opportunities (2/2) Increased private sector participation New projects in the pipeline Increase in freight traffic According to the Planning Commission s revised estimates, investments in the Indian Railways during the Eleventh Plan are likely to be about US$ 41.8 billion (INR 2,008 billion), of which 4.1 per cent is expected to be contributed by the private sector. The DFC project offers significant potential for PPPs in the form of a build, operate and transfer (BOT)-annuity contract package. Furthermore, the development of Multi-Modal Logistics Parks (MMLP) and rail-side warehouses and the construction of railway lines, over bridges have also opened up significant investment opportunities for private players. In the Union Budget , the Ministry of Railways has identified 10 additional stations that are to be converted into world-class stations, as compared to a target of 50 world-class stations proposed in the Budget. The GoI plans to set up new passenger terminals in the metros to meet the increasing requirements of passenger traffic and the ever-growing demand for trains. The GoI is also setting up a new factory at the Kanchrapara-Halisahar railway complex to manufacture Electric Multiple Unit (EMU)/Mainline Electric Multiple Unit (MEMU)/Metro coaches. Freight traffic has increased at a CAGR of 8.1 per cent between and in the country. The rise in the freight business of the Indian Railways (which currently accounts for about 70 per cent of its overall revenues) is directly proportionate to the growth in the demand for commodities in India, including coal, cement, food grains and iron ore. Furthermore, the Indian Railways has announced its plans to enhance its presence in the bulk traffic segments and container cargo by attracting new commodities including fly ash, automobiles, etc., through alliances with private sector freight operators. Sources: Budget speech, Ministry of Railways website, accessed 17 August 2010; White paper on Indian Railways, December 2009, Indian Railways website, accessed 17 August

25 RAILWAYS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 25

26 INDUSTRY ASSOCIATIONS Industry associations Ministry of Railways Rail Bhavan, New Delhi Website: Indian Railway Catering and Tourism Corporation Ltd 9th Floor, Bank of Baroda Building, 16, Parliament Street, New Delhi Phone: /64 Fax:

27 INDUSTRY ASSOCIATIONS Note Wherever applicable, numbers in the report have been rounded off to the nearest whole number. Conversion rate used: US$ 1= INR 48 27

28 RAILWAYS November 2010 DISCLAIMER India Brand Equity Foundation ( IBEF ) engaged Ernst & Young India Pvt Ltd to prepare this presentation, and the same has been prepared by Ernst & Young in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Ernst & Young and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Ernst & Young and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Ernst & Young nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. 28

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