Container Train Operations - Introducing Competition (B) PDF

This document is authorized for use only in National Rail and Transportation Insttitute's PG; Business Ethics course
by Prof. Kamal Kishore Sharma from Apr 6, 2022 to May 31, 2022.
Indian Institute of Management

Ahmedabad IIMA/CIPR0007(B)
Container Train Operations:

Introducing Competition (B)
I. INTRODUCTION
1. A meeting of the empowered subcommittee of the Committee on Infrastructure (CoI)

was scheduled for 13th February, 2006, to discuss the process for finalizing the Model
Concession Agreement (MCA) between Indian Railways (IR) and the container
operators. The Ministry of Railways (MoR) had suggested engaging RITES Ltd (RITES)
for drafting the agreement, along with the involvement of a legal firm. The
subcommittee had to decide the main contents of the MCA and provide inputs on
essential contractual aspects.
2. This meeting was subsequent to the release of the ‘Policy to permit various operators to
move container trains on Indian Railways’ on 5th January, 2006. This policy statement
was an outcome of a process that had begun with the budget speech of the Minister of
Railways on 26th February, 2005, when the intent for such a policy was announced. After
this announcement, RITES, a multidisciplinary consultancy organization under the
administrative control of the MoR, was asked to study this issue and make appropriate
recommendations. (Refer case ‘Introducing Competition in Container Movement by Rail
(A)’). RITES submitted its report in September 2005.
II. PLANNING COMMISSION’S CONCERNS ON RITES’ PROPOSALS
Inter-ministerial Meeting
3. In a meeting held on 6th October, 2005, the RITES report on allowing operators other than
the Container Corporation of India Ltd (CONCOR) for container movement on rail, was
discussed. Member (Traffic), Railway Board (also the ex-officio Chairman of CONCOR),
made a presentation on RITES proposals. In the meeting, the Adviser to Deputy
Chairman, Planning Commission (ADC) also circulated a paper on the policy for
container rail services, which included comments on RITES proposals. The debate
essentially revolved around issues relating to ‘entry barrier,’ ‘level playing field vis-à-vis
CONCOR, the incumbent’, and ‘protection of user interests’.
4. The RITES report recommended levying an entry fee for each route for which a new
entrant was allowed. The entry fee proposed was contingent on the category to which
Prepared by Professor G Raghuram, Rachna Gangwar, Research Associate, Professor Sebastian
Morris, and Professor Ajay Pandey, Indian Institute of Management, Ahmedabad.
The writers are grateful for the comments provided by Dr Gajendra Haldea, Principal Adviser, and
Mr S K Saha, Director, Planning Commission. They also thank the Planning Commission for the
support provided. The writers though, are solely responsible for any errors of fact or interpretation.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for classroom
discussion. They are not designed to present illustrations of either correct or incorrect handling of
administrative problems.
© 2010 by the Indian Institute of Management, Ahmedabad and the Planning Commission,
Government of India.
This document is authorized for use only in National Rail and Transportation Insttitute's PG; Business Ethics course by Prof. Kamal Kishore Sharma from Apr 6, 2022 to May 31, 2022.
2 of 18 IIMA/CIPR0007(B)
the route belonged. It was proposed to be highest for the most sought after Mumbai (JN
Port/Mumbai Port) - Delhi corridor. RITES proposed categorization of routes to and
from ports to their hinterland based on attractiveness of the corridor from the point of
container traffic movement. It also proposed route allocation to highest bidder(s) in case
a route was capacity constrained. This would have obvious implications on any new
entrant as they would not only have to invest in terminal and rolling stock and take on
business risks vis-à-vis the incumbent and other entrants, but also pay the entry fee. The
participants in the meeting discussed the possibilities and implications of RITES
proposals creating entry barriers in the business of providing container services.
Entry Barrier
5. The Planning Commission (PC) representative in the meeting described the entry fee
proposal as double jeopardy since CONCOR already had monopoly power in the area
and therefore enjoyed first mover advantages. As CONCOR was well entrenched, the
new entrants would not only have to take risks associated with large investments in
rolling stock and terminal(s), business development, demand growth and competitive
risks, but they would also have to pay (or commit to pay) entry fee upfront. In case they
had to bid for a constrained route, they could also face the ‘winner’s curse’ problem.
RITES report recommended route specific entry fee, which would have the effect of
increasing the risks further. If the demand on a particular route changed and the
operator wanted to use his rolling stock on another route, then it would have to pay
entry fee for another route. All this would result in creating potent entry barriers for the
new entrants. Most of the members of the committee agreed that the IR should come up
with an alternative proposal if the objective was to protect its revenues. Such a proposal
would have to ensure a level playing field and not end up creating entry barriers,
protecting CONCOR’s monopoly.
6. Another element which could create risks for the new entrants and therefore create entry
barriers was the unilateral change in railway haulage charges in the future. The
representative of the Ministry of Commerce & Industry (MoCI) felt that there should be
predictability in tariff setting by IR. It was felt that a ‘long term policy on freight that
described the direction in which tariffs would move’ be considered by the IR.
Level Playing Field

7. The representative of the MoCI was apprehensive of possible discrimination against new
entrants and mentioned that, “a provision should be included in the guidelines to ensure
that new operators are treated at par with CONCOR. This is considered necessary
because the track and the locos are all owned by the MoR and there are risks of
discrimination against the new operators.” This prompted MT to assure the participants
of the meeting that a paragraph to ensure equal treatment would be included in the
guidelines.
Users’ Interest
8. The meeting also discussed the issue of likely competitiveness in the container services
and protection of users’ interest. The representative of the MoCI and the Department of
Shipping (DoS) expressed the fear of cartelisation and felt that the users’ interest had to
be protected by a regulator. The representatives of the MoR and PC however felt that
competition would automatically ensure fair charges for the users. Currently, prices
were set unilaterally by CONCOR, possibly keeping in mind competition from the road
sector.
9. The meeting debated the implications of evolving policies, in terms of competition and
protection of users’ interest. It was felt that the Competition Commission of India could
act as the regulator in case of any grievance of users. The meeting decided that the
concerns expressed by the participants be incorporated in the paper circulated by the
ADC and circulated afresh. Based on the revised paper and with its own comments, the
MoR would organize an inter-ministerial meeting. Subsequently, a meeting with
stakeholders would also be organised prior to finalization of the policy.
Revised Paper by the PC

