Highlighting its inability to support increasing number of metro projects, the Centre has asked state governments to follow the models of Karnataka and Delhi for financing capital-intensive Metro rail projects by levying cess on residential and commercial developments, and increasing house tax. It has also urged them to set up state-level urban transport funds with such levies to finance the projects.
The Centre says its unable to support the increasing number of metro systems through the Budget and therefore wants the states to develop their own funding sources to part-finance such capital-intensive systems.
Most of the earlier metro rail projects, including Delhi, Chennai, Bangalore, Kolkata, are being developed on a funding model where the Centre pitches in to part-finance projects that would include a larger contribution from state government and its entities. However, considering the enormous fund requirement for such projects, the Centre has already washed its of financing them and is now promoting the Hyderabad-model that is being developed by Maytas on the build-operate-transfer (BOT) route, completely eliminating state financing.
The Delhi Metro Rail Corporation, which is a 50:50 venture between the Centre and the state government, is setting up an urban transport fund through levy of dedicated state-level taxes and harnessing the increased land and property value from sale of properties along the metro corridor. The Bangalore Metro has already been doing so for a year now.
According to government findings, the global experience of public-private -partnership (PPP) in rail transit on BOT basis has not been very encouraging. Even in India, the experience so far is not very promising. Though it is still very early stage for Hyderabad Metro, after years of delay in concessionary, the mere 12-kilometre Line I of Mumbai Metro is still far from completion and even after nearly year and half of the award of the Mumbai Line II, work is yet to begin.
?Since these projects are capital intensive and are unlikely to be viable on the basis of fare box revenue alone, especially in India where there is obvious limitation in raising the fare, for taking up the project under PPP, the contract needs to be suitably sweetened,? feels the urban development ministry.
The ministry is of the view that there is a strong case for the government to encash the increased property value in the catchment area of metro rail corridor to part finance such projects. The funds derived through these levies could also be used to provide interest subsidy to make available loans to a special purpose vehicle implementing the project.
In case of Karnataka, the government has incorporated in the Town Planning Act a measure to levy 5% cess on market value of land for the Metro Infrastructure Fund. The government has estimated netting around R432 crore through the yield from additional FAR in the area around Bangalore Metro and cess of 10% and 20% on residential and commercial buildings around the metro corridor.
In Delhi, the government has decided to set up an Urban Transport Fund through levy of dedicated taxes to part fund Phase III of the Delhi Metro corridor.