HASSAN MANGALORE RAIL DEVELOPMENT COMPANY LIMITED

1. HASSAN MANGALORE RAIL DEVELOPMENT COMPANY LIMITED PROFILE

2. The Beginning Hassan Mangalore Rail Development Company Limited was incorporated in July 2003 under the Companies Act of 1956 as a joint venture of the Government of Karnataka & the Ministry of Railways. Objective: HMRDC to take over the gauge conversion of the Hassan Mangalore railway line and ensure its early completion through appropriate and timely funding. The company was to raise the required resources through debt and equity. 2

3. Project Implementation • The gauge conversion of the line has been completed under a set of agreements signed by the Company with the Ministry of Railways and the South Western Railway. • Concession Agreement • Construction Agreement • Operations and Maintenance Agreement • The line was commissioned for goods traffic on 5th May 2006 and for passenger services on 8th December 2007. Company is enjoying Tax Holiday for 10 years from COD & Company is paying MAT at 18.5% as against 33% IT. 3

4. Framework of operation of SPV • Key features of the framework are: • Cost of construction financed by HMRDC • Line capacity to be used primarily for goods services • Assured passenger services to the extent operated on the meter gauge. • Running & operating costs of passenger services to be borne by Railways • Cost of freight operations and maintenance of the line to be met by HMRDC. • Revenues to Company to accrue from freight only • Revenues from passenger trains to accrue to IR 4

5. Concession Agreement Under theConcession Agreement, the Ministry of Railways has granted HMRDC a concession for 32 years during which the company would convert the MG line between Hassan and Mangalore into a BG line and thereafter undertake its operation and maintenance during the concession period.  To enable construction of the new line, the existing assets including land, station buildings, formation, bridges etc. (assets forming part of the rail network and necessary for gauge conversion) have been leased to the company. 5

6. O & M Agreement Under theOperations and Maintenance Agreement HMRDC has contracted with SWR for operation of goods train services on the line and its maintenance till the termination of the concession period.  Construction Agreement Under theConstruction Agreement signed between HMRDC and South Western Railway (SWR) the later has been appointed as the Engineering, Procurement and Construction (EPC) Agency for the line and entrusted with the construction work.  6

7. Project Financing Initial Project Cost `. 293 cr Construction Cost `. 275 cr RMV Equipment `. 4 cr Pre-operative exp & IDC `. 14 cr Revised Project Cost `. 366 cr Construction Cost `. 348 cr RMV Equipment `. 4 cr Pre-operative exp & IDC `. 14 cr Funding through Subordinate debt from IR `. 141 cr Equity `. 112 cr Term loans from banks `. 90 cr Revised construction cost is under examination for mutual acceptance. 7

8. Construction of the line • Detailed estimate sanctioned by Rly Board in Dec 2002 forms the basis of the construction agreement. • The 183 Km long MG line from Hassan to Kankanadi has been converted to BG. • Four new crossing stations were planned of which three have been commissioned so far. Arebetta station is yet to be opened. • The cost of construction as per the Construction Agreement is ` 274.71 Cr. In addition, HMRDC has also paid for rail mounted vehicles to be used for inspection & maintenance of the line. • The completion cost of the project is presently being worked out. It is expected to be around `. 340 cr. 8

9. Operations & Maintenance of the line The Operations and Maintenance of the line from Commercial Operations Date (COD) i.e. 5thMay 2006 is being done by SWR under the terms of the O & M agreement. 100% inflation of distance is allowed for the Ghat section between SKLR-SBHR, the chargeable distance being 110Km i.e 238.45Km for the entire line. (Rate circular No. 32 of 2006) Freight due to HMRDC from traffic carried on the line is calculated as per the inter zonal railway rules of apportionment. O & M ( Fixed & Variable) costs payable by HMRDC are calculated on the basis of the formula prescribed in the O & M agreement. Fixed costs covering cost of manpower, cost of consumables etc. are payable irrespective of the traffic moved. Variable costs including fuel, cost of crew, loco and wagon usage etc. vary according to the tonnage carried on the line. Apportioned freight minus the O&M costs constitutes HMRDC’s share of revenue. 9