10. The revised paper was circulated by the ADC on 10th October, 2005. The paper noted
that the fast pace of market growth warranted augmentation of capacity on a
competitive basis. It would help not only in increasing efficiency of transportation and
port infrastructure, but would also increase traffic carried by IR, thereby increasing its
earnings. The paper went on to analyze the implications of RITES proposals on
promotion of competition as the policy objective.
Concerns on Entry Fee

11. To promote competition in the expanding market for container movement, the paper
argued that any imposition of entry fee as recommended by RITES would hurt
competition as new entrants would begin with several handicaps if the entry fee
proposal was accepted as it was. Not only was the case for the entry fee weak if the
objective was to promote competition, but the quantum of fee proposed was also very
high. The paper pointed out that the MoCI, DoS, and PC were all opposed to imposition
of entry fee as part of requirements for new entrants. The paper also argued that
promotion of competition was in the interest of IR as it would increase the share of
container movement by rail as compared to road. This would result in higher revenues
for IR through haulage charge. If the idea of entry fee was motivated by the concern of
IR that higher traffic attracted by the policy would result in increased investment
requirement by the IR, then IR could impose higher haulage charge or cess uniformly
from all players rather than charging entry fee from new entrants.
12. The paper also examined the proposal of entry fee from the perspective of use of entry
fee as a mechanism to thwart entry of ‘frivolous players’ into the arena. It pointed out
that any new entrant would have to own or lease a rail linked terminal, which would be
approved by the IR. Similarly, the entrant would have to own or lease rail flat wagons
for carrying containers. Such wagons would have to be approved by the IR. It was
proposed that the entrant would have to have a minimum of 100 such wagons. The new
operator would be a captive customer of IR and would have invested considerable sums
before it started business. It had been proposed that a registration fee/security deposit or
` 1 lakh per rail flat wagon would be payable by the operator. 90% of this amount would
be refunded as and when the wagons entered commercial service. Thus, there would be
no risk of any frivolous entrant as the investment and the nature of assets in which the
investment would have been made were a significant enough deterrent for such
entrants. In line of these arguments, the paper suggested doing away with the entry fee
requirement and suggested that the new entrants be allowed transportation of containers
over the entire network of IR subject to operational feasibility without any entry fee and
without tying down the new entrants to a specific route.
13. From the point of planning and approval process, the paper argued that the new
entrants could apply to the IR for undertaking container services with details on
intended scope of operations and a time schedule for commencement of services. The IR
could give ‘in principle’ approval and the operator would have to notify within 24
months as to when it was ready to commence services. The services could start within
one month of notification by the operator. In case the operator was unable to
operationalize within the period specified, IR would, in its discretion, decide whether or
not to renew the ‘in principle’ approval for a further period.
Terms and Conditions

14. While the concerns on the entry fee addressed the criteria and approval process for
selecting operators, many other dimensions including a level playing field brought in
key driving principles. The ADC’s paper identified 17 such dimensions, proposed as
terms and conditions for the agreement. A summarised version is given in Exhibit 1.
15. CONCOR and IR had a mutually beneficial relationship and the terms and conditions
offered to CONCOR had to be formalized and be the same as the terms and conditions
offered to new entrants. In particular, the paper suggested that the dispatch of container
trains should be done on a ‘first come first serve’ basis subject to operational
contingencies and constraints in a transparent manner to allay the fears of
discriminatory treatment in favour of CONCOR. While new entrants would have to
own/lease a rail linked terminal approved by the IR, the terms and conditions for
operations by new entrants would have to be the same as that for CONCOR. IR had to
allow use of unused facilities to new entrants as it did to CONCOR on same terms and
conditions. The same level playing field had to be extended in terms of haulage charges,
documentation and legal liabilities. It also suggested transit guarantees that IR should
offer to the operators to be enforced through suitable premium/penalty payment
clauses. Time-tabled paths (a departure from the normal IR freight operations) were also
recommended.
16. Other dimensions which concerned the interface between the IR and the operator
included provision of flat wagons for rail movement, supply through proper
maintenance, loading and unloading, payments, information systems, coordination,
demurrage, and dispute settlements. The operator was to be given full freedom for
setting tariff vis-à-vis their customer (subject only to the Competition Commission
against cartelisation or restrictive trade practices) and paying for damages. However,
reimbursement from IR to the extent of IR’s liability would be subject to IR Act.
Further Inputs by the PC
17. ADC sent another note on 22nd October, 2005, with further comments on the RITES
report. In addition to arguments made in the paper, the note critiqued the following
suggestions of RITES:
Entry Criteria
(i) To keep out ‘frivolous contenders,’ only export import traffic be considered: Since
upfront investment in rolling stock would be a prerequisite, it is unlikely that ‘frivolous
contenders’ would come forward at all, particularly because such investment cannot be
used for any other purpose.
Further, there is no reason to restrict the policy to cover only export import cargo. The
existing operator, CONCOR, also carried domestic cargo. Allowing carriage for both
kinds of cargo would enable operators to maximize their carrying capacity and asset
utilization. Railways would benefit from running full loads in both directions. Besides,
export import cargo may also be required to be carried as domestic cargo before
customs sealing. Domestic cargo should, therefore, be covered under this policy.
(ii) Operators would be provided entry on specific routes put in four categories on port
linkage basis: The objective is not clear, particularly since this would restrict free
competition and deny a level playing field with the existing operator.
(iii) IR may prescribe the minimum standards and scale of rail linked terminals: This does
not seem relevant to railways and, therefore, need not be prescribed under this scheme.
(iv) Operators would have to provide a minimum traffic commitment, with one year given
for stabilizing the minimum volumes: The railways would not incur any opportunity
cost or capacity charge if operators failed to provide traffic because no railways capacity
was to be reserved or earmarked. Therefore the need for stipulating minimum traffic
commitment from operators is not necessary.
Entry Fees and Revenue Share
(i) Higher the level of traffic, higher the entry fee. Entry fee would go towards meeting the
infrastructure requirements: A new operator would offer container traffic from his own
siding and on his own rolling stock, for carriage by railways on payment of freight
which would be calculated on fully distributed cost plus profit. This confirmed with the
railways’ business model. Whatever railways wished to realise could be charged
through freight. Levy of an entry fee as currently proposed, is discriminatory.
Investing in rail infrastructure should not be a prerequisite for running container trains.
Container business constitutes only 2-3% of total freight business on the IR. Even
though this share is likely to increase, it would still remain marginal. It is, therefore, not
fair to ask container business to finance line capacity when it utilizes only a small
fraction of it.
(ii) Operator should share revenue on incremental traffic as this would interfere with
‘normal’ levels of traffic: Sharing revenue on incremental traffic would contradict
railways’ own policy of offering volume discounts to its customers and would be a
disincentive for increasing volumes. Further, the conditions applicable to CONCOR
should also apply to new operators.
Other
(i) Maintenance of rolling stock would be done by IR as it does not permit maintenance by
prospective operators: While the operator would naturally bear the cost of maintaining
the rolling stock owned by him, railways could consider allowing him to engage other
agencies for this task. Railways may not always have the requisite resources to suit the
requirements of the operator. Railway maintenance could then become a constraint in
terms of detention to rolling stock. It would be more efficient if maintenance were
carried out by other agencies subject to railway inspection and supervision relating to
safety.
(ii) Services for shunting and formation of trains, etc would be done and charged for
separately: It should be clarified that the same rules would apply to CONCOR and its
competitors.
(iii) ROE would be 15% and payback for operators would be 12-13 years: Since these
services would be open to competition, such projections seem unnecessary.
III. RESPONSE FROM THE RB

