SPV Rail Line Projects in Chhattisgarh Growth Opportunities

SPV Rail Line Projects in Chhattisgarh Growth Opportunities for All Chhattisgarh Railway Corporation Limited

Rail Network in Chhattisgarh • Freight Earnings of SECR ~ 1/6 th of Total Freight Revenue • Existing Rail Network: ►Total length: 1, 196 km ►Rail Density (km/ 100 sq. km area) is 0. 89 against National avg. of 1. 95 ►Only 16 out of 27 districts connected with Rail Chhattisgarh • Chhattisgarh being a resource rich state needs extensive Rail network for utilization of its full capacity. 2

The need for augmentation of Rail Infrastructure. . Coal Production ► Coal production in Chhattisgarh 2015 -16 ► Estimated coal production in Chhattisgarh in 2021 -22 : 128 MT : 362 MT Iron Ore Production ► Iron ore production in Chhattisgarh 2015 -16 ► Estimated iron ore production in Chhattisgarh in 2021 -22 : 30 MT : 60 MT Cement Production ► Cement production in Chhattisgarh 2015 -16 : 25 MT ► Estimated cement production in Chhattisgarh in 2021 -22 : 40 MT ~200% increase in production 100% increase in production 60% increase in production Increasing coal production in surrounding areas of Odisha and its movement to Maharashtra and Western States via Chhattisgarh ► Matching evacuation infrastructure to be developed to keep pace with increasing mineral and metal production in Chhattisgarh and Odisha 3

Background • In Feb 2012, Mo. R entered into an Mo. U with Go. CG to develop some rail corridors. • State Govt offered to help in land acquisition. • It was of course prompted by the need to connect coal blocks of CG to rail head. • As a result the Participative Policy was born in Nov 2012. • Based on the information available at that stage and to cater to immediate need of evacuation of coal, three corridors were conceived by SEC Railway and Go. CG, namely: – East Corridor: Bhupdeopur-Chhal-Dharamjaigarh-Korba – East-West Corridor: Gevra Road-Pendra Road – Katghora-Surajpur 4

Ongoing Railway Projects in Chhattisgarh (SPV Route) • Rail Projects being developed ►East and East West corridor - 311 km (through SPV); SECL– 64%, IRCON– 26%, CSIDC– 10% equity) East West Corridor East Corridor ►Dalli-Rowghat 95 km; funding by SAIL ►Rowghat-Jagdalpur 140 KM (through SPV; NMDC – 43%, SAIL – 21%, IRCON – 26%, CMDC – 10% equity) 5

Railway Development through State JV Route • JV company, Chhattisgarh Rail Corporation Limited (CRCL) , formed with 51% (Go. CG) and 49% (Mo. R) equity • The identified rail projects are to be executed by project specific SPVs • The JV company will have minimum 26% equity in project specific SPVs • 4 projects have been identified for implementation: ► Dongargarh–Khairagarh–Kawardha–Mungeli–Kota–Katghora linking Bilaspur (270 km) ► Durg-Raipur – Kharasia via Balodabazar (272 km) ► Parsa-East/East-west corridor (70 km) ► Ambikapur – Barwadih (180 km) 6

Development of rail corridors through JV route 7

Benefits from these projects. . Ministry of Railways State of Chhattisgarh Strategic Partners – Creation of additional rail infrastructure through other sources of finance (Debt & Equity) – Expansion of Rail network in new areas – Access to Railways for larger population of the state – Evacuation of minerals and coal from the mines of state – Socio economic development of remotely connected areas – Connectivity of industry and mines – Participation in project development and implementation – Return on investment 8

Present status and way forward • A Feasibility-cum-DPR was prepared. It involved: – A Traffic Report – An Engg. Preliminary Survey Report – A Financial Analysis • It is important to conceive the route/interface with existing rail system carefully: – This determines the traffic that you are able to attract for the project section – We should be able to tap all the traffic en-route • As of now, two of these projects have been ‘In Principle’ approved by the Railway Board. 9

Meaning of ‘In Principle’ Approval • As per the Guidelines of project Appraisal issued by Ministry of Fin. (Deptt of Expenditure), the Financial Adviser is competent to issue IPA. The important considerations for issuing IPA are: – Adherence of project proposal to existing policies. – A visible road map of project execution including financial closure. – A prima facie technical concurrence for the project fitting into overall scheme of railway development/standards of construction/estimation etc. • It further entails more responsibilities on project proponents: – Identify the source of finance, terms and conditions – Finetune 10

Meaning of ‘In Principle’ Approval • It further entails more responsibilities on project proponents: – Identify the source of finance, terms and conditions. – Finetune traffic needs like connectivity, loading/unloading lines, passenger infrastructure. – Changes and adjustments after detailed/Final Location survey. – Better assessment of line capacity, traffic and therefore a better financial model. – Adoption of a transparent method of choice of partners, roadshows, etc. – Incorporation of SPVs – Financial due diligence 11

