Government approves the new metro policy

The Government has approved a new metro rail policy which is an opportunity for big investment across various ranges of operations, which makes PPP component mandatory in order to avail central assistance. The policy was approved by the Union Cabinet, in a meeting chaired by Prime Minister Narendra Modi. The policy empowers the states to make rules and set up permanent Fare Fixation Authority for regular revision of fares.

The policy also enables rigorous and regular assessment of new proposals by independent third party, which will be identified by the government. It consists of three models of metro projects for central assistance. One of the models allows the Centre to provide a lump sum grant of 10 percent of the cost. The second model envisages a 50:50 equity sharing model between the state and the central government. And the third is a PPP model with central assistance under the Viability Gap Funding Scheme of the Finance Ministry.

Under each and every option, private participation is mandatory. Private participation could be for complete provision of the metro rail or for certain unbundled components which include the automatic fare collection, maintenance or operation. This provision is made compulsory in order to meet the huge demand in resources for capital intensive and high capacity metro projects. The States will be required to adopt innovative financing mechanisms like Value Capture Financing and issue of bonds, under this policy.

Value Capture Financing seeks imposition of new taxes or a Betterment Levy in order to capture a share of increase in the assets value in the vicinity of state sponsored projects like the metro rail project. Apart from Delhi, the metro services with a total length of 370 kms are operational across seven cities which include Jaipur, Gurugram, Kolkata, Chennai, Kochi, Mumbai and Bengaluru. Further, metro projects of 537 kms are currently under construction and projects of about 600 kms in length are under the consideration of the government and will have to follow the new policy.

The policy also seeks to ensure a last mile connectivity which requires the states to give commitment regarding the feeder bus services and ensuring infrastructure like cycling and walking pathways. In order to ensure that the least cost mode of public transport is chosen, the new policy also mandates that alternate analysis is carried out before proposing the metro rail projects.

This policy requires the state to set up an Urban Metropolitan Transport Authority which will be required to prepare comprehensive mobility plans for cities in order to ensure complete multi modal integration. It also aims to shift the present ‘Financial Internal Rate of Return’ of 8 per cent to ‘Economical Internal Rate of Return’ of 14 per cent for the approval of metro projects. The economic rate will take into consideration, the financial aspect and other benefits of the projects which include employment generation and a reduction in pollution.

This policy also requires Transit Oriented Development, which envisages setting up projects like offices and housing near the metro corridor.