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  1. Union Budget 2017: Fresh Metro policy proposed to rekindle private participation

Union Budget 2017: Fresh Metro policy proposed to rekindle private participation

In an effort to revive private sector participation in Metro projects in India, finance minister Arun Jaitley has proposed a new Metro Rail Policy and bringing in a new Metro Rail Act to focus on innovative models of implementation and financing of metro projects.

By: | New Delhi | Updated: February 2, 2017 7:10 AM
So far, three metro projects in India have seen private sector participation. So far, three metro projects in India have seen private sector participation.

In an effort to revive private sector participation in Metro projects in India, finance minister Arun Jaitley has proposed a new Metro Rail Policy and bringing in a new Metro Rail Act to focus on innovative models of implementation and financing of metro projects.

The finance minister said the government was working towards rationalising the existing laws to facilitate greater private participation and investment in construction and operation. This will be a clear change from the policy the government had adopted in the last few years, with metro projects getting developed on an engineering, procurement and contract basis.

So far, three metro projects in India have seen private sector participation—Mumbai, Gurugram and Hyderabad. The projects have had their share of disputes. This saw the government put on hold partnerships with private firms for metro projects.

K Venkatesh, chief executive and managing director, L&T IDPL which is executing the Hyderabad Metro project said, “If the thinking with the new Metro Policy is to encourage private participation in these projects, the government must ensure revenue stability and integrity that is agreed upon in the bid document,” he said.

Industry experts say that the model being adopted widely to raise funds for metro projects through real estate development has its own challenges. Manish Aggarwal, partner, head (infrastructure – M&A and debt advisory), KPMG in India, said Metro development in India had remained a real estate play and was not a bankable revenue model. “Given the stretched balance sheets of infra developers, perhaps a government-supported structure/fund could be looked at which would enable a private player to raise funds through long-term funding institutions like pension funds etc,” he said.

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The experience of developing Metro projects in PPP mode has not been too successful so far. In fact, some issues even reached the courts. Reliance Infrastructure-led Mumbai Metro One took on Mumbai Metropolitan Region Development Authority, the government partner, over the fixation of passenger tariffs.

Similarly, L&T has had differences with the state government over compensation for cost overrun of up to R3,000 crore for the Hyderabad Metro.

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