18. The RB responded to some of the concerns raised on RITES report in a letter dated 18th
October, 2005. According to the RB, the Railways reserved the right to determine the
freight rates including haulage charge. Although the freight rates had been falling, the IR
was the final authority in fixing the rates. Similarly, the letter argued that the Railways
were not in a position to give guaranteed transit times and departures according to a
fixed timetable for the proposed private freight trains. Such commitments had not been
given to any operator including CONCOR. The IR, however, could be in a position to
consider guaranteed transit time and fixed timetable on the Dedicated Freight Corridors,
after its completion.
19. The letter mentioned that because of the congestion on the routes, since many routes
were carrying as much as 150% of their daily capacity in terms of number of trains, “they
will be able to permit a maximum of 1 to 7 trains per week per operator and that too for
a limited number of operators depending upon the available capacity of that route”. It
argued that in case too many operators were interested in a route, the selection could be
best done by bidding as in other sectors.
20. As regards the entry fee, RB argued that entry fee would have to be paid only by the
new entrants. Examples from the telecom sector were cited by the RB, wherein “though
the new entrants were asked to pay a licence fee, the same was not levied on the existing
operators: DOT and MTNL. Thus CONCOR should not be liable to pay an entry fee”.
IV. MEETING WITH STAKEHOLDERS

21. A meeting with stakeholders was called on 17th November, 2005. Prior to this meeting,
PC had circulated a questionnaire to the stakeholders for inviting their opinion on entry
fees, the categories of routes, the qualification criteria, the method of allocation of trains
when the capacity was limited, and on the treatment of CONCOR with regard to entry
fees. They were also given access to the RITES report. Exhibit 2 gives the summary of
responses received from the prospective players and other stakeholders. A variety of
opinions emerged but it was clear from all the prospective operators that no special
treatment by way of exemption of entry fee or any other operational preference should
be given to the incumbent, CONCOR.
22. In the meeting held on 17th November, 2005, which was well attended by the
stakeholders, the MT requested them to give their views in writing so that the draft
policy incorporating their views could be framed. He stated that most of the routes of IR
were already saturated and additional traffic would be feasible only on routes where
such capacity was available. As a result, only a few additional trains could be allowed on
saturated routes. If there were many operators interested in a capacity constrained route,
IR would have to resort to a process of bidding. The ADC advocated a level playing field
for all players and requested the stakeholders to give their views and opinions. The
meeting ended with a decision to debate the issues further in the next Inter Ministerial
Group (IMG) meeting.
V. IMG MEETING AND THE DRAFT POLICY

