India's tryst with the metro rail is still at a fairly early stage.
The country, which is projected to be the world's fastest growing economy, might well be on its way to becoming the world's leading market in the metro rail segment by the end of the next decade.
The total length of operational metro projects in India presently stands at about 440 km and is growing. Cities like Bengaluru, Chennai, Gurugram, Kochi, Kolkata, Mumbai, Hyderabad, Jaipur, Lucknow and the Delhi National Capital Region (NCR) where they are already operational, are simultaneously adding on to their existing route networks. Six more cities, viz., Ahmedabad, Kanpur, Nagpur, Noida, Navi Mumbai and Pune are witnessing the construction of metro rail projects of about 179 kilometres.
But India's great metro rail journey is still in its initial phase. Projects, with a total length of nearly 1,853 km are in various stages of planning and appraisal in 34 cities across the country. Among these, the new cities are Agra, Amaravati, Bhopal, Coimbatore, Dehradun, Guwahati, Gwalior, Indore, Jabalpur, Kozhikode, Meerut, Patna, Srinagar, Surat, Thiruvananthapuram, Varanasi and Visakhapatnam.
Rise of aspirational society
So what is the reason for different cities clamouring to jump on to the metro rail bandwagon? 'India is one of the countries where rapid urbanisation is happening.
Citizens too aspire for and demand world-class public transport services,' explained Jagannarayan Padmanabhan, Director and Practice Leader, Transport and Logistics, CRISIL Infrastructure Advisory.
It is estimated that by the first half of the 21st century, 70 per cent of India's population will be residing in cities. Moreover, the country is expected to overtake China in population by 2024. Therefore, in June 2015, a year after coming to power, the Prime Minister Narendra Modi-led National Democratic Alliance (NDA) government kick-started a $7.5 billion programme for the development of 100 smart cities. It has also finalised a plan to take the concept of mass rapid transportation systems (MRTS) to 50 cities to provide clean, seamless and sustainable transport solution for urban India.
Addressing the inaugural session of Community of Metros (CoMET) 2018 management meeting in New Delhi in March, Hardeep Singh Puri, Union Minister of State (Independent Charge), Ministry of Housing and Urban Affairs (MoHUA) observed that India would be rolling out a metro rail network of over 700 km within the next few years. 'Metro projects in India are not only perceived as a solution to meet transportation requirements but also as a means to transform cities,' he said.
However, the track ahead is not going to be easy. 'The challenge is in having enough traffic in all the routes. In most of the tier-2 cities, traditionally, development has happened only in a few pockets, and hence the concentration of population is restricted to those pockets. The movement of traffic is also unidirectional. The other challenge is that since thickly-populated pockets span only a few square kilometres, the route length too is not optimal,' averred Padmanabhan. Therefore, several proposals may not be financially sustainable. For instance, 11 years after it was first mooted, a committee headed by the country's Home Minister, Rajnath Singh rejected the Chandigarh tri-city metro project last year over its commercial non viable.
Being highly capital-intensive, metro rail projects are largely implemented with financial support from both the federal and state governments by way of equity and grants.
The remaining funds are raised through multilateral agencies such as Japan International Cooperation Agency (JICA) and European Investment Bank (EIB) that are often keen onsupporting such infrastructure development projects. During his March visit to India, Werner Hoyer, President, European Investment Bank (EIB) told INFRASTRUCTURE TODAY, 'We provided financing for the metro in Lucknow and also in Bangalore and are currently looking at metro projects in a number of other cities in India.'
New metro policy
The federal government approved the new Metro Rail Policy in August 2017. Among other things, the policy seeks to empower states by making them responsible for ensuring the economic viability of such projects as well as ensuring increased private participation.
'Metro rail projects provide high capacity public transit and are capital-intensive. However, considering the rapid urbanisation and the imminent need for enhancing mobility in cities through metro rail, it is imperative to explore alternative and innovative sources of funds to supplement the budgetary resources,' outlined the policy document. Simultaneously, it isalso important to ensure that the proposals are prepared and appraised thoroughly to enhance urban mobility as well as the speed and quality of implementation, the document added.