SPVs and our understanding • Incorporation of SPVs is important for the following considerations: – A Corporate body is required for signing Concession Agreement. – It is required for identifying partner strength and financial closure. – It may be required to initiate land acquisition in some cases. • Suggestions: – It will be helpful if SPVs are incorporated as wholly owned subsidiaries in the first place even while search for partners is going on. – JVA may be so drafted that majority stake stays with State JVs. It is important to understand that non-railway personnel find it too cumbersome to implement a railway project. – SPV Boards should be chaired by railwaymen drawn from the BOD of State JV. – SPVs should hand over the work of execution to JVC. 12

Land Acquisition Process • In case of CG, it is a foregone conclusion that LA will be carried out under Railway Act. • There has been some discussion on who can be delegated the powers of operating that Act. – Let us distinguish between two Authorities the Act recognizes: • The Central Govt or its nominee who is vested with the power of issuing requisition and acquisition order through notifications. • A nominated Competent Authority( A neutral person) who exercises quasi judicial powers of summoning records, assessing compensation and adjudicate on objections and claims. (He/she is appointed by the Central Govt. , normally a revenue official of the state) • At present GM of the concerned Railway has the power of acquiring land under Railway 13 Act.

Concerns regarding Land Acquisition Process • LA of a 270 km long project can be done in 5 -6 tranches. • It requires two common notifications and 2 notifications, two paper publications, two public hearings, signing of land requisition papers(maps etc. for each village) per tranche. • It takes about 15 days to get a set of papers signed in GM office as 5 to 6 authorities sign all documents. • LA activity is often repeated to take care of left over/ correction of records etc. • It is assessed that about 180 days will be lost in getting all the signatures only, leaving aside the queries which GM office may have as they are actually not involved in the process and may have a genuine doubt. Release of payment from GM office takes much more time despite depositing full payment by the JVC/SPV. • It is recommended that Central Govt’s powers to acquire land may be delegated to the 14 JVC.

Latest Developments • Dongargarh-Katghora project was originally conceived to carry surplus coal traffic from Raigarh Mand coalfields only. • Along the way, we realized that there are many existing washeries near Katghora which are under utilized because of evacuation constraints. As on date about 15 MTPA washed coal is being dispatched to Maharashtra and Gujarat. Project route provides the shortest path to these destinations. • Kharsia- Naya Raipur project was conceived for carrying surplus coal arriving from Raigarh -Mand via East orridor based on line capacity constraints of JSG-BSP section. • Cement manufacturers who don’t have a siding tend to gain on lead. • Power plants along the way get direct connectivity and may join the projects. • A Consultant has been engaged to carry out these campaigns systematically. 15

Dongargarh-Katghora (270 km) ► Will cater to surplus coal being routed towards Maharashtra/Gujarat from Raigarh-Mand Korba Coalfields based entirely on shortest route. ► Additionally cater to washed coal traffic. ► Anticipated traffic is in excess of 30 MTPA. ► Cost Rs. 4874 Cr. ► Land Cost 1050 Cr. ► Period of Constn. 5 years. ► Equity IRR 19% 16

Kharsia-Naya Raipur-Durg (270 km) ► Will cater to surplus coal being routed towards Maharashtra/Gujarat from Raigarh-Mand Coalfields based entirely on line capacity constraints. ► Additionally cater to cement/clinker as well as pit head destinations. ► Anticipated traffic is in excess of 30 MTPA ► Cost Rs. 4934 Cr. ► Land Cost 1050 Cr. ► Period of Constn. 5 years. ► Equity IRR is estimated as 19% 17

Latest Developments • Fine tuning L-sections, land corridors, RUB/ROBs, Electrical TSS etc. , OHE Depots, ARTs, machine and Hot Axle Sidings, Quarters and Offices for the purpose of land acquisition. • Anticipating partner requirements and catering to it. • Discussing yard lay outs, creating stabling facilities ahead of main line junctions. Holding informal discussions with Railway officials about junction arrangements. • Discussions on Concession Agreement, LA process, SPV formation etc. • Evaluating bank and FI offers of finance. • Fine tuning Traffic Report and Financial Models. ( The process to go on till Financial Closure/Sanction of Project). 18

To Do… and Take Aways… • The following tasks are to be completed: – Go for SPV registration. Ownership of the DPR for a project to be financed by the SPV is important. – Immediately go for Forest registration: Work out approx. forest land involved. – Seal the deals with strategic partners/ Enter into JVA. – Start the process of Project execution by drafting various documents like RFQ, RFP etc. – Of course, MD deserves some assistance. • Take aways for the audience: – It helps the JVC if State has some ideas for network expansion. We can always modify an existing approved/unapproved project to enhance its bankability – Real leadership of the JVC is in railway hands. Don’t depend too much on others to lead you. 19

Thank you 20