Metro Pricing | Un-fare deals

Fare wars after the launch of the Mumbai Metro have brought to the fore the cost sustainability of Metro rail projects across the country.

Thousands of home buyers on the Noida-Greater Noida stretch heaved a sigh of relief early this year when the 20.6-km Metro rail project between Greater Noida and Yamuna Expressway was cleared by the Ministry of Urban Development. The proposed 30-km Noida-Greater Noida Metro track is estimated to cost Rs 175 crore/km with the total project cost running up to about Rs 3,500 crore. While these homebuyers were lured by developers with this upcoming Metro rail network, concrete plans surfaced only recently. Experts opine that Uttar Pradesh agreed to bankroll the new line to sparsely-populated Greater Noida owing to the huge investments made by real estate developers in Greater Noida. With estimates of over 200,000 flats being built there, builders are pushing and rooting for the Metro network to come up as Metro rail projects push up the cost of real estate in and around the project length. According to market estimates, in Jaipur, property prices in and around areas from where the Metro will pass or operate, have gone up by 20-25 per cent.

While funding for these upcoming Metro projects has always been a cause of concern owing to their capital intensive nature, interested State Governments have been advised to come up with innovative ways of financing. Since the fare box revenue alone cannot make it financially viable and fares cannot be hiked beyond a certain point, States were directed to come up with innovative funding methods, according to a note sent to all State governments in 2012. And while another Indian city got the Metro facelift when Mumbai Metro started rolling on elevated tracks recently, connecting 11.40 km and helping millions of passengers reach their destinations, fare wars between MMRDA and Reliance have brought to fore the financial viability of the Metro rail.

The Bombay High Court had recently dismissed a petition by the MMRDA challenging the hike in fares for the recently commissioned Mumbai Metro. The court had allowed Reliance Infrastructure-led Mumbai Metro One (MMOPL) to charge initial fares (of between Rs 10-40), until an independent fare fixation committee takes a decision. MMOPL had notified the initial fares claiming rise in the operating cost but MMRDA was insistent on an initial fare of between Rs 9-13 based on the concession agreement signed between MMOPL and MMRDA in 2007 and had taken the matter to court.

All Metro rail projects need a nod from the Centre before they can take off. Currently, a Metro rail project is financed jointly by the Union and the State Governments. The Union urban development ministry usually holds a minor stake. The construction of a Metro´s underground track costs Rs 300 crore/km and an overhead Metro line costs close to Rs 200 crore/km.

Delhi Metro carries 2.3 million passengers every day with an operational distance of 190 km with 99 per cent punctuality. Another 140 km long Phase 2 is being constructed which is targeted to be commissioned by 2016 and by 2021; DMRC aims to touch 400 km. ôIf you see from the international standards, a number of them qualify for Metro and (for) having an efficient transport system, Metro being one of it. But these projects require huge investments and that is an issue,´ says Mangu Singh, MD, DMRC.

According to a note by the MoUD on innovative financing of Metro projects, a study of global experience in Urban Rail Transit provisioning shows that Public Private Partnerships (PPPs) in Metro rail projects has not been very successful. As brought out in the Report of the Working Group on Urban Transport for the 12th Five Year Plan, the analysis of Metro Rail systems in 132 cities in the world provides a comprehensive under¡standing of the ownership structure and use of PPP in Metro Rail development. ln 113 cities having Metro Rails, 88 per cent have been developed and are being operated in the public sector mode whereas in only 12 per cent cities some form of Public Private Partnership exists. In fact outside India, no city anywhere in the world (except the failed experiment of STAR and PUTRA metro rail in Kuala Lumpur in Malaysia) has attempted provisioning of Metro rail in full city on PPP in the last few decades. Even the new Metro rail projects, which are being developed, are largely being taken up on public sector mode rather than PPP. The note also mentions that PPP has been an important financing mechanism of the other modes of transport in India and elsewhere. Even in road based MRTS projects like the Bus Rapid Transit System, the infrastructure has been developed in the public sector globally whereas the bus operations and maintenance as well as fare collection has been done on PPP.

The note further added that the financing of such highly capital intensive projects only through gross budgetary support, so that they can be taken up on public sector mode rather than PPP, is not possible considering the financial constraints of both Central and State Governments. The only way out is to resort to innovative financing mechanism using land as a resource as well as other dedicated levies/taxes as envisaged in the National Urban Transport Policy, 2006 and create a dedicated urban transport fund at the State and Central Government levels from such sources.

With the Metro rail network expanding rapidly across the country, it is imperative for both the Government and private players to innovate and device financing methods to make these projects financially viable.

Dedicated urban transport fund at the state and city level
A dedicated urban transport fund would also need to be created at the State level and city level through other sources, especially land monetisation, betterment levy, land value tax, enhanced property tax or grant of development rights, advertisement, employment tax, congestion, a cess on the sales tax, parking charges reflecting a true value of the land, traffic challans etc. Pimpri-Chinchwad Municipal Corporation has already set up a dedicated urban transport fund through land monetisation and advertisement rights. Similarly, Karnataka has set up a dedicated urban transport fund through MRTS cess on petrol and diesel sold in Bangalore which is being used to fund the Metro rail projects.