Industry players expect new metro policy to lay out clear road map

Most of them bat for hybrid annuity model, exploitation of real estate around metro stations

Industry players expect that the new metro policy will lay out a clear road map and address various aspects like operations, safety, regulation, construction. Especially, when various acts such as Indian Railways Act, 1989, Indian Tramways Act, 1886 govern the sector, currently. Besides, the policy will suggest innovative financial models for the metro rail projects being highly capital intensive and make a case for a single nodal agency to address issues relating to alignment, utilities shifting, environment clearances for the time bound implementation.

Larsen & Toubro (L&T), whole time director and chief financial officer R Shankar Raman, told Business Standard, "In order to look at new financial model it is important to look at the risks associated and additional means of revenue to support financial viability. The main risk in execution is obtaining the right way and clearing all utilities that obstruct the alignment of the metro rail system. Construction should start only after 100% of right way and utilities are cleared as this would ensure construction in the shortest possible time. Thereby, saving interest during claims and no cost over runs due to delay and issues linked to utilities."

Shankar Raman suggests that providing real-estate development option with full rights to develop or sublease or monetise and having ownership for long term of say 99 years is important. Real estate could be around the depots and stations or along the alignment. In addition to these, long tenor low cost debt would be required with high moratorium to manage cash flows in the initial years.

PwC partner & leader (infrastructure) Manish Agarwal says successful metro projects will require integration of land use and transport, and of various forms of transport. This integration is required physically (Metro and Bus stations), commercially (ticketing systems), and financially (capturing land value appreciation, development charges).

"The current institutional arrangement, being split between the Central, State and Local governments, is not designed to deliver this. The National Transport Policy had included various measures towards, and some metro projects have been able to implement such measures to different extents. If the amendments to Metro Act can create institutional solutions to deliver on these requirements, by aligning stakeholder interests, it could hasten the development and financing process, while providing significantly improved public transport to citizens," Agarwal notes.

KPMG India director (infrastructure & government services) Rajaji Meshram argues that the existing public private partnership (PPP) models in metro projects in India works on revenue share model and the ridership risk is placed with the private sector partner. "However, internationally, the private sector involved in metro transport project does not take the ridership risk and actually gets paid on the metric of "availability". Their responsibility is to ensure a level of service that is agreed with the authority. If this model is adopted in India, there could be a lot of interest from the private sector," he opines.

Further, Shankar Raman says other than PPA model, it is the model involving government sponsorship such as in Delhi Metro Rail Corporation (DMRC), which is viable. "Hybrid annuity model can be considered for metro projects as well once the basic concession framework is well addressed. PPP can still work provided project is offered with 100% alignment being cleared for construction and real estate rights being provided without restrictive conditions for generation of additional revenues," he suggests.

Maharashtra Metro Rail Corporation managing director Brijesh Dixit says the new policy and act need to address organisational, financing and legislative issues for the expansion of metro rail projects across the country and also for the expansion of existing projects. "The government may consider setting up of Unified Metro Transport Authority on the lines of Singapore, Dubai and couple of other countries to coordinate the developmental activities of a city by mobilising resources and linking various departments," he adds. According to him, the government needs to consider putting in place dispute resolution mechanism.

On the highly contentious issue of fare fixation, Meshram says since metro services cater to the general population of a city, the city municipal authority will always desire to have a say in the tariffs charged. "A transparent mechanism of fare fixation where the costs are clearly identified and a fair return is assured to the service provider needs to be put in place. The Regulated Asset Base model that is followed in various other infrastructure assets such as airports, railways can be looked into," he says.