Haryana and Railways Ministry Forms JV Company

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MOU for “Formation of Joint Venture Company for Development of Railway Infrastructure in the State” was signed on 3rd June, 2016.

The MoU was signed in the context of Railway Minister’s Budget Announcement regarding setting up of JV Companies with the State Government for developing railway infrastructure in the States.

Salient Features of MoU: –

The MoU envisages formation of a Joint Venture company having 51% stake of the State Government and 49% stake of Ministry of Railways.

Thus, the JV company shall be fully owned by the Government.

The company will primarily identify projects and possible financing avenues in addition to Govt. of India and the State Government.

After finances for a project are tied up, project specific SPVs or special purpose vehicles shall be formed. These SPVs can have other stake holders from Industries, Central PSUs, State PSUs etc.

However, the JV companies shall be 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 shall be based on already established formula being used for inter zonal apportionment of revenue.

The most important aspect of this MoU is that the ownership of the land shall vest with the SPVs which is a departure from previous practice. 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.

Signing of this MoU will be followed by signing of Joint Venture Agreement for which draft has been made ready.

Background:

In view of the growing demands for railway lines in various states and huge requirement of funds to execute them, Minister for Railways announced in his budget speech regarding setting up of Joint Ventures with states for focused project development, resource mobilization, land acquisition, project implementation and monitoring of critical rail projects.

17 State Governments consented for formation of Joint Venture Companies in collaboration with the Ministry of Railways for development of rail infrastructure in their respective States.

MoUs have already been signed by the Ministry of Railways with seven State Governments Odisha, Maharashtra, Chhattisgarh, Haryana, Andhra Pradesh, Telangana and Kerala.

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