The New Metro Policy looks at reducing the Centre’s role in funding while making PPP mandatory for Metro projects…
It will never work. Nobody will come forward for construction of Metro rail as it has never been a profitable investment. Private players will look at least 12-15% return while no Metro project has ever yielded an investment return of over 2-3%. It’s the most disastrous and retrograde urban transport policy. The JV model, with funding from the Centre and states, has worked very well so far. The Centre is trying to reduce its role in financing and put the entire burden on the state governments. The policy seems to have been framed by someone sitting in the NITI Aayog with absolutely no experience of how Metro rail is built and operated. As it is, in India, all 12 such projects put together, only 20-25 km of new Metro rail is opened every year. China is galloping way ahead at 300 km being opened every year. We are already at a snail’s pace; now with this policy, everything will come to a standstill.
The Ministry of Urban Development has in the past argued that internationally several cities have tried the PPP model for urban rail projects.
Nowhere in the world has the construction and maintenance model of PPP in Metro rail completely succeeded. There have been cases where the government has invested all the money in setting up infrastructure and handed over operations to private parties. But that’s a very foolish thing to do, to put in public investment and allow the private person to enjoy the revenue. How will the government pay back the loan it has taken in the first place? Even if the private player is to spend on just the rolling stock, that constitutes only 18% of the total project cost.
How has past experience with PPP in Metro rail projects been in India?
PPP in India was tried out in Mumbai, Hyderabad, and the Airport line of Delhi. All three are a failure. In the airport line, DMRC invested 55% of the cost (50% of which was borrowed from Japan). Reliance Infrastructure, which was the only private player to come forward, invested in the rolling stock, electrification, and signalling. Reliance started operating the line, they found it loss-making, so they abandoned it, and ran away. We had taken it over and run it ourselves. In Mumbai Metro Line 1, Reliance Infrastructure took almost 7 years to complete 11 km of the relatively easier elevated line and they now claim to be losing 50 lakh per day in revenue everyday despite the very high fares they are charging. In Chennai, the state and central governments invested all the money with borrowing from Japan.
When they called for tenders for handing over the operation and maintenance, only one private firm came forward which quoted twice the DMRC’s O&M rates.
The new policy advocates the commercial development of land along stations to help maximise Metro revenues…
In the Hyderabad PPP model, 300 acres of land for property development was offered as a sweetener and L&T came forward. But since then, property values have come down and real estate is not making the same kind of money as it used to. Even 7 years after they first started the project, Hyderabad hasn’t managed to open even one section since once that is done, L&T will have to start repaying the bank. L&T has already started raising claims on the government with regard to loss of revenue. We had pioneered this public land exploitation model in Delhi but it has not succeeded much. So many shops are still lying vacant.
Why is it necessary that the central government continue to invest in mass public transport?
A good, reliable transportation system is a must to make a city livable and for its economic growth. Would Mumbai have been able to survive without its suburban rail services? The government had invested 100% in it. It is losing money but that doesn’t matter. If the government doesn’t invest, who will? In Kerala’s road transport, the state has entirely funded the construction of roads, their maintenance and lighting. It only handed over the operation of bus services to private players but most bus services are making losses. The Kerala government has to subsidise them at Rs 1 crore per day. Metro is way more capital-intensive as it requires everything from land acquisition to civil works, signalling, and rolling stock. With all that, Metro cannot be a profitable business. The government has to ensure affordable public transport and hence it must invest in it.