Passenger Train Privatisation Not Without Cracks: Ind-Ra
After learning from previous public-private partnership models, the Indian government has shaped a new concession framework for choosing a private railway train operator. While the operator’s autonomy to fix railway tariffs lends strength to its credit profile, the absence of a non-competing clause for the route amplifies the cash flow risks, says India Ratings and Research (Ind-Ra). 
 
In a note, the ratings agency says, "The bid variable – revenue share – resembles ports or airports’ concession model, where the experience has been mixed for concessionaires. Additionally, the operators are obligated to pay haulage charges towards track maintenance, signalling, terminal cost and others on a per kilometres basis for a 16-coach train." 
 
"With the return-guaranteed airport model, there are minimal financial losses to developers. That being said, cargo-related risks in ports and terminals are a different version of concession with a higher risk," it added.
 
In the railway concession framework, long concession period of 35 years and full exposure to demand risk poses an elevated risk for the project. The corridor demand and traffic risk combined with competition from existing trains would influence developers’ return expectations. As such, demand risk is not a new phenomenon for infrastructure assets. 
 
Also, Ind-Ra says, the absence of limitations for developers to win more than one route concession opens up the opportunity to commingle multiple projects to raise funds. 
 
However, the ratings agency says it expects demand risks to outweigh benefits of pooling in the event of incorrect demand risk forecasting. Under the current system, Indian Railways cross-subsidises passengers by overcharging freight to minimise the losses generated in running passenger trains. 
 
Talking about revenues-volume risks, Ind-Ra says, "While demand risk also exists on the other sectors, the introduction of the competition elevates the risk in this model. In other sectors, there are some exclusivity clauses prohibiting competition. Absence of this clause casts higher uncertainty on revenues. The model allows 30 minutes’ exclusivity from the originating point. Nevertheless, the adherence to the timeliness such as emphasis on the reaching time and performance indicators, bodes well for the concession framework."
 
Although there is a price risk in revenues, private rail operators have autonomy in tariff. "Complete autonomy in tariff fixation lends strength to the model. While private ports have a similar concession style, tariffs are sometimes fixed on a mutually agreed basis between ports and off takers, whereas, the new model is business to business, with the freedom to set the tariffs. However, in the business to consumers model, the dynamics are different." 
 
Ind-Ra says it expects a dynamic pricing model similar to the taxi aggregator model. Also, the operator could reap high returns during the peak seasons and timings. This model could also emerge as a viable alternative to the air travel model, should the predictability to travel be established, it added.
 
Explaining operations risk, the ratings agency says, both operations and maintenance (O&M) are a responsibility with the private rail operators. Generally, in majority of infra assets, operations are undertaken by sponsors or a third-party contract. 
 
Ind-Ra says it would assess the capability and experience of the operator for arriving at the rating. Given the national security aspect, the concession grantor approval is required to appoint an operator as per the concession agreement. 
 
Given the minimum maintenance gap of either 31 days or 40,000km of running, the ratings agency says, the operator’s ability to maintain trains in a good condition to meet the key performance indicator plays a critical role in the assessment methodology. The haulage charges are paid for identified support from the Indian Railways.
 
"In the event of default by the government to meet the agreement, compensation equivalent to interest cost, O&M expenses and all costs attributable to such material breach would be paid. Non-availability of loss of revenues and debt obligations is a constraining aspect," the ratings agency says.
 
The tenor of the concession period is long and hints at a longer recovery of the capital. The concession also stipulates the key parameters such as punctuality and reliability, and upkeep of trains. 
 
"Given the long concession period and demand risk, another round of debt funding cannot be completely ruled out for refurbishing trains. That being said, the size of the funding requirement depends on the nature of capital deployment. Should the developer adopt a leasing style of operation similar to airlines, the cost outgo for the upfront capital investments will be lower," the ratings agency says.
 
Even for availability-based assets, the debt tenor beyond 19 years is rare. In this backdrop, marshalling a low-cost, long-tenor debt could be challenging. Consequently, Ind-Ra says, a refinancing risk exists in this model.
 