23. In the IMG meeting held on 24th November, 2005, with Chairman, RB, it was decided to
finalize the draft policy after taking into account the views of stakeholders and the
comments received from members. In a departure from RITES’ proposal, domestic
movement was added to the categories. The four categories as proposed in the RITES
report were, however, retained.
24. The draft policy proposed that the entrants would need to have access to an ICD (Inland
Container Depot) for EXIM traffic within two years and access to two inland rail linked
ICDs for domestic traffic. They would need to have experience in transport,
manufacturing, infrastructure or leasing sectors and a net worth or turnover of ` 250
crores for category I routes and ` 100 crores for all other category routes. In case of a
consortium, each member of the consortium would need to have net worth or turnover
of at least ` 125 crores for category I routes and ` 50 crores for all others. The routes were
categorized into four as proposed in the RITES report.
25. According to the draft policy, any new entrant would have to pay a non-refundable
registration fee of ` 50 crores in case the entrant wanted to operate on all routes
including category I routes. In case the entrant wanted access to routes other than
category I routes, the non-refundable registration fee would be ` 10 crores for each
category. It stated that applications for only category I routes would not be accepted. This
fee would be payable at the time of applying for running container trains and would be
returned without interest in case the applicant was found ineligible. The draft policy did
not envisage any restriction on number of allowed trains.
26. On the approval process, the draft policy envisaged that any prospective party who was
eligible could seek permission to run container trains. The IR would then provide ‘a copy
of siding agreement, land lease rules and other documents which might or might not be
part of concession agreement’. The party should submit the request in writing giving
details and proof of the entity, intended scope of operations for next five years, proof of
meeting eligibility criteria and willingness to abide by terms and conditions of the
policy. IR would then give ‘in principle’ approval, which if the operator failed to
commence operations with two years, could be revoked or renewed by IR at its
discretion. Before commencing the operation after notifying IR, the prospective operator
would have to enter into an agreement with IR. The permission granted by IR would be
valid for 20 years and could be extended by five years on payment of fee applicable at
that time subject to satisfactory performance. The permission could be transferred to
another eligible party after one year from the commencement of operation by an
operator from his ICD. In case the operator defaulted on rules laid down by IR, the
policy stated that the operator could be penalized or the permission given to him could
be revoked without any refund of registration fee.
27. The terms and conditions spelt out in the draft policy laid down that the trains by the
operators would be dispatched on ‘first come first serve’ basis in a non-discriminating
manner. The rolling stock would be procured by the operators based on IR approved
design, and it would have to be inspected by IR as per the rules in force. Most of the
other operational terms and conditions in the draft policy were similar to RITES
proposals.
VI. COMMENTS OF THE PC

28. After the announcement of the draft policy, the ADC in a letter dated 20th December,
2005, to Chairman, RB, forwarded PC’s comments on the draft policy. He reiterated that
the proposed non-refundable fee of ` 50 crores for all routes including Category I routes
was too high and would act as an entry barrier. Instead, a non-interest bearing deposit of
a lower amount (` 20 crores) could be taken, which could be adjusted over five years
against haulage charges payable to IR. The draft policy envisaged payment of
registration fee at the time of application. Instead, the payment should be acceptable at
the time of signing of agreement. In the view of PC, the net worth criterion of the draft
policy was redundant as the new entrants would have to pay a sizeable registration fee
and make investments in rail linked terminals and rolling stock. The letter also
suggested that the dispute resolution and cancellation related issues should be covered
in the concession agreement and not in the policy itself. For extension of permission
beyond 20 years, the view of PC was that there was no reason to specify any fee as IR’s
revenues were protected through haulage charges. The letter also suggested omitting the
requirement of prior clearances for ICDs, as it was contradictory to another paragraph of
the policy which required an operator to have access to an ICD or develop his own ICD.
VII. THE FINAL POLICY
29. On 5th January, 2006, the final policy (see Exhibit 3 for policy details) was announced in a
press conference by the Minister of Railways. As compared to the draft policy, the
following major changes were made and explicitly announced:
• The net worth or turnover criterion for a company was reduced to ` 100 crores from `
250 crores in the draft policy. While earlier, it had been dependent on the route category,
in the final policy it was the same irrespective of the category of route for which
permission was sought.
• For a consortium, the criterion was revised to ` 50 crores from ` 125 crores for each of its
members.
• For extension beyond 20 years, the period was revised to 10 years from 5 years.
However, the policy retained the provision for payment of applicable fee at the time of
extension.
• A provision in the draft policy which stated that the prospective operator who had to set
up an ICD had to acquire all necessary approvals for setting up the ICD before seeking
IR permission, was deleted. This was in contradiction with the eligibility criterion which
allowed a new entrant to give an undertaking to develop a new ICD. The policy allowed
an operator to develop an ICD in three years.
• The policy explicitly stated that the process of registration as well as train operations
would be uniformly applicable to all including CONCOR. The trains were to be
dispatched on non-discriminatory ‘first come first serve’ basis.
30. Table 1 gives the areas of operation and registration fee for each category as was
announced in the final policy.
Table 1: Licence Categories

