India has the fifth largest railway network in the world which is managed and operated by the Ministry of Railways, Government of India (MOR). The MOR manages and operates the trains on the Indian Railway (IR) network. Till now, the Indian Railway Catering and Tourism Corporation Limited (IRCTC), a Government of India owned listed entity, was the only private entity (although owned by the Government) permitted to operate passenger trains on select routes. Despite the size of the IR network, there is a huge unmet demand due to capacity constraints which often leads to loss of passenger business to other modes of transport.

The MOR has now decided to permit private entities to undertake passenger trains operations on select routes in India. This has been done to:

  • introduce modern technology rolling stock;
  • reduce transit time;
  • improve user experience;
  • augment the capacity; and
  • reduce supply demand deficit.

The MOR had issued draft bidding documents (i.e., request for qualification (RFQ) and model concession agreement) inviting comments from the stakeholders on these documents. The comments were required to be sent on or before 17 January 2020. News reports suggest that large domestic and global players like Tata Realty and Infrastructure, Bombardier, Hyundai Rotem Company, IRCTC, CAF India, Hitachi India and South Asia, Essel Group, Adani Ports and SEZ, Talgo, Siemens and Alstom Transport have expressed interest.

In this article we have based on our review of documents issued by MOR provided a high-level overview of the key features of MOR's proposal and certain other factors that may be relevant for private players interested in this sector.


Operation on IR network – The private passenger trains will be operated on the IR network. In this regard, the MOR has identified 100 origin destination pairs which have been grouped into 12 clusters (each is referred to as a "Project") such that each Project would require about a minimum of 12 trains. Commercial centres, metro cities and tourists' destinations like Mumbai, Delhi and Jaipur are amongst the list.

Selection of train operators – Open to all and award of concession on the basis of a two-stage international competitive bidding. .

Design, build, finance and operate (DBFO) concession – The selected bidders will be responsible for designing, procurement, building, financing and operation and maintenance of private passenger trains. Each private passenger train will have a minimum of 16 coaches and a maximum number of coaches that does not exceed the longest passenger train operating on the respective path.

Non-discriminatory access to IR- network – MOR will provide non-discriminatory access to private train operators to the IR track and signalling network. MOR will ensure fitness of the IR network for smooth operations of the trains in accordance with the train operation plan.

Market-linked fares – The selected bidder will have the right to determine and collect nondiscriminatory fares from the users.

Other revenue potential – In addition to the non-discriminatory fare from users, the selected bidder could earn revenue from provision of value added/ differentiated customer services including food, beverages, linen, infotainment and generate rental income from use of commercial or other spaces and advertisements on the trains.

Concession and exclusivity period – The concession to operate private passenger trains will be for a period of 35 years. The selected bidder will enjoy an exclusivity period of 3 years during which period no new trains will originate from the originating railway station within 30 minutes before and after the departure of the private passenger train on the said path.

Estimated project cost – The cost of each Project is estimated to be Rs. 1,800 crore (USD 252 million approx.). However, the bidders will have to undertake assessment of actual costs.

No sourcing condition – Technology agnostic procurement by the selected bidder i.e., subject to compliance with the IR standards, the selected bidder is free to procure trains either with distributed power or through powerheads. Subject to compliance with the IR standards, the selected bidder is free to procure trains from its own choice of source.

Maximum speed – The private passenger trains will be designed for a maximum permissible speed of 160 kmph.

Prescribed performance parameters – Specified penalties will be recovered from the selected bidders for failure to meet the prescribed performance standards and outcomes.

Payments to MOR – The selected bidder will have to pay to the MOR, the revenue share (i.e., a percentage of gross revenue) as per the offer made in the bid and haulage charges towards terminal, traction energy, transportation, track maintenance and signalling costs.


Technical eligibility – The bidder should have paid, received, collected and/ or appropriated a sum of more than Rs. 2,700 crore (USD 378 million approx.) over the course of last 5 financial years for/ from construction, development and/ or operation of eligible projects. Broadly, eligible projects are described as railway, travel and tourism and core (such as highway, power, telecom, industrial parks, etc.) sector projects.

Financial eligibility – The bidder should have: (a) a minimum net worth of Rs. 450 crore (USD 63 million approx.) at the close of the preceding financial year; (b) in case an applicant is an alternative investment fund or a foreign investment fund, a minimum investible fund of Rs. 450 crore (USD 63 million approx.) which it should be permitted to invest in a single investee entity.

