New metro rail policy makes private participation mandatory

The union cabinet on Wednesday approved a new Metro Rail Policy, opening a big window for private investment and shifting the focus to compact urban development, cost reduction and multi-modal integration.

The union cabinet chaired by Prime Minister Narendra Modi approved a new Metro Rail Policy that makes public-private participation (PPP) component mandatory for availing central assistance for new metro projects.

Private investment and other innovative forms of financing of metro projects have been made compulsory to meet the huge resource demand for capital intensive high capacity metro projects, a government release stated.

''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,'' says the policy, which seeks to capitalise on private resources, expertise and entrepreneurship.

In view of inadequate availability and even absence of last mile connectivity at present, the new policy seeks to ensure focusing on a catchment area of five km on either side of metro stations requiring states to commit in project reports to provide necessary last mile connectivity through feeder services, Non-motorised transport infrastructure like walking and cycling pathways and introduction of para-transport facilities. States, proposing new metro projects will be required to indicate in project report the proposals and investments that would be made for such services.

In order to ensure that least cost mass transit mode is selected for public transport, the new policy mandates alternate analysis, requiring evaluation of other modes of mass transit like BRTS (Bus Rapid Transit System), light rail transit, tramways, metro rail and regional rail in terms of demand, capacity, cost and ease of implementation. Setting up of Urban Metropolitan Transport Authority (UMTA) has been made mandatory which is to prepare comprehensive mobility plans for cities for ensuring complete multi-modal integration for optimal utilization of capacities.

The new Metro Rail Policy provides for rigorous assessment of new metro proposals and proposes an independent third party assessment by agencies to be identified by the government, like the Institute of Urban Transport and other such centres of excellence whose capacities would be augmented, as required in this regard.

The new Metro Policy also stipulated a shift from the present ''financial internal rate of return of 8 per cent'' to ''economic internal rate of return of 14 per cent'' for approving metro projects, in line with global practices. This, according to the government is in view of the substantial social, economic and environmental gains of metro projects.

Noting that urban mass transit projects should not merely be seen as urban transport projects but more as urban transformation projects, the new policy mandates `Transit Oriented Development' (TOD) to promote compact and dense urban development along metro corridors since TOD reduces travel distances besides enabling efficient land use in urban areas.

Under the policy, states need to adopt innovative mechanisms like `Value Capture Financing' tools to mobilise resources for financing metro projects by capturing a share of increase in the asset values through 'Betterment Levy'. States would also be required to enable low-cost debt capital through issuance of corporate bonds for metro projects.

In order to ensure financial viability of metro projects, the new Metro Rail Policy requires the states to clearly indicate in the project report the measures to be taken for commercial/property development at stations and on other urban land and for other means of maximum non-fare revenue generation through advertisements, lease of space etc, backed by statutory support. States are also required to commit to accord all required permissions and approvals.

The new policy empowers states to make rules and regulations and set up permanent Fare Fixation Authority for timely revision of fares. States can take up metro projects exercising any of the three options for availing central assistance. These include:

• PPP with central assistance under the Viability Gap Funding scheme of the ministry of finance;
• Grant by Government of India under which 10 per cent of the project cost will be given as lump sum central assistance; and
• A 50:50 equity sharing model between central and state governments.

Under all these options, private participation, however, is mandatory.

The policy envisages private sector participation in O & M of metro services in different ways. These include:

Cost plus fee contract: Private operator is paid a monthly/annual payment for O&M of system. This can have a fixed and variable component depending on the quality of service. Operational and revenue risk is borne by the owner.

Gross cost contract:  Private operator is paid a fixed sum for the duration of the contract. Operator to bear the O&M risk while the owner bears the revenue risk.

Net cost contract:  Operator collects the complete revenue generated for the services provided. If revenue generation is below the O&M cost, the owner may agree to compensate.

At present, metro projects with a total length of 370 km are operational in 8 cities, viz, Delhi (217 km), Bengaluru (42.30  km), Kolkata (27.39 km), Chennai (27.36 km), Kochi (13.30 km), Mumbai (Metro Line 1-11.40 km, Mono Rail Phase 1-9.0 km), Jaipur-9.00 km and Gurugram (Rapid Metro-1.60 km).

Metro projects with a total length of 537 km are in progress in 13 cities, including the Gurgaon project. New cities acquiring metro services include Hyderabad (71 km), Nagpur (38 km), Ahmedabad (36 km), Pune (31.25 km) and Lucknow (23 km).

Metro projects with a total length of 595 km in 13 cities, including 10 new cities are at various stages of planning and appraisal. These are: Delhi Metro Phase IV- 103.93 km, Delhi and NCR-21.10 km, Vijayawada-26.03 km, Visakhapatnam-42.55 km, Bhopal-27.87 km, Indore-31.55 km, Kochi Metro Phase II-11.20 km, Greater Chandigarh Region Metro Project-37.56 km, Patna-27.88 km, Guwahati-61 km, Varanasi-29.24 km, Thiruvananthapuram & Kozhikode (Light Rail Transport)-35.12 km and Chennai Phase II-107.50 km.