Central Govt. Approves New Metro Rail Policy to Develop New Lines

On August 16, the central government’s cabinet chaired by Prime Minister Narendra Modi approved a new Metro Rail Policy that seeks to “enable realization of growing metro rail aspirations of a large number of cities but in a responsible manner” and requires a higher than before commitment from states and public-private partnership (PPP), in terms of comprehensive transit plans and funding obligations.

The new policy was prepared by the Ministry of Urban Development in consultation with different states and makes the private sector’s participation mandatory for seeking the central government’s assistance. With this clause, the government hopes the projects would benefit from private-sector resources, expertise and entrepreneurship in running different elements such as operations & maintenance (O&M) or even automatic fare collection.

As per the government’s press release, 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 in a number of different ways, each requiring private participation, in ways such as:

1. 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.

2. 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.

3. 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.

The policy stipulates a shift from the present Financial Internal Rate of Return of eight per cent to Economic Internal Rate of Return of 14 per cent “in line with global best practices”. The government notes that metro projects should be seen not just as transport but rather as urban transformation. As such, the policy requires transport authorities to prepare comprehensive mobility plans for cities, including multimodal integration and transit-oriented development (TOD). Detailed project reports must include last-mile connectivity for 5 km catchment areas around stations. This can include non-motorised transport infrastructure such as walkways and cycle paths, as well as the introduction of feeder services or paratransit. Proposals for such infrastructure & services, and their associated investments, must be reported by the states in the detailed project reports.

Apart from that, the new Metro Rail Policy requires states to clearly indicate in the detailed 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. It also requires the states to adopt ‘innovative’ financing mechanisms such as value capture financing tools and betterment levies to take advantage of increased land values around stations. Low-cost debt capital must also be sought through corporate bond issuance.

Recap of the policy via Doordarshan:

My Thoughts 

This new policy is not another run-of-the-mill PPP supporting policy that was pushed through hastily by some state governments in the previous decade. It puts in place several goals and changes to make the development and post-development commercial operations of metro systems more holistic – something that has not existed or been enforced by local & government authorities.

The new policy is likely to have been born after the half-hearted and politically motivated approvals of new metro projects by state governments in tier 2 cities (Patna, Guwahati, Vijayawada, Trivandrum etc.) without any proper funding in place or road-map to service debt. Experience from operational projects in Jaipur and Chennai, where the operators have done little to improve passenger ridership numbers (through last mile connectivity solutions, competitive fare revisions or property development), is likely to have necessitated that states come up with comprehensive mobility plans and introduce different supporting infrastructure & services to make them attractive and sustainable.

Outside of the traditional PPP projects (Hyderabad Phase-1, Mumbai Line-1), the Delhi Metro Rail Corporation is the only operator to engage private participation in O&M. They recently ventured back into PPP land (after the Airport Express Line) by publishing an expression of interest notice to lease 150 new coaches and off-load the Green Line’s O&M component. While the Bangalore Metro’s upcoming 17 km ORR line has private participation, the scope of their engagement is limited to funding the line and not O&M.

With this new policy in place, the following big-ticket projects currently under planning and appraisal are going to be affected in the near-term in addition to smaller ones planned in tier 2 cities:

• Delhi Metro’s Phase 4 (103.93 km in Delhi + more in NCR)
• Chennai Metro’s Phase 2 (107.55 km)
• Kochi Metro’s Phase 2 (11.2 km)

Bidding and construction work on these projects can of course start with local and state government funds (as seen in Delhi for Phase 3 and Lucknow) while the central government’s assistance is awaited, but metro operators often shy away from doing that. That said, it’ll be interesting to see how different operators go about rejigging their funding plans and what unique PPP schemes are explored as a result of that.

For more updates, check out the Home Page of The Metro Rail Guy!

– TMRG

Featured image courtesy RMRG

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Global traveler who prefers mass rapid transit

13 Responses to "Central Govt. Approves New Metro Rail Policy to Develop New Lines"

  1. Sid says:

    Does anyone have a pdf copy of the policy.

    Reply
    • TMRG says:

      Hi, the policy document hasn’t been unveiled. The government’s press release with brief highlights has been linked up within the post.

      Reply
  2. Probal Kundu says:

    Kanpur is not in the list in press release in the link above. Is it dropped.

    Reply
  3. Mayank says:

    Nowhere in the world has PPP in Metro rail fully succeeded, says E Sreedharan | The Indian Express
    http://indianexpress.com/article/india/nowhere-in-the-world-has-ppp-in-metro-rail-fully-succeeded-says-e-sreedharan-4799989/

    Here are the views of the god who laid the foundation of metro systems in this not so accountable country. I really doubt if there is anyone who can cross his views. The present govt has gone nuts to promote the private sector. TMRG i need your opinion

    Reply
    • G C Shivakumar says:

      SNC Lavalin is building PPP model Metro in Canada they are successful.

      Reply
    • TMRG says:

      With due respect to Mr. Sreedharan, that statement is not true at all. It incorrectly instills fear about private firms being “evil” in pursuing profits.

      Before entering into PPP agreements, cities and operators need to see what they’re signing up for. They need to make sure there are periodic checks & balances and systems to address conflicts, if any. DMRC didn’t quite do that and as such lost out.

      Reply
      • Sham says:

        TMRG, whilst agreeing with you about Sreedharan’s senseless negativity about PPP in general, I have an entirely different take on this subject.

        I am of the opinion that govt thinking in India is yet to mature sufficiently to pursue PPP earnestly for public benefits rather than being seen by them merely as a financing tool for large scale infra, especially metrorails, also for shouldering “much less burden”, in fact washing their hands off.

        For example, look at DMRC’s airport line or Hyderabad metro. In both cases, private parties were brought in for financing & “shoving off” responsibilities! Govt calls all the shots & takes decisions based on political expediencies, like CWG, Telengana elections etc, the PPP partner at its mercy. The objectives are more political in nature than public interests.

        Hyderabad is yet to open a single section after some six years & govt doesn’t seem committed towards public interests as it has taken politically motivated decisions for realignment /delays & is willing to accede some bit to the partner who fears poor ridership (in delaying opening).

        Now, look at Sao Paolo or Beijing where politics do play some part but never the whole hog like it is in India.

        Besides, there are endless squabbles as in both cases, there are serious disputes. Mimbai may not have seen similar because the project is a mere 11km & ridership is too high. Though quality sucks, nobody bothers much in Mumbai & it cannot be used as an example to demonstrate or showcase the success of PPPs within India.

        Reply
  4. Arnab says:

    This is a disastrous policy model. You either go fully private or keep a system in public hands. This PPP rubbish has been a failure worldwide as well as in India. Look at Mumbai, look at Airport Express line of New Delhi. If the private sector wants to come in, who has stopped them. But let them do so with complete ownership and liability. What do you think TMRG?

    Reply
    • TMRG says:

      There are lots of examples of successful PPP projects with varying degrees of private involvement- Vancouver’s Canada Line, 3 lines in Beijing, Manila Line-1 etc. Cities like Hanoi, Sydney and Melbourne will be utilizing it as well.

      I don’t know why Mumbai Metro’s Line-1 is being seen as a failure, especially in the media? Perhaps because of the amount of time taken to construct it? That’s an awful generalization which doesn’t take into account the various site constraints and issues the concessionaire (MMOPL) and the contractor (SEW Infra) faced to build it across the city.

      Reply
      • SANDEEP says:

        If a govt is inefficient, corrupt and it can’t something smoothly then how it can be expected that it to find a good PPP partner with right terms.

        Reply
  5. Syed Khaja says:

    Great. Nice to see this information.

    Reply

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