Rani Kamlapati (Habibganj) Railway Station Redevelopment: A World-class Dream Coming True—Case Analysis

This case traces the public–private partnership (PPP) contract awarded for the first railway station redevelopment project in India. Rani Kamlapati Railway Station, located in the central state of Madhya Pradesh, connects suburban areas of the capital city Bhopal to the large railway network in India, run by a central government departmental monopoly, Indian Railways. Indian Railways (IR) has separated core railway operations like scheduling, running and maintenance of trains from the supporting activities of managing the railway stations. Railway station development requires expertise in customer service management, facilities and commercial development and managing vehicular traffic flow to and from the station. Therefore, a nodal agency, Indian Railways Station Development Corporation (IRSDC) has been established by IR, to award and manage station development.

The main theme of the case explores the dilemma of public value creation through PPP projects. The original award of the station redevelopment contract is based on the conditions prevailing at the time of initiation of the project. Flexibility in the contract is warranted not only to address the risks that might arise in the longer term but also to ascertain the possibility of higher value creation based on the expertise of the concessionaire. The case presents a situation where the concessionaire offers an opportunity for higher value creation by design modifications, with no additional cost to the contract awarding public entity. The concession agreement has clauses facilitating such suggestions and possibilities of modification. However, the public entity is unable to realize the opportunity and does not permit the design modification. Delay in receiving permission compels the concessionaire to proceed with the current specifications to also adhere to the project timelines. The possibility of higher public creation is lost.

The case does not include sufficient details regarding the reason(s) the public entity, that is, IRSDC, has not provided permission for modification. One of the possible reasons could be the requirement of consultation and consensus among a larger group of stakeholders, as the suggested modification involved interconnectivity among other modes of local public transport. The requirement might include liaising and coordination with several public bodies, parastatal agencies and local government. The larger question the case then raises is about planning local infrastructure in an urban area, in a comprehensive manner, in the spirit of the 74th Constitutional Amendment, by creation of a Metropolitan Planning Committee, responsible for such coordination work if required. However, with the lack of details on this aspect in this case, this theme remains for the readers to ponder.

There are several aspects of the case context that require careful consideration while its delivery and in-class discussion.

Railways is the largest public transport network. In the Indian sub-continent, IR has the largest passenger share among transport modes. With its public sector monopoly, IR has always facilitated passenger transport by cross-subsidizing it with higher freight fares. Railway passenger fares therefore have not risen significantly over time, not even keeping pace with inflation, making it a preferred mode of transport for the lower- and middle-income classes. Railway passenger tickets are in high demand, and reservations are made in advance. All this implies heavy movement of passenger traffic at the stations, and the need for better connectivity with other modes of local public transport, to ensure smooth access to the railway station. The IR has been unable to fund the station development sufficiently, necessitating the task to be taken up in a project mode with private sector involvement.

A public monopoly, IR is coming to realize the possibility of value creation through PPP projects. A giant public sector organization, IR has been slow to recognize the value of efficiency and expertise brought in by the private sector. Only in 2012, more than 50 years after independence, IRSDC was established as a nodal body to involve the private sector in station redevelopment in a project mode. Railways has in-house technical expertise for operations and managerial acumen in the form of a wide cadre of professionally qualified employees. The importance of the Habibganj project for IR was extremely high, as exhibited by the suggestion from the Minister to the concessionaire to finish the project in less than the stipulated time. Successful completion of the project within the time frame was crucial for IR to showcase the utility and accomplishment of their decade-long planning.

Commercial development and private sector profitability is a key concern for the success of the project. Due to cross subsidizing passenger transport, IR has not been able to spend enough to develop railway stations in India. The case mentions that the stations fall far below international standards. It was clear that the station redevelopment effort was focused not only on improving passenger comfort and experience but also was aimed at making IR stations comparable to international standards. IRSDC had appointed leading international architectural and urban infrastructure firms to prepare the plan for redevelopment.

