Expanding Metro Footprint-I: Network set to grow fourfold in seven years

In the first of a two-part series, we look at the Metro network expansion and the challenges that come with it

Metro project

With just over a three per cent share of the global Metro rail network of more than 13,200 km across 55 countries, India is far behind the big boys such as China, Russia, the US, or South Korea. And half the network is in just one city — Delhi (231 km). In the nine other cities that also offer Metro rail services, the network runs only on very limited routes, from as low as eight km in Lucknow to a laughable 20 km in the metropolis of Mumbai.

But, this is set to change dramatically. Realising how the Metro can change the urban transportation road map in a city, governments in many states, with support from the central government, are now furiously constructing or have cleared Metro projects, which, when completed, will lead to a fourfold increase in the country’s Metro network in the next five to seven years to more than 1,650 km. And Metro services will no longer be limited to a few cities. They will cover over 24 cities including Indore, Patna, Guwahati, Varanasi, Chandigarh, Kozhikode, Vijaywada, and Kanpur. In short, nearly 68 per cent of the 35 cities that have a population of more than 1 million (based on the Census of 2011) will now have Metro services.

If the projects take off, Mumbai will have a reasonable 177 km, easing the pressure on suburban trains.  If the Mumbai Metro plan takes off it will have a network which is ten times bigger than what it has currently. Even Kolkata, where work on the country’s first Metro started in 1972 and services began in 1984, but lost its momentum due to political indifference, will see its current network nearly go up fourfold. And Delhi, says Delhi Metro Rail Corporation (DMRC) Executive Director Anuj Dayal, in the next six months will become the fourth-largest Metro network in the world, just behind Shanghai, Beijing, and London. “We expect that in the next six months. We will have an operational network of over 380 km,” he says.

Also, the Indian Metros together will carry 12-15 million passengers every day, nearly three to four times of what they do now. And the urban transportation mix could change fundamentally closer to the global average, in which 16 per cent of the commuters in a city with Metro services use it as a primary source for transportation.

Numbeo, a global crowdsourcing site that tracks traffic across cities across the world, points out that over 14 per cent of those who commute in Delhi use the Metro, but except for Kolkata (it is eight per cent including urban train systems), the Metro’s share is insignificant in other cities because the network is small and does not provide point-to-point services.

If the aggressive drive succeeds, experts have predicted India could boast being in the top four in terms of network size, locking horns with the US and South Korea. China, of course, is in a different league as it is planning to double the Metro network to 8,000 km in the next few years.

But the expansion will require big investment as one km of Metro line costs an average of Rs 5 billion. According to ICRA estimates, currently Metro projects of more than Rs 2 trillion are under approval in 15 cities. Most of the projects are being funded by the government, which puts in equity, and multilateral agencies like the Japan International Cooperation Agency (JICA), which offer long-term loans with a very low rate of interest as well as a substantially long moratorium on payments. Unlike in Southeast Asia where JICA is competing with Chinese multilateral agencies to fund their Metro projects by pushing their companies to choose their rolling stock, JICA has dominated the scene, funding virtually all the key Metro projects, including Delhi, Mumbai, Ahmedabad and Chennai, among others. It is estimated that it has provided the Metros over Rs 718,360 million.

Also, for about 950 km of network that is either operational or in various stages of implementation, the government has given approval for an investment of Rs 2.5 trillion. Of this, the government is putting in Rs 595 billion as equity.

Says Shubham Jain, vice-president, ICRA: “The Metro is looked as a mass transport that needs to be subsidised by the government for consumers. So fares are kept low. Even globally the PPP (public-private partnership) model has failed for the Metro in most cases and only 20 per cent of the Metros follow this model.” Also only six Metros in the world are operationally profitable and one of them is Delhi Metro. But it has not earned net profit owing to heavy depreciation costs.

The record on PPPs in India has not been encouraging. Of the five PPP projects for Metro, contracts with two of them have been terminated (which include Delhi Airport Metro and Mumbai phase 2, both of which were given to Reliance Anil Ambani group) and the other two, which include Gurgaon Rapid Metro and Mumbai’s phase one (11.4 km), are very small projects, mostly acting as feeder lines.

All eyes are now set on the Hyderabad project, which is being implemented by Larsen & Toubro and could be the big test case for the future of PPPs. But it is facing the issue of cost overruns and ICRA points out that while Hyderabad Metro has been bundled with real estate development to provide additional income, this exposes the company to real estate market risks and changes the risk profile of the company.

Of course, there are some attempts to try innovative ways of financing Metro projects. DMRC, for instance, floated an expression of interest just a few months ago for leasing 150 new coaches on the basis of hours of usage instead of buying them upfront.

In order to make the project more viable, some states are mulling value capture financing, under which it will charge higher property taxes on real estate locate near a Metro point, or increase the density of real estate around the Metro line by offering a higher FAR (floor area ratio) and charging a premium for it. And, Hyderabad Metro became the first to raise resources by floating 10-year Metro bonds.

Surely, the speed at which Metro lines are being built is much slower than anticipated and that could jeopardise the aggressive plans. Metro Man E Sreedharan pointed out recently that every year China builds Metro lines of 200 km, but the rate in India is well below 20 km.

To speed up the development of the Metro and avoid costly overruns, the government last year cleared a Metro policy. But a senior executive of a leading Metro rail company said: “By insisting on following the Land Acquisition Act, we expect the prices of land will nearly double. This will increase project cost as well as be a major impediment in speeding up construction.”

The new policy also insists that state governments should come up with a comprehensive urban transportation plan of the city if they want Metro projects to be funded, ensure an economic internal rate of return of 14 per cent, and also have some element of PPP in the project. “These moves will only delay the sanctioning process of new Metros as they have to now prepare a much more detailed report. Also, it’s pretty clear they will be forced to artificially hike their ridership numbers to prove that they will make substantial returns which are difficult to achieve,” says a senior executive involved in Metro projects. But, despite the challenges, the push to the Metro could transform urban transportation, reduce pollution, and save energy.

Next: How key cities from Kochi to Lucknow are preparing to use Metro to change urban transportation