Would the PPP way work for NCR Rapid Rail Transport System?

The country's recent experiences with the model in urban infrastructure projects indicate challenges ahead

While most public private partnership (PPP) infrastructure projects in the country face hiccups in execution, the first-of-its-kind NCR Rapid Rail Transit System (RRTS) project, worth Rs 72,000 crore, is set to go the PPP way, with 20-30 per cent funding coming from the private sector. But the recent experience of India with PPP in urban infrastructure projects narrates a tale of challenges ahead.

The private partner in the RRTS project is expected to be associated under the build-operate-transfer (BOT) model, widely used in the PPP model. The potent factors that will decide the fate of the project will be economic viability and revenues that the project will generate.

Expecting a daily ridership of 1.63 million by 2016 on the three proposed corridors, the major source of revenue for the project would be passenger fares. About 80-85 per cent of the revenue would be generated from fares, with the remaining to flow from advertising, rentals and property development, according to the feasibility report.

LESS THAN ENCOURAGING

• The major glitch in the Delhi Airport Expressline project, an example a PPP project, was that its projected ridership was highly inflated and it expected 75 per cent of revenue to come from real estate development, which did not happen at the desired pace, making the project a loss-making entity
• Experience from the Mumbai Metro shows a funding gap could cause delay and cost escalations, and could put the project in a fix

The major glitch in the Delhi Airport Expressline project, which is an example of why PPP does not work, was that its projected ridership was highly inflated and it expected 75 per cent of revenue to come from real estate development, which did not happen at the desired pace, making the project a loss-making entity. By analogy, although this project is not dependent for its major chunk of revenues from real estate and property development, it bets it all on ridership. By the figures used in the feasibility report, about 1.1 million vehicles cross Delhi’s borders in a day. About 30 per cent merely cross Delhi, with 37 per cent moving outside the city and 38 per cent heading towards it.

“In our analysis, we are targeting passengers using cars and buses who are more likely to use the services," said a senior official involved with preparing the detailed project report. The current detailed project report takes passenger fare to around Rs 1 a km. So, for example, on the Delhi-Panipat corridor, the fare would be around Rs 100 for a one-way journey. A journey from Panipat in the Shatabdi train would cost Rs 300 and a bus journey would cost Rs 100 and would take two hours. "Our fares will not only be competitive but travel time will be less, with 100 km being covered in an hour," added the official.

The prospective cost estimates show the project would be profitable, with revenues exceeding the operation costs. Experts argue such public transport projects should not be viewed with the prism profit analysis. “These are transformational projects, which are game changers. They cannot be merely conceptualised on financial feasibility. They foster growth in the long term. You should not expect them to make profits right away," said Akhileshwar Sahay, a railway expert. Experience from the Mumbai Metro shows a funding gap could cause delay and cost escalations, and could put the project in a fix.

The challenges at the construction phase are no less. Land acquisition is one issue that most urban infrastructure projects face. Initially, it was expected that a majority of land from Indian Railways would be taken. But the Railways came back saying they did not have requisite land, said an official. The three corridors run across 381 km.

"A detailed report on relief and rehabilitation has been prepared in accordance with international standards, laid down by the World Bank, ADB (Asian Development Bank) and JICA (Japan International Cooperation Agency)," said Ashvini Parashar, executive vice-president, Delhi Integrated Multi-Modal Transit System Ltd (DIMTS). The company has prepared the feasibility report for the project.

The presence of multiple stake holders — Haryana, Delhi, Uttar Pradesh and Rajasthan governments; the ministry of railways; the ministry of urban development and the NCR Planning Board — could cause workability issues. “Though this may make our task difficult, each is an important partner and we have to work through it,” said a senior official associated with the project.