10. Traffic Forecast The Hassan Mangalore line is expected to carry up to six million tonnes of freight per annum that includes Towards Mangalore Area: Export iron ore to Port from Chitradurga – Tumkur and Hospet –Bellary sectors Iron ore for KIOCL pellet plant at Mangalore Cement, Food grains and other general goods to Mangalore goods shed From Mangalore Area: Coal Fertilizer imports Limestone, Iron Ore Pellet Fertilizer from MCF, Mangalore. POL and LPG from Mangalore Refinery, Thokkur. 10

11. Capital Structure • Authorized share capital   `. 125 Cr.(Equity share of Rs.10/- each) • Paid up capital  `. 112 Cr. • The shareholding pattern is as follows •   Government of Karnataka    `.28 Cr • Mysore Sales International Ltd. `. 7 Cr 40% • Vishveshwarya Ind Trade Center `. 10 Cr     •   Ministry of Railways  `. 45 Cr 40% •    New Mangalore Port Trust    `. 10 Cr 9% •   Mineral Enterprises Limited `. 10 Cr 9% •   K-RIDE `. 2 Cr 2% 11

12. Sl.No. Section Elevation (MSL) Distance Gradient 1 Hassan – 900m 42 kms. 1 in 100 plateau 2 Sakleshpur – 967m 3 Sakleshpur– 967m 55 kms. 1 in 50 Ghat 4 Subramanya Rd. – 113m 5 Subramanya Rd.– 113m 86 kms. 1 in 100 plain 6 Mangalore – 9.5m Salient Physical Features of Hassan - Mangalore Section 12

13. Hassan to Mangalore – 183 Kms Main line track class I - 52 Kg rails Loop line class II - 52 Kg rails Hassan to Sakleshpur 60 Kg PSC sleepers - M+ 4 density Sakleshpur to Mangalore 60 Kg PSC sleepers - M+ 7 density Loop lines 52 Kg PSC sleepers - M+ 4 density A. Rails B. Sleepers C. Fittings Class - I fittings - ERC Clips, GR pads, metal liners in mid section and GFN liners in yards D. Ballast - 250 mm cushion. 13

14. 3. Bridges - Total - 670Major Bridges – 91 Minor Bridges – 549 Road over bridges – 16 Road under bridges – 12 FOB –2 4. Tunnels - Total Nos. 57 Total length - 10.98 kms. Longest tunnel - 578 mts No.11 5. Level Crossings - Total - 65 Manned– 31 Unmanned - 34 8. Slip Sidings Donigal, Shrivagulu 6. Curves - Total – 110 80 - 85 Nos.- 30 to 50 - 25 Nos 7. Catch Sidings Donigal station – Shrivagilu Yedakumeri - Proposed 14

15. Details of Block Stations and Halts in Hassan-Mangalore

16. Line Capacity • The Maximum number of Trains that can be operated in a Day in a section is known as Line Capacity, which isdecided by the running time of the Critical Block Section by a slowest moving train. • The Critical Block Section of HMRDC Line is DOGL-SVGL in the ghat section of SKLR-SBHR section, 120 minutes is the running time of the critical block section and line capacity is 12 trains per day including Passenger Trains. • Some amount of time to be provided for the track and signal maintenance works, which again reduces the Line Capacity to that extent which is equivalent to 3 Hrs/ 2 trains. • To increase the line capacity the running time of critical block section has to be reduced for which the provision of CATCH Sidings (safety device) to be undertaken at all the stations on the ghat section. As a first step, it is proposed to construct a CATCH Siding @ YDK at a cost of `12.5 Cr. Sanction from CRS, South Zone awaited. • To improve the line capacity maximum permissible speed to be increased to 45 KMPH in the UP direction without compromising the safety since the track strength has been upgraded over the period. 16

