Clearing the way for Metros

Written by Rajat Arora | Updated: Jan 23 2014, 02:20am hrs
AFTER the Delhi Airport Express Metro, a joint venture between DMRC and Reliance Infra, becoming a failed public-private partnership (PPP) project for the ministry of urban development (MoUD)and with regular problems surfacing with the Mumbai Metro Project, also being built on the PPP mode, the ministry is ushering in reforms in its PPP policy to make capital-intensive metro projects more attractive for the private sector.

MoUD is the nodal agency to execute Metro rail projects in the next ten years in all Indian cities with a population of more than two million that would see investments worth R2,000 billion. Other than extension works in Kolkata and Delhi, Metro rail projects are at various stages of execution in cities like Jaipur, Chennai, Kochi and Hyderabad.

Such projects are planned in about a dozen more cities, including Ahmedabad, Bhopal, Chandigarh, Indore, Kanpur, Lucknow, Ludhiana, Nagpur, Nashik, Patna, Pune and Bangalore.

FE does a round up of the problems being faced by the Metro projects concessionaires and policy changes which the MoUD intends to bring to attract more private sector investment in the Metro and rapid rail projects.

Government to government pricing for land from civic bodies, government departments, PSUs and other government bodies: While land from state government and private parties is made available on time for project, often the land belonging to central government departments, specially defence and PSUs, has been found to be a major bottleneck that holds up work and delays completion.

The MoUD has proposed that there should be a general policy decision that no department should ask for land for land, and the compensation should be paid by the metro rail corporations at the rate of land decided by the government for individual projects, and not at the market price.

Metro projects on PPP mode should be treated as public utility projects: The MoUD has proposed that the Metro rail projects on the PPP mode should be treated as a public utility and any need for clearances for construction in prohibited areas such as forests and Archeological Survey of India-protected monuments should be obviated.

Rationalisation of services and other taxes: Currently, Metro railway operation on PPP attracts a service tax of 12.36%. The public transport provisioning by private parties, through PPP, in urban areas have to be defined as public service and exempted from service tax, the ministry has proposed.

Additional viability gap funding in case of cost escalation from the economic scenario: Concessionaires of Metro and rapid rail should be allowed to seek an upward revision of viability gap funding (VGF) in the event of significant changes in the macroeconomic and financial parameters such as interest rate spike, exchange rate fluctuation and also variation in the gross domestic product and realty index.

The MoUD has moved a cabinet note proposing these investor-friendly policies for the projects that are to come up in the PPP-BoT mode. Under the VGF scheme for Metro PPP projects, the Centre currently contributes only up to 20% of project cost as grant, with no provisions for changing it mid-way of a project cycle. In case of cost increase for reasons beyond the control of the concessionaire, 50% of the cost increase may be taken into account for a revised fare structure.

Earning revenues through non-traditional methods: Metro railways are capital-intensive projects. While the ministry has been encouraging metro rail corporations to raise resources through non-traditional approaches, the commercial exploitation of the property should be done optimally to raise resources. The expectation for revenue generation from property development should be 20% of the gross revenue for the projects.