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Private sector must support Indian metro projects for future funding

Indian metro systems such as this one in Delhi have proved successful in increasing mobility, with high passenger density. Most lines are elevated to minimise construction costs and avoid surface congestion. R. Mathur / CC-BY-SA 2.0

The Indian Government approved a new metro policy on 16 August that requires private sector participation for any project seeking a national funding contribution.

Faced with an increasing demand for metros in a large number of cities to cater for population and economic growth, the Modi government has said that all projects should benefit from private sector resources, expertise and entrepreneurship. Private sector participation could be for the whole project, or just certain elements such as fare collection or operations and maintenance.

Three versions of national funding are offered: a PPP with a contribution under the Ministry of Finance’s Viability Gap Funding; a government grant covering 10% of project costs; and a 50/50 equity share between central and state governments. Metro projects will receive approval only if they achieve a 14% internal rate of return, rather than the 8% rate used until now.

There will be mandatory third-party assessment and the government is looking for metro development linked to urban transformation, with comprehensive mobility plans that include Transit Oriented Development. Cities and states must use innovative financing mechanisms such as value capture financing tools and betterment levies to take advantage of any increase in land values around stations. Projects must also include last-mile connectivity for a 5km (three-mile) catchment area around stations.

In a move that mirrors the new policy, the Asian Infrastructure Investment Bank is to provide USD500m towards the USD2.22bn cost of Mumbai metro line 4, due for completion in 2021. The 32km (20-mile) elevated line will link Kasarvadavali with Wadala on the north–south alignment; 216 metro cars will be required.

However, the policy has been described as “the most disastrous and retrograde urban transport policy,” by E Sreedharan, the former Managing Director of the Delhi Metro Rail Corporation (DMRC), known as ‘Metro Man’.

Speaking to The Indian Express, Sreedharan, who has consistently argued against the PPP model for metro development, said, “China is galloping way ahead at 300km [186 miles] of metro rail being opened every year. We are already moving at a snail’s pace. Now with this policy, everything will come to a standstill.’’