17. Operational & Financial Performance `. - Crores

18. Commodity wise Earnings `. - Crores

19. Wagon wise Earnings/Train Load 2011-12

20. Components of Fixed & Variable Costs 20

21. Review of O&M Costs

22. Income and Expenditure `. - Crores

23. Earnings 23

24. Performance of the Company ` - Crores

25. 25

26. Fixed Assets `- Crores GAV – Gross Asset Value NAV – Net Asset Value

27. Capital Structure ` - Crores

28. Section Staff Position in HMRDC 28

29. INSURANCE PROJECT LENGTH COVERED : 97 Kms out of 183 Kms from (SKLR to KBPR) ASSETS INSURED : Permanent way, Station Buildings, Signaling, and Telecom, Mechanical & Electrical Equipments RISKS COVERED : Force Majeure occurrence such as fire, root, flood, breaches, lightning, earthquake and other natural disaster – mainly on account of landslides/ rockslides during monsoon. LOSSES COVERED : i) Restoration cost of tracks and assets damaged ii) Loss of Profit/ Revenue on account of stoppage of operation on account of Force majeure events. POLICY PERIOD : 4th January 2011 to 3rd January 2012 PREMIUM PAID : 2008 ` 33.60 Lakhs 2009 ` 40.08 Lakhs 2010 ` 69.53 Lakhs 2011 ` 93.75 Lakhs 2012 ` 58.62 Lakhs CLAIMS SETTLED : 2008 : Restoration Cost : ` 61 Lakhs Loss of Profit : ` 163 Lakhs (Received on 28.07.10) 2009 : Restoration Cost : ` 30.16 Lakhs Loss of profit : ` 245.76 Lakhs (Received on 31.03.11) No Claims were made during last 2 years since 2010 as there were no landslides during these years. 29

30. Income Tax Holiday and Payment of MAT • INCOME TAX HOLIDAY : Nature of exemption : Eligibility U/s 80IA being Infrastructure facility Quantum of Exemption : 100% of Profit/ Income of the Company Period of Exemption : For 10 Consecutive years from the Initial year Exemption Availed : From FY 2007-08 Exemption Available : upto FY 2016 – 17 • PAYMENT OF MAT : The Company is required to Pay minimum Alternative Tax (MAT) on Book Profits u/s 115JB of Income Tax Act. The Book Profit and MAT paid are : FIN YEAR Book Profit Rate% including Surcharge ` In Crores Amt and Education Cess of MAT Paid 2007-08 34.12 11.33 (10%+10%+3%) 3.88 2008-09 87.79 11.33 (10%+10%+3%) 9.95 2009-10 43.31 16.995 (15%+10%+3%) 7.36 2010-11 23.83 19.93(18%+7.5%+3%) 4.81 2011-12 (12.78) 20.01(18.5%+5%+3%) 0.00 30

31. Looking to Future • SWOT Analysis : • Strengths : • The Only Railway Line passing through Western Ghats • connecting the major port of Karnataka with Hinterland. • Has got Line Capacity to transport 6 Million Tonnes of Traffic • per annum. • Stabilized Rail Link. • Entire Loan of `. 90 Cr. availed from Nationalized Banks • Completely Amortized within 3 years of CoD

32. Looking to Future • Weaknesses : • Dependence on a single Commodity (Iron-Ore/Export) which • is the Cash Cow. • Oligopolistic customers. • Capacity and Operational constraints due to steep gradient • ( 1 in 50) and more number of 8 degree Curves. • Multiple locos with AEBs used for hauling up Trains • Empty running of Locos and Rakes • Speed restrictions – 30 KMPH in Ghat Section. • Detention due to a variety of reasons. • Outstanding sub-debt (`108 Cr) and deferred OH (` 58 Cr) • along with interest, if any. • The Cash Reserves of ` 186 Cr represent only DRF.

33. Looking to Future • Opportunities : • Steady Traffic with KIOCL expansion plans (Iron Ore Domestic) • Iron-Ore for Export market may commence upon lifting the ban. • Import of high grade non-coking Coal for proposed Steel Plants and • Coal for Power Plants, which will be moved from NMPT through • Hassan Mangalore Rail Line. • Diversification into development of Property Time Shares (with the • Land available) for heritage Tours and Trek to boost non-traditional • income. • Going for “Doubling” of the Line, avoiding Ghat Section (118 Kms • as against 55Kms of Ghat Section) with minimum impact on • Environment.

34. Looking to Future • Threats : • Higher Expenditure on Maintenance costs for retaining walls etc to • prevent landslides. • Huge Capital Expenditure for strengthening of bridges to permit • running of 25T Axle Load Trains. • Dwindling traffic movements. • Premature replacement of Assets due to denudation.

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