The policy has opened a window of opportunity for private investments across a range of metro operations, since it makes the public-private partnership (PPP) component mandatory for availing central assistance for new projects. 'However, the policy's increased emphasis on PPP model for metro development is expected to face challenges, given the low ridership witnessed in some of the operational metro projects and subdued interest of the private sector in taking up PPP projects,' forecasted K Ravichandran, Senior Vice President and Group Head, Corporate Ratings, at the rating service, ICRA in a media statement.
When it comes to the financing of metro rail projects, India broadly follows four models. The existing 50:50 joint venture (JV) paradigm began with the Delhi Metro Rail Corporation (DMRC) and was successively adopted by other metros such as Mumbai Line-3, Chennai, Bangalore, Nagpur, Lucknow, Kochi and Ahmedabad. The second model provides for full funding by the federal government. Examples of this model are the country's maiden metro rail and the East-West corridor, presently under development on a 74:26 equity sharing partnership between the Ministry of Railways and Ministry of Housing and Urban Affairs (MoHUA), in the city of Kolkata.
The third model involves full funding by a state government as is the case with the Jaipur metro project and Mumbai monorail. The fourth is the public-private partnership (PPP) model.Mumbai Metro Line-1 and Hyderabad metro rail were taken up with viability gap funding (VGF) from the federal government. The Rapid Metro in Gurugram is an initiative of the state government of Haryana, where the private concessionaire takes care of the funding. It is noteworthy that two other important projects under PPP, the Mumbai Metro Phase-2 was aborted even before the construction started, while the Delhi Airport Line was terminated after becoming operational.
In view of inadequate or lack of last mile connectivity at present, the policy seeks to ensure its focus on a catchment area of 5 km on either side of metro stations. States are required to commit in project reports for providing the space through feeder services, non-motorised transport infrastructure such as walking and cycling pathways and introduction of para-transport facilities. However, bottlenecks continue to persist. A couple of months ago, DMRC's plan to provide last mile connectivity to commuters using electric rickshaws hit the wall due to restrictions placed on their movement on nearly 300 roads in the city-state and government policy that bars an individual or organisation from owning more than one such vehicle.
Six months after it was unveiled, the new policy resulted in the ongoing and proposed metro projects to revise their detailed project reports (DPRs) accordingly. In February, the Kochi Metro Rail (KMRL) conducted an alternative analysis to determine the most suitable mode of MRTS for the 11-km long Kakkanad extension under the second phase of the project. 'We have included value capture financing as part of the recommendations; made the feeder services, access roads and non-motorised transport as part of the project and included PPP components in automatic fare collection and station infrastructure,' said APM Mohammed Hanish, Managing Director, KMRL.
That said, for phase II of the Bengaluru Metro, the Karnataka government has received investment intention from many private players for quick implementation. 'In total, a 105 km network has been planned in phase II over the existing 42 km. We have commenced working on the DPR for this phase. We are hoping that by 2025, we will have a metro network that is close to 250 km in Bengaluru,' divulged Mahendra Jain, Managing Director, Bangalore Metro Rail Corporation. He added: 'We want to complete phase II in 2021, which will cost us around Rs 265 billion. The work is going on in full swing and we are hoping to achieve the timelines.'
Exercise prudence, examine alternatives
The new Metro Rail Policy emphasises on stringent third-party assessment of new metro proposals by agencies such as the Institute of Urban Transport, Delhi.
'The first thing that should be optimised is the choice of investment and the way in which the metro service will be operated. Then there are lessons to be learned from other projects. In an infrastructure project like the metro rail, we have to take the best in terms of technology and management capability. But, in the end, it is a local project that has to be designed according to the needs of the city's population and its geography,' explained Nicholas Jachiet, CEO, Egis SA, a France-based engineering services consultancy, at the company's Gurugram office.
The policy mandates transit-oriented development (TOD) to promote compact and dense urban development along metro corridors since that would help reduce travel distances, besides enabling efficient land use in urban areas. Under the framework, states are required to adopt innovative mechanisms such as value-capture financing tools to mobilise resources for metro projects by securing a share of the increase in the asset values through 'betterment levy.' States are also required to enable low-cost debt capital through the issuance of corporate bonds for metro projects.
