Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India
Neutral
COAL.BO, COAL IN
New Railways policy for investment for rail linkage for
coal/iron ore mines a step in right direction, but
restrictive clauses could limit participation
• R2CI Policy- A step in the right direction: The Indian Railways recently
announced a new policy for attracting private sector participation in rail
connectivity for coal and iron ore mines via which private parties could invest
in building new rail lines (>20kms). The new policy is a modification of the
R3CI policy announced in July 2010 which had also called for private sector
participation for new rail lines but had kept out coal and iron ore from it, which
the new R2CI policy addresses. There are essentially 2 models under R2CI-
1) Capital Cost Model: Under this the entire capital cost would be borne by the
applicant, and after the construction of the line, the ownership would transfer to
the Railways which would undertake operations and maintenance and charge
normal freight rates (no sharing of freight revenue). The applicant would be
allowed to recover the capital cost incurred (without interest) via
development charges to the customers or compensated by railways via a
surcharge on the customers. 2) SPV Model: This model would have
participation of other departments/PSU of Ministries, private sector, State Govts
and Railways. Under this policy, land and line ownership would vest with
Railways with no freight rebate/sharing. Railways would have a freight
surcharge which would accrue to the SPV and used to repay the SPV
participants (no interest) over a 25 year period.
• Restrictive clauses could likely limit participation: The Railways has tried to
encourage private sector participation via various policies such as R3CI, and
wagon leasing schemes, with very limited success. We believe some of the
clauses of R2CI are restrictive (repayment of original investment without
interest, no freight sharing, PSU’s would need to enter via a SPV model) could
limit the success of R2CI. Recently the Railways made some changes to the
wagon leasing scheme allowing for a company to import wagons, and increasing
the validity of the one time registration. However COAL India (COAL) is still
not a part of the wagon leasing scheme
• Implications for COAL- Not much in the near term, longer term would
need to invest in logistics infrastructure: As we have highlighted in our recent
research on COAL (‘Coal India: Key takeaways from analyst meet - Currently
caught between MoEF, Railways and inflation, but light emerging for FY13E
impact’ dated 16th Feb 2011), wagon availability limits COAL’s off take growth
and COAL highlighted that longer term production growth would be dependent
on clearances from the MOEF (which have started to come in) and off take
growth would be a function of Railway infrastructure (new lines and rolling
stock). Going forward eventually in our view, we believe COAL (and for
that matter India's mining sector) would need to invest in logistic
infrastructure, similar to the global peers, to achieve volume growth. Till
now, mining capex incurred by companies in India did not include
investments in rail infrastructure which was provided by Railways.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coal India
Neutral
COAL.BO, COAL IN
New Railways policy for investment for rail linkage for
coal/iron ore mines a step in right direction, but
restrictive clauses could limit participation
• R2CI Policy- A step in the right direction: The Indian Railways recently
announced a new policy for attracting private sector participation in rail
connectivity for coal and iron ore mines via which private parties could invest
in building new rail lines (>20kms). The new policy is a modification of the
R3CI policy announced in July 2010 which had also called for private sector
participation for new rail lines but had kept out coal and iron ore from it, which
the new R2CI policy addresses. There are essentially 2 models under R2CI-
1) Capital Cost Model: Under this the entire capital cost would be borne by the
applicant, and after the construction of the line, the ownership would transfer to
the Railways which would undertake operations and maintenance and charge
normal freight rates (no sharing of freight revenue). The applicant would be
allowed to recover the capital cost incurred (without interest) via
development charges to the customers or compensated by railways via a
surcharge on the customers. 2) SPV Model: This model would have
participation of other departments/PSU of Ministries, private sector, State Govts
and Railways. Under this policy, land and line ownership would vest with
Railways with no freight rebate/sharing. Railways would have a freight
surcharge which would accrue to the SPV and used to repay the SPV
participants (no interest) over a 25 year period.
• Restrictive clauses could likely limit participation: The Railways has tried to
encourage private sector participation via various policies such as R3CI, and
wagon leasing schemes, with very limited success. We believe some of the
clauses of R2CI are restrictive (repayment of original investment without
interest, no freight sharing, PSU’s would need to enter via a SPV model) could
limit the success of R2CI. Recently the Railways made some changes to the
wagon leasing scheme allowing for a company to import wagons, and increasing
the validity of the one time registration. However COAL India (COAL) is still
not a part of the wagon leasing scheme
• Implications for COAL- Not much in the near term, longer term would
need to invest in logistics infrastructure: As we have highlighted in our recent
research on COAL (‘Coal India: Key takeaways from analyst meet - Currently
caught between MoEF, Railways and inflation, but light emerging for FY13E
impact’ dated 16th Feb 2011), wagon availability limits COAL’s off take growth
and COAL highlighted that longer term production growth would be dependent
on clearances from the MOEF (which have started to come in) and off take
growth would be a function of Railway infrastructure (new lines and rolling
stock). Going forward eventually in our view, we believe COAL (and for
that matter India's mining sector) would need to invest in logistic
infrastructure, similar to the global peers, to achieve volume growth. Till
now, mining capex incurred by companies in India did not include
investments in rail infrastructure which was provided by Railways.
No comments:
Post a Comment