With an investment to the tune of $13.5 billion required for the future metro projects in the country, the issue of funding model for projects needs a closer look, especially in the context of non-allocation of funds for such projects by the government and the recent criticism of private-public partnership (PPP) model used in the Hyderabad metro by DMRC chief E Sreedharan.

?The 11th Five Year Plan does not have any allocation for the metro projects. Projects need to be taken up on PPP model to fund infrastructure growth in the country,? said Gajendra Haldia, principal advisor (Infrastructure), Planning Commission.

In this context, the three projects currently underway in the country display distinct models on which the upcoming metro projects could be funded in Ahmedabad, Chandigarh and Pune.

The Delhi Metro, which has shown extraordinary feats in project management and efficiency, has been funded solely by the government in cooperation with Japan Bank for International Corporation.

The Rs 12,000 crore Hyderabad metro has just been awarded to a consortium led by Maytas Infrastructure on PPP basis. Similar is the case with Mumbai Metro, the first phase of which is being developed by Mumbai Metro One, a joint venture company between Reliance Infrastructure, Mumbai Metropolitan Region Development Authority (MMRDA) and France-based Veolia Transport at an investment of Rs 2,300 crore.

Explaining the model of the Hyderabad metro, N V S Reddy, managing director, Hyderabad Metro Rail Ltd, said, ?The project based on build operate and transfer basis will be developed by Maytas Infrastructure for a concession period of 30 years. We have got Rs 30,000 crore from the concessionaire in lieu of the 269 acres of land leased to the concessionaire to develop properties around 33 railway stations and three depos. The investment in real estate is beyond the project cost and will be funded solely by the developer.?

?In case of the Hyderabad metro project, the concessionaire will have to pay all the taxes, interest and dividend unlike the Delhi Metro. The operational losses will also have to be met by the concessionaire. The Delhi Metro pays an interest of 1.5% on the total loan worth Rs 10,000 crore for a period of thirty years. Also, it is not liable to pay Customs as well as Excise duty,? said Haldia.

The Planning Commission also feels that the model of Hyderabad metro scores over the Delhi metro in various aspects. ?First of all, since the private players will bring the funds, it will not be a liability on the public exchequer. Also, due to private sector efficiency, the cost of the project is less and delivery is faster,? said Haldia.

Comparing both the models, Amrit Pandurangi of PriceWaterhouse Coopers said, ?Metro projects are very capital intensive-projects. Owing to lack of funds, the model such as Delhi metro may not be viable. The cost of building and operating a metro is quite known, but property prices go through cyclical ups and downs. So bundling metro and real estate development as in case of Hyderabad project is not a bad idea but the valuation of the land should be done in a transparent manner.?

In the context of limited government resources, the model could turn out to be a successful one, according to Pandurangi. ?However, the money that the government foregoes by not developing the real estate itself has to be compared with the money that the government is getting or saving by not giving a grant to the metro train operator,? he added.

Hyderabad

Dismissing DMRC managing director E Sreedharan’s concerns that the operator in Hyderabad would reap a ‘windfall profit’ from realty development, Reddy said, ?The developer will have to concede the rights on the land as well as the property after the end of the concession period.

Also, during the concession period the developer cannot sell the land or the property. The vertical exploitation at the depots could see construction of shopping malls, IT parks, multiplexes or entertainment centers.?

Mumbai

Meanwhile, Reliance Infrastructure, which is building the first phase of Mumbai metro at an investment of Rs 2,300 crore has achieved the financial closure for the project.

?We have raised the debt from a group of banks led by IDBI bank. Other banks include Corporation bank, Indian Bank and Canara bank,? said a company spokesperson.

?The debt for the project is Rs 1,194 crore while the equity is 512 crore. The cost includes a Rs 650 crore grant from MMRDA. The debt has been raised at a time when the global liquidity position is tight,? he said.

?We have got a commitment from the state government and the MMRDA. If necessary, MMRDA will fund the project from its own reserves. Had the mode of funding not been viable, we wouldn’t have been able to start construction in February this year,? said K P Maheshwari, director, Mumbai Metro One.

?The cost of borrowing for the rupee component, which constitures about 75% of the total debt, was contracted at 12.5 per cent, while the foreign currency loan was raised at 7%. The earlier metro projects in the country had active government participation. Institutional funding of a metro project is new as it involves interaction with different agencies including rolling stock, power supply, signaling and engineering,? he added.

?The repayment model is also unique, as for the first time the project assets are not charged to the lender as security,? the spokesperson pointed out.