Privatisation plan: Concor land lease to be longer, rentals to halve

The government is planning to sell 30.8% out of its 54.8% holding in Concor, a railway PSU, along with management control to a strategic buyer.

To facilitate the privatisation of state-run Container Corporation (Concor), the government is planning to halve the lease rates payable by the company for industrial use of the railways’ surplus land to 3%. Also, the land lease period will be extended to 35 years from 5 years now, with a view to giving additional comfort to potential buyers.

The Cabinet would consider both the proposals soon, according to official sources.

The move could encourage commercial use of these land parcels along rail tracks.

The government is planning to sell 30.8% out of its 54.8% holding in Concor, a railway PSU, along with management control to a strategic buyer.

The expression of interest for the stake sale will likely be issued soon after Cabinet clearance to the railways’ revised land licensing policy. However, the sale process, which was planned to be completed within FY21, could spill over to next financial year due to paucity of time.

It was only in April this year that the railways notified a land licensing fee (LLF) regime for industrial use of its land, and extended it to its very own Concor. Until then, Concor had been paying land lease rentals to the transporter on a per-container (20-feet equivalent unit container) basis, which entailed much lower outgo. The LLF being charged by the transporter now is 6% of the land value in the first year of licence; the rate will increase at the rate of 7% annually to factor in inflation.

The new regime has proven to be expensive for Concor – while it paid `120 crore as land rentals to the railways in FY20, `234 crore was paid in just the first two quarters of FY21.

According to official sources, the railway ministry has now come on board in an inter-ministerial panel to lower LLF under which the first-year rate would not be more than 3% and annual inflation rate would be a more realistic 5% or the average annual retail inflation. Earlier, the railway ministry was reluctant to reduce LLF substantially from 6%.

Concor has as many as 65 inland container depots and some 26 of these are situated on the railway land. Even before the latest rate revisions, the cost of using railways land was higher for the company, than what it had to fork out to farmers and other land sellers. The company has been trying to reduce the share of railway land for its container depots.

In March this year, the Concor stock plummeted 52-week low of Rs 263.2, down 57% from the 52-week high of Rs 617.4. Thanks to the buzz that LLF may be reduced, the stock has recovered some ground recently. At last Friday’s closing price of Rs 405.25, the Centre’s 30.8% stake was worth Rs 7,605 crore on the BSE; this was still 30.8% lower than Rs 11,000 crore on November 20, 2019, when the Cabinet gave its nod for the stake sale.

Railways’ LLF policy was originally applicable to land let out for commercial purposes such as opening retail outlets such as shops, bookshops, kiosks, etc, but it was extended to container business (industrial use) this year.

Railways had demanded Rs 1,276 crore annually for 13 terminals (total to be higher when accounted for rest 13 terminals), based on 6% of the value of land. Concor, which had estimated Rs 450 crore as LLF for FY21, was contesting the excess demand. Even 3% LLF would mean, Concor would fork out at least double of what it had estimated earlier for FY21.

The earlier mode of LLF payment provided certain advantage to the company compared with other private container terminal operators. Earlier, the method of payment was based on Concor’s volumes (Rs 1,175/TeU).

In its annual report for FY20, Concor said: “The recent change in the Railways method for charging LLF at the rate of 6% of value of land, will have significant impact on the company’s financials and the same has been suitably represented to the railways. Taking into consideration the business viability and to mitigate the impact of increased LLF on railway land, the company has surrendered its fifteen terminals built on railway land.”

Post-2005, Concor has not picked up any land from railways as it bought land along rail tracks from farmers at cheaper rates.
Source: Financial Express

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