The ratings agency feels there is minimal risk of termination for the private rail operators. "While the termination payments are provided in the agreement, the clause limits the payment to Rs1.5 billion or the actual value of train depreciated at 3% annually. Although the costs of trains would be an important consideration, limiting the value to Rs1.5 billion during the initial phase may be sufficient," it points out. 
 
According to Ind-Ra, concessionaire default would be 70% of the adjusted depreciated value of the procured trains less insurance cover and government default would be 130% of the adjusted depreciated value of the procured trains.
 
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    Tatas and Tanishq: Are We Mistaking Image Building for the Real Thing?
    I almost missed the controversy over the Tanishq advertisement which was withdrawn under pressure from a hate-campaign that accused the company of promoting what bigots call #LoveJihad. When this happened, we were busy dealing with a SLAPP (strategic lawsuit against public participation) filed against us by the much-venerated group that owns the brand Tanishq. The case, filed without any notice to us, in a far-away district court, is based on a bunch of false claims, in order to obtain an ex-parte injunction from the court. 
     
    Incorrect averments, lack of notice or communication and improperly served legal papers coming from such a storied corporate house initially had us thinking it was a hoax. So we wrote to the directors and discovered that they are fully cognisant of this attempt to silence and intimidate a highly regarded author and columnist who wrote the article for us. Since the matter is sub-judice, I will leave out details, except one thing. Even before the legal action, the article was subjected to systematic and targeted trolling in the comments section, a fact that was noticed, and remarked on, by other readers as well. 
     
    All things considered, the SLAPP suit ought not to have surprised us. The Tata group, indeed, has a great legacy and, arguably, runs cleaner businesses that many of its peers; but there is plenty of recent and published history to show that the reality is vastly different from that image.
     
    In 2012, Ratan Tata approached the Supreme Court to stop the media from reporting on the Niira Radia tapes. In October 2016, Cyrus Mistry was sacked as chairman of the Tata group in a despicable coup (none of the reasons for Cyrus Mistry’s ouster have been proved or justified so far). Subsequently, most independent directors and senior executives, who dared to speak up for Mr Mistry, were kicked out. The Niira Radia tapes, whose publication was sought to be blocked by Ratan Tata, had already exposed the appalling strategies to influence political decisions and bag contracts, including the very shady dealings with C Sivasankar and the failed Unitech group. All this is quickly forgotten when we begin to attribute all kinds of virtues to the group based on the social messages of its advertising campaigns. That is precisely what these beautifully crafted advertisements are expected to do.
     
    They create and nurture the impression that this large business conglomerate, uniquely controlled by a bunch of charitable trusts, is really one big philanthropic organisation far removed from the machinations involved in bagging contracts and running businesses. If anything, the charitable and social work by the trusts gives the group a rare ability to influence policy-making and receive unstinted support from innumerable non-governmental organisations (NGOs) and activists it supports. It is an incredible power that has received little attention or analysis.  
     
    Coming back to the social messages of Titan’s evocative advertising, let’s hear it from an expert. Shivaji Dasgupta of Inexgro Brand Advisory puts it well when he says, “Let’s get it straight once and for all. Brands are not in the business of promoting social causes, unless they clearly add back to the business they are in.” As he points out, Titan is not alone. This is part of a new trend, made easy by the fact that social media can amplify messages through paid ‘influencers’. Besides, through digital marketing firms, they can be used to spread hate or gooey messages to enhance brands.  
     
    Socially relevant advertisements that speak up against class, colour and gender biases or promote harmony are a wonderful thing and, as Mr Dasgupta points out, have been effectively used by several brands, including Nike, UCB, Body Shop and Ariel. 
     
    It is also a fact that only social opprobrium at a global scale (‘black lives matter’) finally pushed Hindustan Unilever Ltd (HUL) to drop ‘Fair’ from its popular Fair & Lovely face cream, when endless complaints upheld by the Advertising Standards Council of India (ASCI) had made no difference. In fact, HUL used to game the complaint mechanism by carpet-bombing every new advertisement campaign, knowing full well that it would have to be withdrawn in four to six weeks that it took for the complaint mechanism to be completed (disclosure: I was a member of ASCI’s complaints’ committee for a few years and had a ringside view of this.)
     