Registration Fee
Category Areas of Operation
(` crore)
50
JNP/Mumbai Port - National Capital Region rail corridor and (automatically
I
beyond. This category will also include all domestic traffic. includes all four
categories)
Rail corridors serving JNP/Mumbai Port and its hinterland in other
II than National Capital Region and beyond. This category will also 10
include all domestic traffic except on category I routes.
Rail corridors serving the ports of Pipavav, Mundra,
Chennai/Ennore, Vizag and Kochi and their hinterland. This
III 10
category will also include all domestic traffic except on category I
routes.
Rail corridors serving other ports like Kandla, New Mangalore,
Tuticorin, Haldia/Kolkata, Paradip and Mormugao and their
IV 10
hinterland and all domestic traffic routes. This category will also
include all domestic traffic except on category I routes.
Source: Study of the Operation of Container Trains on Indian Railways ,RITES Ltd. New Delhi, (2005).
31. Other than the above changes, the final policy contained all other provisions of the draft
policy. Operators were invited to register anytime between 16th January and 15th
February, 2006. The response was ‘overwhelming’ as per the MoR. In the first round
(February 2006), 14 operators (refer Exhibit 4 for details of entrants) signed agreements
with IR to set up container train operations. Ten of these permissions were sought for
operating on the entire network of IR including category I routes. Their planned
investments were quite significant.
An analyst studying the process made the following observations:
Despite ostensible success of the policy in attracting players other than CONCOR, the
evolution of policy in this case shed light on the nature of process of policy formulation
when the policy contemplated allowing private participation in an area traditionally
served by the public sector. It was evident from the policy evolution that there were
issues of incumbent resistance in the policy making process despite involvement of
agencies from outside. While the objective of the policy started with introduction of
competition to bring efficiency gains, the objectives quickly expanded to protection of
IR revenues, and to mitigate the effect of capacity constraints. In a business which
required upfront investments, concerns were expressed about the entry of frivolous
players even though it was well known that frivolous players were not attracted to
situations where no (capacity) rights had been created which could be sold off or which
could be used to exercise monopoly power. Frivolous players were also not attracted to
situations where the cash flows were negative to start with. As far as users were
concerned, competition would have been the best remedy to protect their interests as
the bargaining power of new entrants, given an active incumbent, would have been
low. The policy making at an entry stage also did not factor in risks, which would be
imposed on the new operators if ambiguities and discretion of the public entities could
affect their use of investment and profitability.
32. Subsequently, further issues were raised by different stakeholders, knowing that an
MCA would be prepared for finalization of the contractual arrangement. One of the first
concerns was the time from which many of the obligations would be valid, including the
date of ‘in principle’ approval or the signing of the MCA.
33. Other issues were the selection of ports in each category, the limited one month time
window for applications, timing of payment of haulage charges, service level issues like
maintenance of wagons by IR vs other parties, scheduling of trains including time
guarantees, time windows for indenting and supply of locomotives, fees and the process
for extension of the contract beyond the initial 20 years.
34. Stakeholders including the RB also pointed to other dimensions that the MCA would
need to address including financing default and lenders rights, sale and transfer,
termination rights, indemnity for IR, and dispute resolution.
Suggested Questions
1. What impact could the PC make in evolution of the policy?
2. What was the role of the incumbent in bringing about a change in the policy?
3. The entry fee as it evolved was not really an entry barrier. What arguments were
responsible for such an evolution?
4. Despite the significant uncertainty with regard to the returns, 14 parties entered. Why?
5. Why do you think that the container train policy could see the light of the day, when
similar initiatives were not successful earlier?
6. What would be the driving principles and suggested outline (including checklist) for the
proposed MCA?
7. What are the issues that still need debate and resolution, with perspectives of the key
stakeholders, beyond the policy statement, towards an acceptable MCA?
Exhibit 1: Summarized Terms and Conditions by PC for the Agreement

1. Level playing field: Same terms and conditions should be extended to new entrants as CONCOR
in order to create a level playing field
2. Dispatch of trains: Dispatch of container trains should be done on a ‘first come first serve’ basis
subject to operational contingencies and constraints in a transparent manner to allay the fears of
discriminatory treatment in favour of CONCOR
3. Terminals: A new entrant would have to own or lease a rail linked terminal, which would be
approved by the IR
4. Rail movement: Operator to provide requisite rail flat wagons for carriage of containers,
depending upon volumes handled, and also decide the routes in coordination with IR
5. Loading and unloading: Loading/unloading of rakes to be arranged by operator on mutually
agreed conditions with IR
6. Haulage and documentation: IR to provide loco power and operate trains between specified
points in return for haulage charge payable by operator; operator to issue document of carriage to
customer on behalf of IR, on the same lines/legal liabilities as CONCOR
7. Payments: Payments and accounting on fully computerized system; freight dues could be
remitted on either daily/fortnightly basis; revision of haulage charges to be at fixed periodicity
(minimum 2 years) and such charges to be fixed in a uniform and transparent manner; fuel
surcharge may be imposed
8. Operator tariffs: Operator tariffs to be on market-determined basis and not regulated by IR/other
agencies; Competition Commission of India to ensure against cartelisation though the operational
presence of CONCOR should do so in the first instance
9. Information system: IR to provide operators with a ‘view only’ access to its freight operation info
systems for ‘track and trace’ purpose
10. Coordination: IR to enable field level interaction between operators and railway operations staff to
plan/monitor train services effectively
11. Supply: Operator to maintain wagon fleet as per IR safety norms at own cost and at a point
nominated by IR in consultation with the operator
12. Demurrage: None will be levied unless operator-owned/leased wagons occupy IR premises
beyond specified period
13. Maintenance: Non-railway agencies may also be engaged to maintain respective operator
sidings, subject to IR inspection; wagons might be inspected by IR for uniformly applicable
charges
14. Damages: Payable in line with IR Act
15. Transit guarantees: Minimum/maximum transits will be guaranteed by IR, suitably enforced
through a premium/penalty clause
16. Time-tabled paths: Mutually decided between IR and operator
17. Dispute settlement: Through conciliation and arbitration
Source: Planning Commission (2005). Internal Communication.

