Feasibility of Kamakhya station development deal questioned

Railway Minister Suresh Prabhu recently unveiled the first phase of the Station Redevelopment Programme. Tenders were floated for development of 23 stations out of a total of 400 stations which are set to get a facelift. The entire project aims to attract investment of up to Rs 1 lakh crores from developers and it is estimated that the railways will generate a surplus of Rs 10,000 crores thereby gaining options of investment in other modernisation programmes. Out of the 23 stations, Kamakhya Railway Station is one which is also expected to be redeveloped. What is the scope and intricacies of this development plan? What is the deal being given to the developers? What is the estimated budget? For how many years will the developers be able to earn revenues? Brainstorming on all these points G Plus tries to explore the plan.    The development   According to the expectations of the Railways, the developer will have to make an iconic structure of the Kamakhya station with state-of-the-art facilities, congestion free entry/exit to the station premises and segregation of arrival/departure of passengers. The station is expected to have a large concourse area with facilities like waiting areas, lounges, wash rooms, cloak rooms, drinking water, ATM, catering, small retail, etc. The station is to have sufficiently large circulating area with provisions for drop off, pickup and parking. The station should have itself integrated with bus services and the planned metro railway. A 4-lane flyover is to connect the circulating area on both sides of the station directly with AT Road and a road of minimum 15 metres’ width should connect the circulating area on the south side of the station with NH 37. According to the Railways, the approximate cost of the Kamakhya station development work would be Rs 228 crores. This essentially means that the developer will have to spend that amount in developing the station and for the same, the Railways has offered a deal to the developed to establish commercial options which would allow him to generate revenues and give a surplus to the Railways. So, what is this deal?      The deal   According to Railways, the developer would be provided encumbrance-free vacant railway land measuring 50,000 sq m (5,38,000 sq ft) adjoining Kendriya Vidyalaya, Maligaon for commercial development. This land would be on a 45-year lease-hold and not perpetual free-hold, i.e., the developer may hold possession of the land, develop it commercially and earn rent from it for a maximum of 45 years. In addition, the developer may also commercially develop the air space above the station building. It is expected that the developer will not only fully finance the station development works out of the proceeds of the commercial development but would also generate surplus revenue for the Railways. The station will eventually provide world class amenities and services to the passengers. The Kamakhya Station would be developed to cater to increased number of passengers with a 40-year perspective as after 40 years it is expected to handle approximately 40,000 passengers per day. According to Railways, Modified Swiss Challenge method has been adopted for the bidding process and in the first stage of bidding, the eligible bidder (based on rigorous technical and financial evaluation) from the open market with the best proposal will be selected as the project proponent. They will develop the Detailed Project Report (DPR). In the second stage, bids would be invited from the open market again to better the financial premium. In case a higher premium is received, the project proponent gets the first right of refusal. So after the DPR is prepared by the project proponent, another party could get the tender if a better DPR is provided. Also the land would be provided to the developer on a lease of 45 years. The developers will be responsible for maintaining the station for 15 years. Now, is this deal viable?    Viability of the deal   A developer, talking in anonymity with G Plus, said that according to the deal 50,000 sq m of land will be given to the developer for 45 years and an approximate investment of Rs 228 crores for the development of station is expected in return. So the developer has to invest this amount. Now, some basic arithmetic reveals that 5 kathas is equal to 1 bigha land, 1 bigha is approximately 1,350 sq m. So, 50,000 sq m is equal to 37 bighas. If Rs 228 crores is divided by 37, 1 bigha of land will cost Rs 6.16 crores. Hence, 1 katha of land will cost Rs 1.23 crores to the developer who will “own” the land for only 45 years. ARIEDA president PK Sharma, who is a developer talking to G Plus said, “The deal does not appear to be feasible and financially attractive.” He said that the land that is being offered is marshy and in a mere 45 years recovery of the investment or generating adequate revenues does not seem possible with the developer also expected to build the flyovers. Sharma has apparently also informed the NFR general manager that the tender is not feasible for the developers as the property cannot be sold but only rented and in 45 years an amount as massive as Rs 228 crores would be tough to recover just by renting the property. After 45 years there will be a tender renewal process and all sorts of uncertainty factors will loom large. Sharma was planning to participate in the bid but is not sure now given the seeming lack of feasibility and elements of attraction.   Another developer, on conditions of anonymity, put up a straight-forward calculation. He said that at current prices, the cost of just construction (not including earth-filling and additional superior finishing works) at conservative estimates comes to Rs. 1,500/- per sq ft. Now, 50,000 sq m of land is roughly 5,38,000 sq ft. Developing just the superstructure (that would be a commercial building without residences or flats for sale) would cost a developer around Rs. 81 crores while the total investment is pegged at Rs 228 crores. Recovering and generating further revenues from only rentals earned from the commercial establishment that will be developed over a mere 45 year term is a seemingly impossible proposition to take up and makes the deal rather unattractive.     Marshy land    During the meeting, when the Union Railway Minister Suresh Prabhu unveiled the first phase of the station redevelopment program¬¬¬me, the GMDA officials who participated in the meeting in Guwahati questioned the NFR general manager whether the land which is being offered to the developers is marshy since proper drainage system has to be there to negate floods. A G Plus team visited the area and saw that a huge parcel of land, marshy in soil condition, had a small drain that led towards Deepor Beel. A local resident who lives in Railway Colony, talking to G Plus, said that the entire railway colony waste water gets drained into that part of the land adjacent to Kendriya Vidyalaya, and during rainy season, it is because of the absorption characteristics of that part of land that the railway colony does not witness floods as all the water is absorbed by the marsh and later trickles out to Deepor Beel. The resident said that if the size of the land is 50 000 sq m then approximately 1 lakh cubic meters of water is absorbed into it from the surrounding areas. Another developer said that crores of rupees will have to be spent to fill the marshy land and a proper drainage system has to be planned. Enquiring how the surplus will be calculated which will be given to the railways by the developer, the NFR General Manager Chahatey Ram said that nothing has been calculated and it is up to the developers to give an idea of the surplus that the Railways will get.  So, for all the ambitious plans that the government might have to generate revenues by developing the railway stations on PPP mode, the deal being provided to the developers hardly looks attractive.  Railway Minister Suresh Prabhu unveiled the first phase of the station redevelopment programme Out of the first 23 stations which are being considered for redevelopment, Kamakhya Railway Station is one which is also expected to be redeveloped  The railway station will be developed on PPP mode Approximate cost of Kamakhya station development works would be Rs 228 crores which the developer will have to invest 50,000 sq m land is being provided to the developer in lieu of the project Developer will have to maintain the station for 15 years and use the land provided for generating revenue over 45 years If Rs 228 crores is to be invested then the cost of the land is approximately Rs 1.23 crores per katha for 45 years Developers feel the deal is not feasible and financially attractive Crores of rupees will have to be spent only to fill the marshy land which absorbs around 1 lakh cubic metres of waste and rain water; railway colony people feel construction on it will lead to floods in the area     Government plans to earn surplus from the development but the intricate calculations are not yet clear; the deal offered fails to attract developers  Stay updated on the go with GPlus News. 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