    So full marks to Titan for experimenting with socially relevant messages, but as Mr Dasgupta points out Tanishq “is neither the passionate cause monger nor the hapless or spineless victim it is made out to be.” And the motivation, is not “a concerted affiliation to national integration,” but to capitalise on the “positive power of curated controversies.” Judged by that yardstick, Tanishq and Tatas have emerged a winner both in creating the advertisement and withdrawing it to protect its showroom staff. We already know that the alleged attack on one outlet was exaggerated and we will never know if the demand for apologies was, in fact, scripted. 
     
     
    So far, the calculated risk in producing sensitive, socially relevant advertisements has worked in favour of brands that have adopted this strategy. One often suspects that expert manipulation of public sentiment through curated controversies and paid influencers is an ugly part of the times we live in. Sometime last year, a food delivery company won hearts and earned kudos for standing by its employee after a ‘bigoted’ customer did not want to be served by a person of a certain religion. The incident hogged headlines and was the subject of back-to-back prime time debates across major channels even when there were bigger issues that merited discussion that day. Interestingly, the customers, who had triggered the controversy, seemed most enthusiastic about displaying their bigotry on television. 
     
    Soon, we were told how the company was ‘winning the Internet’ with its bold stand and furore fizzled soon enough with a blaze of positive publicity for the brand. Was this also a curated controversy created by smart marketing minds, in cahoots with media channels and ‘influencers’? We will probably never know the truth. 
     
    When corporates begin to manipulate opinion and curate controversies, things can go out of hand and lead to violence. It is all very well for ASCI and advertising associations to defend the Tanishq advertisement, but the whole business of media manipulation for corporate benefit (mainly brand building) is real and needs deeper introspection. 
     
    On 8th October, the Mumbai police accused three television channels of having fudged television ratings points (TRP) and launched an investigation. Among the channels named is Republic TV, which has consistently topped viewership ratings. Until these allegations surfaced, we were led to believe that a majority of television viewers support strident and partisan ‘debates’ and the crude violation of individual privacy that passed off as media reportage. 
     
    Maybe it is time to acknowledge that technology and social media are powerful tools that need some oversight, if not regulation, to ensure that curated controversies don’t get out of control. We may need new bodies on the lines of ASCI, with people skilled at technology, artificial intelligence, processing big data and digital marketing to examine such cases in future.
     
    The very corporates that have won kudos for philanthropy or move you to tears with messages that promote harmony, may not hesitate to use crude tactics and financial muscle to stifle free speech, bag business deals or curry political favour. Wouldn’t it be ridiculous if we began to judge a company by the genius of its advertising agency? Large companies around the world already control mainstream media through their advertising and marketing budgets or by buying stakes in tottering media houses. 
     
    So let us not get sentimental about the withdrawal of an advertisement and ascribe courage or cowardliness to what is essentially a well-crafted and paid, image-building exercise. Let us focus on what happens when curated controversies become more frequent or go out of hand. 
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    COMMENTS

    rajgopalnb

    1 week ago

    Actually this was an absurd advt. Supporters say it was an advt showing inter religious unity ! The fact is that this advt did not show unity within that family also. The daughter in law tells the mother in law that 'this practice is not followed in "YOUR" house'. She did not consider MIL's house as her house !!! So much for unity.

    If it was about inter religion unity, the DIL should have asked, "This is not the practice in your religion?". Thereafter, if the MIL would have agreed to it, it would have been a different scene and a different kind of reaction would have been visible.

    P.S. Were the creators and the approvers of the advt so naive as to think that a controversy would not arise ?