Exhibit 2: Summary of Responses Given by the Stakeholders
Adani Logistics (a very large logistics operator with its own port ICD and rail operations) was in favour
of an entry fee but not as high as was recommended by RITES. They agreed that an entry fee was
required to discourage non-serious players. One of their suggestions was that credit must be given for
investments already made. The company proposed that future freight payment of two years should be
adjusted against 50% of the entry fee and CONCOR must also pay on the same basis. They were not
in favour of a surcharge based on volumes since ‘multiple charges under various heads would
complicate the commercial operations’. They also suggested that the number of players on any given
route should be no more than 4. According to Adani Logistics, both technical and financial aspects
needed to be considered in the selection of operators instead of bidding for selection. And to the
question of whether a party with 200 flats should be considered as an accredited operator, they
responded that anyone who owned 450 flats (ie, 10 trains) should be considered an accredited
operator. Preference in selection, in their view, should be given to port/rail track companies, which
also had trading and ICD operations. As regards train slots, they were in favour of ‘first come first
serve’ basis of dispatch.
Kutch Railway Company (a JV of the MoR, Kandla Port Trust, Government of Gujarat, and Gujarat
Adani Ltd) was of the opinion that JVs of Railways need not be charged entry fees, but a charge of `
5 lakh per flat could be levied on all, and each route may be restricted to 4 to 5 operators. They were
against stringent technical criteria but were in favour of those who had or could augment rail capacity.
To schedule trains, they too were in favour of ‘first come first serve’ as the basis of train dispatch.
Central Warehousing Corporation (CWC), a public sector entity, pointed out its claim for container
operations as it had already invested in 34 CFSs/ICDs and was handling 0.9 million TEUs despite not
being allowed entry into container train operation for which its application since 2001 had been
pending with MoR. It had been allowed a rail linked ICD at Loni (near Delhi) and a rail linked CFS
near JN Port, Mumbai under the 1994 policy of MoR. In its response to the questionnaire, it felt that
the new entrant should have at least 10 years experience in container related businesses, an annual
turnover of ` 500 crores, investment of ` 100 crores in container related infrastructure, should be
already operating ICDs/CFSs with 0.5 million TEUs handled, and should be making profit for the last
five years. Each of these factors was to be given equal weight in selection of operators. CWC felt that
there was no need of any entry fee and that if Railways required resources, it could levy a surcharge
on the haulage charge uniformly. While no rationing of number of trains per operator should be
allowed, CWC felt that no operator including the incumbent should be allowed more than 50% on a
route. In case an entry fee is insisted by IR despite opposition from other Ministries and the PC, CWC
wanted the investment in rail infrastructure to be set off against the proposed entry fee. It also felt that
the permission to new entrants should be given for five years.
MAERSK, an international player in the business, felt that the concession agreement should be for 30
years considering the long life of the assets. It wanted the IR to specify both the available capacity on
a route or corridor in terms of number of trains and the maximum and minimum number of operators
on a route based on the capacity and viability. This would prevent chaos while allowing competition
among few serious players. It felt that estimating minimum number of trains, which would ensure
viability of an operator, is critical. Maersk argued that the additional capacity, once available, should
be allocated to the players allowed entry on the route or corridor. On the selection of operators, it felt
that the selected operators should have experience in train operations or should have an experienced
operator as part of the consortium; the operators should have financial capability to undertake
investments during the tenure of concession. Maersk was against any entry fee and suggested that, if
imposed, the fee should be set off against haulage charges payable to IR over a period of time. It
assumed that the IR would provide railway land at reasonable cost for development of rail sidings. It
also suggested allowing common user rail sidings by the operators through SPVs (special purpose
vehicles) so that each of them did not have to develop sidings independently. Another suggestion was
that the tariff on haulage and all other charges be such as to enable operators to effectively compete
with road; it felt that the idea of 10-15% share of the railways in additional traffic revenue was not
justified and asked for the financial model used by RITES to be revealed and included in the
RFP/RFQ. Finally, the company also wanted a level playing field vis-a-vis CONCOR.
One of the participants, NYK Line, a global shipping line, wanted clarification on whether the policy
would only be for EXIM Traffic or for domestic traffic as well. NYK had proposed that if for a “particular
route the number of operators that may be permitted is to be based on the capacity available, then a
bidding process ought to be undertaken in which the companies will quote how much deposit they
would make for being selected for operating trains. The total deposits of the successful applicants
would be kept with an entity like IRFC/RVNL, etc who would pay to the applicants, interest on the
balance portion of deposit at a predetermined rate which should be lower than the borrowing rate.
This deposit will progressively get offset against haulage charges payable when the applicant starts
running container trains”.
Among other stakeholders, Shipping Corporation of India (SCI), Sattva, Gateway, and JM Baxi were
in favour of either charging no entry fee or considering fee as a deposit to be refunded completely.
P&O Ports, CM & CGM Global Pvt. Ltd., NYK Line and PRCL supported a lower entry fee as
compared to RITES proposal.
Source: Planning Commission (2005). Internal Communication.

Exhibit 3: Policy to Permit Various Operators to Move Container Trains

on Indian Railways
The policy to permit rail linking of Inland Container Depots (ICDs) by private parties other than M/S
Container Corporation of India Ltd. (CONCOR) and allowing them to move container trains on the
same lines as CONCOR for both international and domestic traffic has been under consideration of
Ministry of Railways (MoR) for quite some time. In pursuance of the decisions taken on this issue,
revised policy guidelines in supersession of the earlier letter No91/TC(M&S)/6/2/volII dated 30.11.94
shall be as under:
1 Eligibility
1.1 The scheme is open to all registered Indian public/private sector companies/persons either
individually or as a joint venture. It will include Indian registered companies of foreign entities.
1.2 EXIM Traffic

The prospective operator should have suitable access to a rail linked ICD with adequate handling
capacity in the hinterland/inland location for handling of container trains.
OR
The operator should enter into an agreement with an existing rail ICD operator/rail terminal operator
for using his facility for container train operations within six months of obtaining ‘in principal’ approval
from MOR.
OR
The operator should give an undertaking that he will develop his own ICD with rail facility within a
period of three years from the date of ‘in principal’ approval to operate container trains.
1.3 Domestic Traffic

The prospective operator should have suitable access to two rail linked ICDs with adequate handling
capacity in two hinterland/inland locations for handling of container trains.
OR
The operator should enter into an agreement with an existing rail ICD operator/rail terminal operator
for using his facility at two locations for container train operations, within six months of obtaining ‘in
principal’ approval from MOR.
OR
The operator should give an undertaking that he will develop his own ICD with rail facility at two
locations within a period of three years from the date of ‘in principal’ approval to operate container
trains.
1.4 The applicant should have experience of the following, or should be engaged in any of the
following activities:
• Transport
• Trade and Commerce
• Infrastructure
• Handling of Goods/Cargo
• Port/Land Terminal operations
• Logistics
• Warehousing
• Manufacturing
• Leasing
2 Regulation of Rail Container Operations

