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New Metro Rail Policy Puts Onus On States: ICRA

The policy also aims to address the increasing metro rail demand from multiple cities, the highly capital intensive nature of its infrastructure development and limited public resources

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The Union Cabinet has recently approved the new Metro Rail Policy (MRP) which aims to facilitate the development of metro rail infrastructure in a responsible manner. The policy also aims to address the increasing metro rail demand from multiple cities, the highly capital intensive nature of its infrastructure development and limited public resources.

As per an ICRA note, the policy empowers states, by putting the onus on them to improve project viability, by promoting transit-oriented development (TOD) and allying it with real estate development, improving last-mile connectivity; and attracting private investments through the Public Private Partnership (PPP) model.

K Ravichandran, Senior Vice-President and Group-Head, Corporate Ratings, ICRA, said “the new Metro Rail policy will increase the state government’s role and responsibility in developing the new metro 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.”

Also Read: New Metro Policy To Bring Private Investments: Narendra Singh Tomar

The policy provides for rigorous assessment of new metro proposals, including alternate transit mode analysis to ensure that the least-cost and most-efficient mass transit mode is selected for public transport.

Further, it also proposes an independent third-party assessment of proposals by government identified agencies.

Besides the new policy plans to empower states to regulate and set up a Fare-Fixation Authority as well as promoting other non-fare revenues such as advertisements, lease of space etc.

Also there are provisions to raise resources using innovative mechanisms like ‘Betterment Levy’ on nearby assets, issuance of corporate bonds etc. and improve last-mile connectivity for a catchment area of nearly 5 km, to promote metro ridership.

With the objective of closing the gap as far as financial resources constraints go and to improve the project viability, the new policy has made it mandatory to have PPP component (either for complete provision of metro or for some unbundled components like O&M) to be eligible for availing central financial assistance for new metro projects.

Shubham Jain, Vice-President and Sector-Head, Corporate Ratings, ICRA “PPP in metro rail projects has been limited thus far due to three key factors – low financial viability, inadequate risk allocation, and lengthy dispute resolution. While TOD/commercial development rights can enhance project viability to an extent, this may not be sufficient. The encouragement of PPP in the metro rail sector would require adequate risk allocation in the concession agreements, availability of low-cost debt funding, and the presence of a robust dispute resolution mechanism.”