    Vivek Shah

    1 week ago

    Brilliant article once again. Please do let us know of the SLAPP.

    vohec54484

    2 weeks ago

    Let's not forget the horror these bring .. we should not forget the pains of our daughter who have suffered and are suffering just cause they believed in love and were subjugated to horror of living in hell of life they were forced into after conversion. The ad is like a campain saying it's not true and in reality we can see so many such case that this ad has tried to hide ... Trying to brainwash the young girls and whole generation to rebel and take such steps. See such news like one rampant in Kerala: Teenage Christian girl sexually abused, forcibly converted to Islam
    According to the victim's father, his daughter was drugged and sexually abused near a park in Kozhikode where she had gone with her friends. The accused is said to have recorded the videos of the crime and blackmailing the victim with those.

    m.prabhu.shankar

    2 weeks ago

    Nice Article.

    ratnamagotra

    2 weeks ago

    Superb articulation...sadly we seem to be living in times of curated controversies in every aspect of everyday life. Opinion makers and influencers live in a bubble of incestuous security while all others are excluded to fight and indulge in violence against each other virtually or otherwise.

    shivash12

    2 weeks ago

    Excellent - eye opener !

    schoudhry832

    2 weeks ago

    The lady is calling protests by Hindus against that horrible ad (which actually grooms Hindus girls for marriage with Muslims) as a "hate campaign." Looks like these woke jokers live on some other planet far removed from the lived reality of day to day life. Hope Tanishq doesn't do more damage to its brand by listening to their tripe.

    REPLY

    manojdani001

    In Reply to schoudhry832 2 weeks ago

    Give us examples of hate jihad

    kapil talauliker

    2 weeks ago

    WOW! your article has a added a complete twist to the contravesy already generated by the advt, now I see more shades of grey and no more black or white.

    REPLY

    abhishekjoshicctian1

    In Reply to kapil talauliker 1 week ago

    actually brand has been doing such things in the past! to stir controversy to get more exposure! if you remember even calvin klein tried to stir controversy with disha patani in bra wishing happy diwali and people went berserk over the issue!

    sundar_ramang

    2 weeks ago

    Superb article..I agree fully about your point of view on TATAs

    dog2on

    2 weeks ago

    Ms. Dalal, don't let the chicanery and words of your detractors make you desist from writing such pieces.
    You have done commendable service in laying bare the maleficences behind the behaviour towards Moneylife, by what once was a name to be reckoned with in the corporate world for a high standard of moral behaviour. Having closely followed their descending path when it comes to ethics and fair trade practices over the years, neither the media manipulation or the suit brought against ML shocks or surprises me.

    The only aspect I would express doubt is in the proposed cure for such balefulness, when you allude to having oversight through some authority. Besides the infinite regression of who watches the watchdog, the best way (not perfect) would be to encourage and have a free unfettered non-partisan press and leave it to Adam Smith's unseen hand of the market to make society, corporates & individuals, sink or swim in life.

    To repeat, don't let the trolls make you deviate from your path of calling a spade a spade.

    REPLY

    vikram.chin

    In Reply to dog2on 2 weeks ago

    Dear Dog2on,

    Superbly said. In India all regulators become lobbying bodies for the industries or companies they seek to control. Take for example, the RBI. When was the last time they asked your opinion about credit card charges or ATM availability or trabsaction processing times at banks or about the loan moratorium potentially affecting lakhs of consumer borrowers ? Did registering for TRAI's DND even work ? The less said about SEBI the better, instead of curbing those who sell toxic products they curb buyers to protect "small investors" and then make small investors pay a margin before selling shares in hand !!

    dog2on

    In Reply to vikram.chin 2 weeks ago

    Dear Vikram,
    Thank you for the compliment.
    I am glad that someone got the drift as to what I am alluding to. The institutions/authorities you mention are glaring examples but such systemic failure can be seen wherever there is concentration of power for any length of time. The best examples of doleful ineptitude and inefficiency permeating, can be found in the police and judiciary.

    The common citizen (the one most effected and made to suffer) does not realise the repeated ride he is taken on at every election, with promises which by the very laws of common sense and ethics cannot be fulfilled.

