Concor Sale, Held Up By Railway Land Policy, Now Under Review By Inter-Ministerial Group

An important feature facilitating the disinvestment of government-owned Container Corporation of India Ltd. or Concor has been stuck in the crosshairs of the railway and finance ministries.

The policy document has come back for further consideration, according to a Railway Ministry official. The Ministry of Finance has highlighted certain points that needed more deliberation, and most of these referred to making Concor a more lucrative buy, the official said on the condition of anonymity as details are not public yet.

The issue has to do with the fee paid for railway land used by Concor for its warehousing facilities. In 2020-21, a new land licensing fee was proposed for railway land.

According to the official, what the Finance Ministry proposes is:

• A cut in the licensing fee from 6% to 3% of the market value of land.

• The fee to apply to public and private sector players.

• Land lease to be extended up to 30 years.

The railways' new land licensing fee policy of 2020-21 raised costs for Concor. The railways moved away from a fee based on number of TEU (twenty-foot equivalent units) containers to a percent of the current market value of land use. It also decided to increase the base value of land by 7% annually, while earlier a lease was reviewed every five years. Meaning, according to the FY21 policy, 6% LLF would be levied on a 7% higher base value each year.

That pushed up Concor's terminal and other service expenses by 10.47% in FY21. To put it in perspective, Concor paid Rs 517 crore in land lease fees last year. It earned a consolidated revenue from operations of Rs 6,427.1 crore and a profit after tax of Rs 500.6 crore.

Also, Concor had the option to pay 6% as LLF for a tenure of 35 years or to pay 99% of the current market value as a one-time payment for a 35-year lease.

Needless to say, higher land lease fees make the national container transporter less attractive to private players at the time of strategic divestment. Private players like Adani Group have publicly announced their intention to acquire Concor.

Concor Impact

India has been trying to privatise Concor since 2019-20. The cabinet in November 2019 had approved the divestment of the government's 30.8% shareholding in the company, along with transfer of management control. But a delay in rollout of the new land licensing fee policy pushed back the sale.

26 of the 61 container terminals run by the company are on railway land after it exited 16 terminals as part of a cost rationalisation move in FY21. Concor intends to sign a long-term lease for 24 terminals for a period of 35 years and will exit another two terminals in FY22, the company said in April 2021 while announcing its FY21 earnings. It will also rationalise the land it will use at these 24 terminals.

V Kalyana Rama, chairman and managing director at Concor, in the third-quarter earnings call in January, said the company owns all land procured by it after 2006.

An official spokesperson of Concor did not want to comment on the story.

“It's time railways became more flexible. We need to move away from annual fee percentage based on land value to a revenue-sharing model so that circle rates and other confusions can be avoided,” said Abhaya Krishna Agarwal, leader, government and public sector infrastructure, at EY. “The approach needs to more growth-focused.”