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LLF Circular- Watch out for one-time LLF payment 

The government has notified a master circular with guidelines for leasing, licensing, and right of way of railway land (earlier announced Land Licence Policy in Sep’22 - JM report). As per the circular, a transparent online bidding process will be followed for allocating land for new cargo-related projects @ 1.5% of the market value annually, at the time of execution of lease agreement with annual escalation of 6% for a period of up to 35 years. It also provides existing entities an opportunity to opt for the new regime through the bidding process where they will retain right of first refusal. Moreover, entities opting against shifting to the new policy will continue to pay LLF at 6% of the market value (7% escalation) and can renew for a period of up to 35 years. Under both regimes, payments can be made either annually or one time (basis NPV at rate of 7%). From Concor’s perspective, we believe it will continue with the old regime for its key terminals (TKD, Bangalore, and Chennai) given significant volumes from these terminals. Moreover, given the low rate of interest of 7%, one-time payment of INR 118bn (assuming annual LLF at 4.5bn with 7% escalation) would be a tall ask, in our view. We maintain our estimates at present and will revisit our LLF assumption only after Concor’s strategy on renewal of its terminals becomes clear. Maintain BUY.

Key Highlights from Policy for Management of Railway land:

This policy will be applicable for grant of lease/ licence/ way leave permissions for all the cases under consideration, new cases and renewal of cases

Transparent methods of competitive bidding will be followed for allocating land to new cargo related projects/ facilities and renewable energy, water treatment, water recycling, sewage treatment plants, etc. for exclusive use of the railways

Indian Railways (IR) has developed an online approval system, i.e., Indian Railways Lease Licence Processing System (IR-LSPS) for granting lease/ licence of railway land. Similarly, IR has developed Indian Railways Rail Bhoomi Crossing Seva (IR-RBCS) for way leave permissions on railway land. Permissions will be submitted on respective online portals only. Approval in all cases will be granted

online Divisional Rail Manager will be the competent authority to allot railway land on lease/ licence, way leave permissions and subsequent renewal.

Railway will ensure grant of land lease/ licence of cases within 90 days from date of registration on the online portal.

Market value of railway land (MVL) will be the prevalent circle rate/ ready reckoner rate/ guidance value of the railways land at the time of execution of the lease agreement. If unavailable, value of the surrounding land for similar classification/ activities will be considered. For cargo terminals, industrial rates, if specified in that state, will be considered. If not, then any other rate depending upon use of

surrounding land as specified by State/ Revenue office will be considered. If the logistics industry is given a special status and discount is given in a state, then railways will also give same discount in that state.

All entities currently using railway land for cargo activities will continue to be governed by railway’s extant policies, i.e., annual lease/ licence charges @ 6% of MVL with annual escalation of 7% for the remaining lease/ licence period or 35 years or period as mutually decided, whichever is earlier.

Container Corporation

Payment of land use can be done either annually or entire payable amount can be paid in advance on present value basis with discounting of future cash flows at rate of 7% per annum.

The existing entities will be given the option to migrate to the new policy regime on transparent competitive bidding process as applicable for new cargo terminals provided there are no outstanding dues. In such cases, right of first refusal will be with existing licensee/ lessee

If existing entities do not want to avail the option for shifting to new cargo terminal policy under transparent competitive bidding process, then these existing entities will be permitted to enter into a new lease agreement at 6% annual lease charges with annual escalation of 7%.

Under the new policy, for new cargo terminals/ sidings/ goods shed and other cargo related facilities, lease charges @ 1.5% of market value of land per annum with annual escalation of 6% for a period of up to 35 years.

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