In order to regulate the entry of new rail container operators on lR network, various routes have been
grouped into four categories largely based on the existing as well as anticipated traffic volumes on
different rail corridors serving gateway ports. These categories are as follows:
2.1 Category – I: JN Port/Mumbai Port - National Capital Region Rail Corridor and beyond
This category includes all existing/future ICDs serving JN Port/Mumbai Port in National Capital Region
like Tughlakabad, Dadri, Gurgaon, etc. It also includes all destinations reached via National Capital
Region like Dhandari Kalan, Moradabad, etc. This category includes all domestic traffic.
2.2 Category – II: Rail corridors serving JN Port/Mumbai Port and its hinterland in other than
National Capital Region and beyond
This category includes all existing/future, ICDs serving JN Port/Mumbai Port at locations other than
those covered in category I. It also includes all domestic traffic except on category I routes.
2.3 Category – III: Rail corridors serving the ports of Pipavav, Mundra, Chennai/Ennore, Vizag and
Kochi and their hinterland
This category includes all existing/future ICDs serving these ports. It also includes all domestic traffic
except on category I routes.
2.4 Category – IV: Rail corridors serving other ports like Kandla, New Mangalore, Tuticorin,
Haldia/Kolkata, Paradip and Mormugao and their hinterland and all domestic traffic routes
This category includes all existing/future ICDs serving these ports. It also includes all domestic traffic
except on category I routes.
3 Financial Capability
3.1 In case of an individual or a single company, either the turnover or the net worth should be a
minimum of ` 100 crores.
3.2 In case a number of companies form a consortium for the purpose of operating container trains,
each constituent member should have either annual turnover or net worth of at least ` 50 crores.
3.3 Companies which have been declared sick under SICA Act will not be eligible to participate in
the proposed scheme either singly or in association with the other companies for container train
operation.
4 Approval Process
4.1 If the proposed operator has to set up a new ICD, then for rail linking the ICD he must obtain the
requisite permissions from the concerned authorities of the Government of India to set up and
operate the same within six months.
4.2 The proposed operator should submit his request in writing to MoR indicating therein his legal
identity, intended scope of operations for the next five years at least, proof of complying with
various eligibility criteria indicated in this policy, and willingness to abide by the terms and
conditions laid down in the policy and as amended from time to time.
4.3 Based on the documents furnished and clarification, if any, Railways will give their ‘in principle’
approval. In case the prospective operator fails to indicate his readiness to operate his container
trains to Railway's satisfaction within 3 years of grant of ‘in principle approval’ it will be deemed
to have lapsed unless prior extension is given by Railways at its sole discretion.
4.4 Before actually commencing operations, the operator will enter into an agreement with the
Railways containing the detailed operating and accounting procedure: including the ownership
of the new lines/assets and other relevant details. The agreement will have provision for suitable
arbitration procedure for resolving any dispute.
4.5 The scheme will be open for one month every year.
5 Registration Fee
5.1 At the time of submission of requests to run container trains, every applicant would be required
to deposit a non-refundable registration fee of ` 50 crores for applying for all categories of routes
including category I and ` 10 crores for each individual category of routes except category I.
Applications only for category I routes will not be accepted.
5.2 The registration fees of applicants who are not found eligible will be refunded without any
interest.
6 Modalities of Granting New Licences

6.1 In case the successful operator opts for category I, he will get a flexible permission to run trains
between any pairs of points in the entire country. This will include permission for all other
categories also. In case the operator applies for a particular category (except category I), he will
get permission to run trains between any pairs of points in that category only for EXIM traffic and
in domestic traffic for all routes, except those in category I.
6.2 There will be no limit on number of trains on any of the routes.
7 Terms and conditions

7.1 The container trains of various operators will normally be dispatched on a non-discriminating
manner on 'first come first serve' basis, subject to any operational exigencies and/or restrictions
from time to time.
7.2 ICDs will be treated like private sidings with the extant rules and procedures laid down for
private sidings' applying mutatis-mutandis to them.
7.3 Land and other related facilities required for railway operation and the .track connecting the ICD
to the nearest rail head will have to be provided by the operator at his own cost. However, if
railway land is available, he can apply for the same on the normal terms and conditions laid
down by MoR.
7.4 For movement of containers, the operator will procure his own rolling stock/containers according
to Research, Design and Standards Organization (RDSO) approved design. The rolling stock
will be inspected as per rules in force.
7.5 Loading and unloading of containers in the ports/ICDs shall be the responsibility of the operator.
7.6 Maintenance of track will be done by the operator at his own cost, with IR being paid for
inspection/supervision according to the prescribed prevailing rates. Maintenance of rolling stock
will be done by IR, for which the prescribed charges will be recovered from the operator.
7.7 The operator will allow IR to enter any of its premises for inspection and for scrutiny of
documents pertaining to rail-related operations and provide necessary and reasonable facilities
for doing so.
7.8 The operator can carry all goods subject to conditions specified in the goods tariff, red tariff and
under provision of Indian Railway Act and any other instructions issued on the subject by MoR
from time to time.
7.9 The movement of containers/flats will only be in block rakes of prescribed standard sizes for
different types of wagons as notified by the Railways from time to time.
7.10 IR's Freight Operation Information System (FOIS) will also cater to the party's requirements for
an integrated management and operations information service. The operator will provide all
relevant data as required by FOIS. He will be given 'read only' access to this system at
reasonable cost.
7.11 The operator will pay to the railways haulage charges applicable uniformly to all operators, as
notified/fixed by the Railways from time to time.
7.12 For payment of haulage charges, the provisions of Commercial Manual and other guidelines
issued from time to time will be followed.
7.13 Documentation work, including issue of Railway Receipt (RR) for haulage charges will be done
by Railway staff posted by Railways in the ICD. The cost of such staff will be borne by the
operator and will be charged separately.
7.14 The operator will charge his customers for rail haulage, terminal handling: ground rent, etc. on a
market determined basis and railways will not exercise any control over such pricing.
7.15 All operations like shunting, placement, withdrawal, formation, etc. within the ICD will be done
on party's advice and the party will be charged separately for such services: as per the
agreement signed between the two.
7.16 There will be no demurrage charges. Railway will however levy stabling charges as per rates
notified from time to time in case rolling stock belonging to the operator is stabled on IR network.
7.17 The rail operator will be a common carrier as defined under Indian Railway Act.
7.18 Normal rules in respect of claims will be applicable according to the Indian Railway Act, 1989.
8 Period of Validity of Permission for Operating Container Trains

