Ministry of Railways signed MoU with Telangana for rail expansion

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Who: Ministry of Railways and Telangana
What: Signed an MoU
When: 11 February 2016
Why: For rail expansion

The Ministry of Railways and State Government of Telangana on 11 February 2016 inked a Memorandum of Understanding (MoU) for the formation of Joint Venture (JV) companies for development of railway infrastructure in the state.

The MoU was signed in the backdrop of Railway Minister’s Budget announcement regarding setting up of Joint Ventures with States for focused project development, resource mobilization, land acquisition, project implementation and monitoring of critical rail projects.

Key highlights of the MoU

The signing of MoU is going to be a stepping stone for formation of JV companies.

The MoU envisages formation of a Joint Venture companies having 51% stakes of the respective State Government and 49% stakes of Ministry of Railways. Thus, the JV companies will be fully owned by the Government.

The companies will primarily identify projects and possible financing avenues in addition to Govt of India and the State Governments. After finances for a project are tied up, project specific Special Purpose Vehicles (SPVs) will be formed. These SPVs can have other stake holders from Industries, Central PSUs, State PSUs etc. However, the JV companies will be the mandatory stake holders with minimum 26% shares in the SPVs.

The ministry of Railways will sign a concession agreement of 30 years with the project SPV for safe and sound operation, revenue sharing and providing technical & marketing logistics to the SPV. The revenue sharing will be based on already established formula being used for inter zonal apportionment of revenue.

The most important aspect of the MoU is that the ownership of the land will vest with the SPVs. This will give financial leverage to the company to exploit commercial potential of the land. This is likely to result in making project viable which are otherwise not viable.

At the end of concession period, the railways will have option to take over the assets at a nominal price. This is largely in line with average codal life of the assets as most of the assets will need large scale replacement after 30 years.