The Union Cabinet has approved a Metro Rail Policy aimed at promoting metro rails in Indian cities through supportive resource mobilization policies on August 16th, 2017. The Policy comes in the context of rising difficulties of availing funds to finance metro projects.
According to the policy, participation of private investment across a range of metro operations is necessary to avail central government’s financial support for the projects. The stand of the government comes in the context of large number of metro project proposals involving huge capital investment. Till now, most of the metro projects have used considerable level of central government grants with limited use of outside sources like PPP.
Importance to private sector participation
The Policy declares that “Private participation either for complete provision of metro rail or for some unbundled components (like Automatic Fare Collection, Operation and Maintenance of services etc) will form an essential requirement for all metro rail projects seeking central financial assistance.”
States should ensure that last mile connectivity within five miles are provided through feeder services in Metro projects. This last mile connectivity aspect should be elaborated in the project report by the submitting state governments.
Associated infrastructure like walking and cycling pathways and introduction of para-transport facilities etc., should be shown in the proposals with investment implications.
The policy also encourages mass transport modes overall: – be in the form of BRTS (Bus Rapid Transit System), Light Rail Transit, Tramways or the Metro Rail and Regional Rail. Project evaluation in terms of demand, capacity, cost and ease of implementation should be prepared by considering multiple factors.
The Policy also instructs mandatory setting up of Urban Metropolitan Transport Authority (UMTA) for cities to ensure complete multi-modal integration for optimal utilization of capacities.
Similarly, the Metro Rail Policy also demands assessment by independent third-party agencies that are identified by the government like the Institute of Urban Transport and other such Centres of Excellence.
Adoption of EIRR
Another major feature of the Policy is the adoption of Economic Internal Rate of Return (EIRR) criteria that considers all economic costs and benefits rather than just financial factors. At present, Financial Internal Rate of Return criterial is followed. According to the policy, an Economic Internal Rate of Return (EIRR) of 14% is needed for approving projects.
Other operational guidelines
The Policy substantiates that urban mass transit projects are actually urban transformation projects. Here, the policy envisages Transit Oriented Development (TOD) to promote compact and dense urban development to reduce travel distances and to ensure efficient land use in urban areas. The Policy also asks states to adopt innovative mechanisms like the imposition of ‘Betterment Levy’.
On the fixation of metro fares, the policy empowers states to set up permanent Fare Fixation Authority for timely revision of fares. Already, the operational metros are increasing fares to recollect the capital invested.
The Policy suggests three financing options for states to launch metro projects with a condition that private sector investment should be availed. These models are:
- PPP with central assistance under the Viability Gap Funding scheme of the Ministry of Finance,
- Grant by Government of India under which 10% of the project cost will be given as lump sum central assistance and
- 50:50 Equity sharing model between central and state governments.
All these modes should ensure private investment. Under the mandatory private sector participation clause, metro rail policy also gives three operational methods for private sector on operation and maintenance of projects: Cost plus fee contract, Gross Cost Contract and Net Cost Contract.
Expansion of metro projects
The country is witnessing a revolution in metro transport facilities at present. As on August 2017, metro projects with a total length of 370 kms are operational in 8 cities across the country. These projects are: Delhi (217 kms), Bengaluru (42.30 kms), Kolkata (27.39 kms), Chennai (27.36 kms), Kochi (13.30 kms), Mumbai (Metro Line 1-11.40 km, Mono Rail Phase 1-9.0 km), Jaipur-9.00 kms and Gurugram (Rapid Metro-1.60 km).
Construction of another 595 kms metro projects are in progress in 13 cities including in some of the above mentioned cities (phase II). New cities acquiring metro services are; Hyderabad (71 kms), Nagpur (38 kms), Ahmedabad (36 kms), Pune (31.25 kms) and Lucknow (23 kms). The new funding regulations under the policy is expected to give a boost to metro projects by attracting private funds to finance at least a part of the capital to be invested.