Concor privatisation hits wrong track with land license fee revision

The Railway Ministry has introduced a new method of calculating the land license fee it levies from Container Corporation of India Ltd (Concor) for facilities built on Indian Railways land in a development that has the potential to derail the privatisation of the state-run rail hauler of containers.

Beginning April 1, the annual land license fee will be calculated at the rate of 6 per cent per acre of the industrial land value where the terminal is located, according to a circular issued by the Railway Ministry.

Till FY20, 41 of the rail hauler’s 84 inland container depots (ICDs) including its flagship facility at Tughlakabad near Delhi were running on land leased from Indian Railways for which it paid a land license fee of Rs 1,175 per loaded twenty-foot equivalent unit (TEU).

For the last three years, the land license fee rate was linked to the company’s percentage increase in profit after tax (PAT). In FY20, the land license fee was raised to Rs1,175 per loaded TEU from Rs1,015 per loaded TEU in FY19.

In early June, Concor said it has shut 15 under-performing terminals and returned the land to Indian Railways.

“With the revised calculation, the land license fee will shoot up like anything. It will affect Concor’s margins very severely,” said a government official briefed on the decision.

The revised calculation has the potential to make even the Tughlakabad facility, spread over 195 acres, unviable. In FY20, the flagship facility handled close to 400,000 twenty-foot equivalent units (TEUs), paying a land license fee of about Rs40 crore at the rate of Rs1,175 per TEU. With the new calculation, the land license fee is estimated to soar to about Rs300 crore, the official said adding that this could even lead to closing of the terminal.

Industry sources say that the move was part of a plan by cash-strapped Indian Railways to generate more funds by milching the Navratna PSU, its cash cow.

The government has recently said it planned to privatise all state-runs firms, except those in some strategic sectors.

In non-strategic sectors, if Concor is counted, being a Navratna, it would yield good revenue during privatisation. But, there are issues of land which could not lead to a smooth sailing, an industry official said.

By asking Concor to fork out a steep land license fee which will squeeze its margins, cash-strapped Indian Railways, is on the other hand depressing the valuation of the company ahead of privatisation.

There are views that the steep land license fee barrier would drive suitors away as the Indian Railways will have to continue with it post privatisation to avoid controversies.

“There is no reason why they should reverse it once Concor is privatised. Why should they be favouring a private entity by lowering the land license fee after privatisation,” the industry official said.

“Calculating land license fee at the rate of 6 per cent of the industrial land value where the terminal is located, can lead to complete losses. It can just turn the tables around on privatisation,” the industry official said.

“The government needs to think of how to keep the company afloat and improve the valuation of the company so that it can be alluring for buyers,” he said. “Otherwise, it would jeopardise the existence of any terminal operator for that matter. It has that potential to damage,” he said.

The revision in the method of calculating land license fee is unrelated to a separate move by the Railway Ministry, directing Concor to lease the land owned by Indian Railways on which it has built some of its terminals, for as much as 99 years. The lease rate is yet to be finalised.

Resolving the land issue is key to the planned privatisation of the Navratna PSU to avoid allegations of transferring Indian Railways land to a private entity at low rates.

Source: The Hindu Business Line