In case of a consortium, the members having at least 26% equity each can collectively satisfy the technical eligibility and the financial eligibility.


The bidding is open to all domestic and foreign entities. The applicant may be a natural person, private entity, government-owned entity or a combination of any of these.

A bidder can be a single entity or a group of up to 6 entities (i.e., consortium) coming together to implement a Project.

The bidder will, if successful, be required to incorporate special purpose vehicle (SPV) in form of a company to execute the concession agreement.

The lead member of the consortium should have at least 26% of the equity in the SPV and each of the members of the consortium whose experience is to be evaluated will have to have at least 26% of the equity in the SPV.


Two - Stage Bidding Process

Qualification stage/ RFQ process –The MOR will pre-qualify and shortlist bidders upon compliance with eligibility conditions. The bidder will have to pay the MOR a sum of Rs. 200,000 (USD 2,800 approx.) as a cost of the RFQ process.

Bid stage/ Request for Proposal (RFP) process – The MOR will invite the pre-qualified and shortlisted bidders to participate in the bid/ RFP stage. The bidding documents will be provided to the bidders on payment of Rs. 400,000 (USD 5,600 approx.). The bidders will have to submit their financial proposals. The bid will have to be accompanied by a refundable bid security of Rs. 100,000,000 (USD 1.4 million approx.).

Bid Parameter

The price bids will be evaluated on the basis of premium (i.e., revenue share of gross revenue) offered by the bidder to the MOR. The Project will be awarded to the bidder quoting the highest premium.

Limit of 3 Projects

A bidder can be awarded up to 3 Projects/clusters. However, if a bidder is found to be highest bidder for more than 3 Projects, such bidder will be awarded the 3 Projects with the highest premiums. For the remaining Projects, other bidders will be invited to match the bid submitted by the highest bidder. However, the maximum limit of 3 Projects to a bidder will not apply if it results in non-awarding of any Project.

Bidding process timelines

The MOR intends to complete the entire bidding process within a period of 180 days.



Performance security – The selected bidder will be required to provide a performance security (i.e., an irrevocable and unconditional bank guarantee) for a sum equivalent to Rs. 100 crore (USD 14 million approx.) within 180 of the execution of the concession agreement but before the appointed date (i.e., the date of commencement of concession period).

Escrow account – The selected bidder will be required to open an escrow account with a bank before the appointed date to receive the revenues. The nature and flow of funds to and from the escrow account will be in accordance with a separate escrow agreement (to be executed between the selected bidder, the MOR, the lender's representative and the escrow bank).

Commencement of commercial operations – The selected bidder will be required to commence operations on at least 2 paths on the IR network (covered in the Project) within 6 months from the appointed date and the remaining paths on the IR network (covered in the Project) within 1 year from the appointed date.

Restriction on change in control/ shareholding – The consortium members will continue to hold at least 51% equity, and each consortium member (whose experience has been evaluated in the qualification stage/ RFQ process) will continue to hold at least 26% equity (which will, in any event, not be less than 5% of the total project cost specified in the concession agreement), in the SPV for at least a period of 2 years from the date of commercial operations. Further, the SPV will be restricted from, without the MOR's approval, giving effect to (a) change in ownership i.e., acquisition of equity share capital (including by transfer of direct or indirect legal or beneficial ownership or control of any equity shares in the SPV) exceeding 15% of the total equity; and/ or (b) acquisition of control, directly or indirectly, of the board of directors of the SPV.

Additional Thoughts

The selected bidder is required to comply with applicable laws and obtain applicable permits and licenses. However, given that private sector is for the first time being permitted to operate passenger trains in India, the private passenger train operators may face challenges in understanding how the legal regime (which has till now only catered for MOR operating passenger trains) will apply to private passenger trains and there could be delays/ difficulty in identifying and obtaining applicable permits and licenses. The MOR should have ideally considered either taking this responsibility on itself or should have at least provided for a time bound single-window clearance mechanism covering all applicable permits and licenses.

The Government of India will have to carry out legislative changes to permit private players (and foreign investors) to undertake operations of private passenger trains in India. The current legislation and FDI policy do not permit private players (and foreign investors) to invest in the business of operating passenger trains in India. Further, there is no legislative framework catering to operation of private passenger trains in India and the current legislation assumes that passenger trains in India will only be operated by MOR. The Government of India will have to amend the Railways Act, 1989 to provide for a suitable legislative framework for operation of private passenger trains in India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.