    What one needs is a system which leaves politicians bereft of power to dispense any largesse. An end to Maa Baap Sarkar is called for, when each individual demands and takes responsibility for his own mental and physical well-being. The individual does not need religion, caste, race, colour, gender to establish and know his identity. and worth. That becomes an imperative only with persons with infantile egos. Those who want to seek and extend charity on a mutual basis are welcome to do so. But for the rest, get off our back by minimising rules, regulations & law and dispense entirely with all taxes within 5 years, starting with all direct taxes immediately.
    Then, Covid or no-Covid you will see astronomical growth in the economy and the well-being of the largest number.

    Couple all this with a free and fair press which proffers evidence-based news/articles (where all ideas and opinions are open for discussion but sans the abuse/threats, which is the hallmark of trolls and quite likely bots) and the incidences where big business distorts markets and tries to punish people like Ms. Dalal and Moneylife who call them out like in the present case, should stand greatly minimised.

    abhijit0521

    2 weeks ago

    Not sure if this was the so-called marketing strategy or not but you surely can not say that the opposition to the ad was a hate campaign and use the words like bigots for the people who oppose. You can not take a view without understanding the other side of the story. Sure there is some truth to the Love Jihad thing and there are many cases in the country where the girls are forced to convert post marriages but you people are turning a blind eye to it. The ad is opposed because everywhere a particular community is shown as very accepting & open-minded and the majority is shown as stubborn and this social harmony gyaan is directed towards them only. In fact, the ground reality is quite the opposite. Be it the Red Label ad or this ad. So without understanding the other side of the story and terming them bigots, you are displaying that trait yourself.

    radhakrishna nemani

    2 weeks ago

    good article.
    helps to bring awareness in common man regarding the bigger game of marketing being played around him.

    S D Pandey

    2 weeks ago

    A good read!

    hamungel

    2 weeks ago

    Thanks for the ringside view. Please keep unmasking the counterfeiters.
    Also please let us know the details of the litigation against ML.

    O S Kempawad

    2 weeks ago

    Feel SORRY for U Sucheta Dalal ji!

    You says "..... promoting what bigots call #LoveJihad."

    If you think that advt is not promoting #LoveJihad, then problem is with and you got seek professional mental care. Because majority of fellow Indians cannot go wrong. Since I have been reading your articles from many years. Based on that, I have no hesitation in saying that like Dr. SuSu you have personal enmity with Ratan Tata and trying fix him.

    Just pra that, none of your near & dear become #LoveJihadVictim.

    Passenger vehicle industry's FY21 volumes expected to see 22-25% dip: ICRA
    Passenger vehicle industry's FY21 volumes are expected to witness a 22-25 per cent decline, ratings agency ICRA said on Wednesday.
     
    "The industry segment's fortunes are tied with the GDP growth rates and overall consumer sentiments which are currently at historic lows; this recessionary environment has resulted in purchase deferrals," ICRA said in a research note.
     
    "While the industry was hit hard in Q1 FY2021; most PV and 2W OEMs started operating at pre-Covid level capacity utilisation during Sep-2020 (inventory re-stocking at dealership also supported wholesale dispatched during Sept'20) which is a positive."
     
    ICRA, in its research note, also expects the PV industry volume to witness strong double-digit growth in FY2022.
     
    "This will be after two consecutive years of negative growth at (-17.9 per cent) in FY2020 and (-22 to -25 per cent) in FY2021. The fall in demand is also being reflected in capacity utilisation which is likely to dip below 45 per cent in FY2021, from 50-55 per cent in FY2020," the note said.
     
    "We expect capex cut by 35-40 per cent during FY2021-FY2022, and incremental investments will be primarily towards new product development and platform improvisation."
     
    On the positive side, ICRA noted that industry's long-term drivers are intact but compared to the Chinese and other key global markets, the domestic market is witnessing a slower paced recovery.
     
    Commenting on the expected PV trend, Ashish Modani, Vice President, ICRA, said: "There is an increased risk aversion in retail as well as wholesale financing, which is a deterrent. The rural market will be the key driver of volume in FY2021 which will benefit entry level cars and UV."
     
    "Buyers may opt for 2W or used cars to avoid public transport. The share of diesel vehicles is expected to decline below 40 per cent in UVs in the next two years and some manufacturers have already exited the diesel portfolio completely."
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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