The project was to be funded by commercial development and use of vacant railway land. This is a unique position for a PPP project, where a land parcel for commercial development is already identified and provided upfront. Land identification and acquisition has been one of the major risk factors for PPPs in developing countries, causing delays and cost overruns (Vishnoi, 2023). In this case, IR identified vacant land to fund the station redevelopment. Land value utilization makes the project commercially viable, and project goals achievable as per the stipulated timeline.

Involvement of the private sector brings in efficiency and expertise. PPP project procurement process is laid on strong grounds of assessment of the technical and financial capabilities of the private party. This assessment is important to ensure a fair procurement exercise without the possibility of rent-seeking and for achieving desired outcomes. The case mentions M/s Ernest and Young was appointed as the bidding consultant for the award of the project. A three-staged process was followed to award the contract to M/s Bansal Pathways, a company with significant local expertise and network. The concessionaire-appointed firms known for their technical and project management capabilities. The architectural, technical and financial details of the projects were already worked out by internationally renowned firms. In addition, the concessionaire was given the scope to make changes in the design and suggest modifications in the project details through specific clauses in the concession agreement. For a project funded fully by the private concessionaire, provision of this scope was necessary to ensure viability.

Flexibility in PPP contracts is essential for value creation by the private sector and provide a hedge against the risks involved.

Flexibility in contracts can be viewed from two lenses:

• Contracts can be written to provide scope to the concessionaire to propose changes in the wake of changed circumstances, as envisaged while awarding of contract. Infrastructure projects are long-term contracts, with the possibility of unforeseen circumstances stalling or affecting the successful completion of the project. Flexible contracts realizing such possibilities and creating space for renegotiation/change in specification of terms are concessionaire friendly.

• Contracts can also be made flexible to take advantage of the expertise of the concessionaire. If after award of the contract, with better availability of information or through stakeholder consultation, the concessionaire can suggest modifications which are value enhancing for the project, such additional benefits could be reaped net of any additional costs by providing flexibility in the contract.

In the case, there is a clause providing the concessionaire the flexibility to suggest changes at any time during the implementation of the project. The concessionaire suggests a design modification to the station redevelopment plan without any additional cost to the IR. The changes will facilitate the integration of various other modes of public transport with the railway station, increasing accessibility and easing passenger movement.

Flexibility must be symmetrical, the possibility of private and public value enhancement in a pareto-optimal way must be ensured.

In the case, the concessionaire proposes two design modifications to the plan. However, only the increased commercial development modification benefitting the concessionaire is permitted. The second modification enabling higher value creation by integrating with other modes of transport ensuring smooth and faster access to the railway station is not pursued. In a typical principal–agent framework, for the nodal agency officials, a larger public value creation, which is out of the initial project scope, is not rewarding. The coordination efforts required would lead to additional time and resource costs. The concessionaire is not willing to put in those additional resources.

Involvement of multiple organizations at decision-making level makes the process slow, which may result in loss of opportunities for value enhancement.

This case is a typical example of a dilemma of public value creation through a stand-alone project and the challenges of projects requiring multi-stakeholder consultation. The case does not divulge details about whether any discussion or consultation was undertaken to consider the suggested modification. The fact that permission could not be granted for the project modification to be taken up, implies that either difficulties were faced in forming consensus, or the effort was not initiated. Public infrastructure projects, with linkages outside the scope of the organization managing them primarily, need higher-level institutional support. Railway stations are public spaces, and their use must be integrated with the other modes of transport. A public body looking at larger integration of public spaces in cities must be involved at the apex level in such projects, to ensure that possibilities of public value creation through integration are explored.

CONCLUSION

PPP projects for the provision of public infrastructure must be sensitive towards creating public value. Implementing such projects in a piecemeal approach would not optimize the returns from investment. During the design and consultation phase, pre-award of the contract, the involvement of all stakeholders in a comprehensive process is essential for public infrastructure projects. Once the project is finalized and awarded, there are rigidities of resources and timelines, making it difficult to reconsider the scope or to make large changes requiring coordination. Expansion of project scope can happen at the initiation stage.