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Govt mulls tweak in debt-equity ratio for Metro, rapid rail projects

Nov 27 2013, 08:55 IST
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To boost private investment in metro and rapid rail projects, the Centre has proposed to have an equity-to-debt ratio of 20:80 (AP) To boost private investment in metro and rapid rail projects, the Centre has proposed to have an equity-to-debt ratio of 20:80 (AP)
SummaryTo boost private investment in metro and rapid rail projects, the Centre has proposed to have an equity-to-debt ratio of 20:80

To boost private investment in metro and rapid rail projects, the Centre has proposed to have an equity-to-debt ratio of 20:80 in these projects instead of the present 30:70.

The urban development ministry said in a Cabinet note: “Metro rail projects are highly capital-intensive and an equity-to-debt ratio of 30:70 requires high investment by the concessionaire. As such, for metro rail projects on PPP (public-private partnership), it is proposed to have equity-to-debt ratio of 20:80.”

Official sources expressed the hope that this would help make metro rail projects more attractive for private investors. The ministry has also proposed that mechanism to review fare structure in case of cost escalation should be put in place.

Projects such as the Mumbai Metro being built by Reliance Infra and the Hyderabad Metro being constructed by L&T under PPP-Build Operate transfer (BOT) model have been seeking additional viability gap funding and revision in fares in the light of cost escalation.

The NCR Rapid Rail Transit System (RRTS) project, worth R72,000 crore, is being planned to come up on the PPP mode.“If there's cost escalation of the project on the account of reasons beyond the control of concessionaire, 50% of the cost increase may be taken into account for revision of fare structure than that provided in the concessionaire agreement,” the ministry's note said.

In case of Mumbai Metro Line, the cost of implementation has undergone huge escalation as compared to the initial project cost and the concessionaire has made a demand for revision of the fare structure even as the project is yet to be commissioned.

But while proposing such sweeteners for private players, the ministry has also raised strong objections to excess commercial exploitation of such projects in the form of property development.

“The metro projects should remain public transport projects and the private sector should not think of converting them into the real estate projects open to various market risks,” a ministry official said.

In case of the Delhi Airport Express Metro Line, the property development component was taken to be as high as 37% of the total revenue.

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