Seeking to ensure the financial viability of metro projects, the new policy requires states to clearly indicate in the project report the measures to be taken for commercial or property development at metro stations and other urban lands. They are also required to define other means of maximising the generation of non-fare revenue through activities like on-site advertising and leasing of space.
ICRA has estimated that in the next five years, metro rail projects worth Rs 200 billion are likely to come up for bidding, which could help boost the order book of the construction industry by Rs 75 to Rs 90 billion. The opportunity has also left construction equipment makers and providers of energy management and automation solutions greatly excited.
'We see very good scope for smart power distribution system, geographic information system (GIS), substation automation, edge control, analytics, heating, ventilation and air-conditioning (HVAC) and building management system (BMS),' concluded Prakash Kumar Chandraker, Vice President & Managing Director, Energy Business, Schneider Electric.
The policy also states that cities with a population of 2 million or more should either go for a metro rail system or assess other alternatives. In order to ensure that a cost-effective mass transit mode is selected for public transport, the policy also calls for evaluation of other modes like bus rapid transit system (BRTS), light rail transit, tramways and regional rail on different parameters.
'One area that has not been seriously looked at for Indian cities - and perhaps, the planners are somewhat unprepared to tackle it - is the implementation of the modern tramway system. It is one of the most economical, energy-efficient and green transportation systems. This can be planned at least in the new cities as it will be easier to integrate there,' asserted Mangal Dev, Head of Hitachi Rail Systems Co., India & South Asia Region on a March morning in his office. He said that a benchmark has to be created so that users do not end up equating it with the one in Kolkata, which has now been struggling for survival for decades for various reasons.
Establishment of urban metropolitan transport authority (UMTA) has been made mandatory to ensure complete multi-modal integration for optimal utilisation of capacities.
Opportunity for India
The change in the government's approach was reflected in the outlay for the metro rail projects, which are at a three year low of Rs 150 billion in the Union Budget 2018-19.
In contrast, Rs 153.27 billion was spent on metro projects and MRTS in 2016û17 and Rs 180 billion in 2017û18. Analysts attributed the reduction in the outlay to the new policy recommendations and scheduled commissioning of several new lines this year.
'PPP can be a viable model for social welfare projects such as metro rail if appropriate risk allocation and proper in-depth study are done at the start of the project to establish its feasibility and the terms associated with it,ö opined Padmanabhan. But at times even well-researched projections may turn out to be incorrect.
Last year, the Ministry of Finance had asked DMRC to consider expansion of some parts of phase IV either under the PPP mode or in stages, which was rejected by the country's largest metro rail network. However, the work got delayed by over a year following the Delhi state government's failure to disburse its share of funds for the project. After a reported lack of support shown by the government of the city-state for phase IV, the federal government has indicated that it would go ahead with the construction on its own. Experts have, however, warned that the incident might set a bad precedence for the other states.
Similarly, the plan to build the country's first light metro or intra-city rapid transit system in Kerala's Thiruvananthapuram and Kozhikode districts suffered a major setback with DMRC's withdrawal from the projects. According to media reports, the move was precipitated by the state's reluctance to sign the turnkey consultancy agreement for the preparatory works of the transit system, more than a year after it was awarded to DMRC.
Against this backdrop, industry insiders recommend provision of adequate risk allocation in the form of concession agreements, availability of low-cost debt and a strong mechanism for prompt redressal of disputes to encourage PPP projects in the segment.
At the turn of the millennium, only three Chinese cities, Beijing, Tianjin and Guangzhou, operated a metro rail system. In 2017, it had 133 lines in 31 cities and a total length of 4,400 km, according to official data. In order to make it easier for municipalities to add more subways, the country reduced the threshold to 1.5 million urban population from the previous 30 lakh.
Yet, as it looks at expanding its metro rail network, the elephant might still manage to steamroll the dragon as the world's largest metro rail market in the coming decade.
- Manish Pant