8.1 The validity of permission will be for a period of 20 years from the date of operation of container
trains by the operator. The permission can be extended by 10 years to the same party after
expiry of the validity of permission subject to satisfactory performance and on payment of the
fee as applicable at that time, which will be decided by Railway Board.
8.2 An operator will be permitted to exit from the market or transfer the permission to another
operator for container train operation subject to the latter fulfilling the selection criteria and
subject to prior approval of the Ministry of Railways. This permission will however, be granted
only one year after rail borne container traffic has commenced from his ICD
9 Cancellation of the Permission and Dispute Settlement

9.1 In case the operator does not follow the rules laid down by Railways for safety of goods carried
or of railway property or any rules laid by the Government for movement of containers, the
operator can be penalized as notified from time to time or permission given to the operator can
be cancelled by giving one month's notice.
9.2 In case the operator wants to terminate operation of container trains prematurely, he will give a
request in writing to the Ministry of Railways with three months’ notice.
9.3 On cancellation of the permission, no part of the registration fee will be refunded to the party.
9.4 In case of any dispute on this issue between the operator and the Railways, the decision of the
Railways will be final.
9.5 Any dispute between the operator and the Railways will be resolved within the framework of the
agreement to be signed between the two as per paragraph 3.4 of the policy.
9.6 For resolving disputes on the issues pertaining to the siding for the ICD, claims for damages,
haulage charges, etc, the operator can seek redressal by resorting to the relevant provisions of
siding agreement, Railway Claims Tribunal or Railway Rates Tribunal.
10 This policy is in supersession of all earlier decisions on running of container trains on IR

and shall be in effect from the date notified in the Official Gazette of India.
Source: MoR (2006), New Delhi .The Gazette Notification dated 26th September, 2006,
Exhibit 4: Entrants
S Name of Company Promoter Group Promoter’s Other Activities Category Licence Fee
No Paid
(` Crore)
1 Adani Logistics Adani Group Ports, container terminal, I 50
railways, CFS
2 Central Warehousing PSU under Ministry of Consumer Affairs, Food and Public Warehousing, CFS I 50
Corporation (CWC) Distribution
3 CONCOR PSU under Ministry of Railways Incumbent I 50
4 Emirates Trading Agency Emirates Trading Agency Shipping and port services I 50
5 Gateway Rail Freight Gateway Distriparks CFS I 50
6 Hind Terminals and MSC Hind Terminals (subsidiary of Sharaf Group, UAE), Shipping, freight forwarding I 50
Agency Mediterranean Shipping Company (Geneva)
7 India Infrastructure and APL India (subsidiary of NOL, Singapore), Hindustan Container shipping, I 50
Logistics Infrastructure Project and Engineering infrastructure entrepreneur
8 Container Rail Road DP World Ports, container terminal I 50
Services
9 Reliance Infrastructure Reliance (ADAG) Industry in general I 50
Leasing
10 Sical Multimodal And Rail SICAL Logistics Ltd CFS, container terminal, I 50
Transport shipping agency
11 Delhi Assam Roadways Delhi Assam Roadways Trucking IV 10
12 Innovative B2B Logistics Bagadiya Shipping and Bothra Brothers (P) Ltd Shipping agency and IV 10
Solutions entrepreneur
13 Boxtrans (India) Logistics JM Baxi & Co Container terminal, CFS, IV 10
Services stevedoring
14 Pipavav Rail Corporation Gujarat Pipavav Port Limited and MoR Ports, railways III 10
[Compiled from Various Sources]
www.arshiyainternational.com, accessed on April 7, 2010.
www.hindterminals.com, accessed on April 7, 2010.
www.inlogistics.in, accessed on April 7, 2010.
www.darcl.com, accessed on April 7, 2010.

Container Train Operations - Introducing Competition (B) PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Container Train Operations - Introducing Competition (B) PDF

Uploaded by

Copyright:

Available Formats

This document is authorized for use only in National Rail and Transportation Insttitute's PG; Business Ethics course

Indian Institute of Management

Container Train Operations:

1. A meeting of the empowered subcommittee of the Committee on Infrastructure (CoI)

II. PLANNING COMMISSION’S CONCERNS ON RITES’ PROPOSALS

Level Playing Field

Revised Paper by the PC

Concerns on Entry Fee

Terms and Conditions

Further Inputs by the PC

Entry Fees and Revenue Share

III. RESPONSE FROM THE RB

IV. MEETING WITH STAKEHOLDERS

V. IMG MEETING AND THE DRAFT POLICY

VI. COMMENTS OF THE PC

VII. THE FINAL POLICY

Table 1: Licence Categories

An analyst studying the process made the following observations:

Exhibit 1: Summarized Terms and Conditions by PC for the Agreement

Source: Planning Commission (2005). Internal Communication.

Exhibit 2: Summary of Responses Given by the Stakeholders

Source: Planning Commission (2005). Internal Communication.

Exhibit 3: Policy to Permit Various Operators to Move Container Trains

1.2 EXIM Traffic

1.3 Domestic Traffic

2 Regulation of Rail Container Operations

6 Modalities of Granting New Licences

6.2 There will be no limit on number of trains on any of the routes.

7 Terms and conditions

8 Period of Validity of Permission for Operating Container Trains

9 Cancellation of the Permission and Dispute Settlement

10 This policy is in supersession of all earlier decisions on running of container trains on IR

You might also like