New Metro Rail Policy

• The Union Cabinet has approved a new Metro Rail Policy that seeks to enable realization of growing metro rail aspirations of a large number of cities but in a responsible manner.

Highlights of the new policy:

• This policy seeks to introduce Public-Private Partnership (PPP) component in the sector by making it mandatory for seeking central assistance.
• The new policy also aims at ensuring provision of last-mile connectivity and preventing escalation in cost of projects.
• This new policy had been formulated to enable realisation of growing metro rail aspirations of a large number of cities in a responsible manner.
• The new policy mandates Transit Oriented Development (TOD) to promote compact and dense urban development along metro corridors. TOD reduces travel distances besides enabling efficient land use in urban areas.
• Private investment and other innovative forms of financing of metro projects have been made compulsory to meet resource demand for capital intensive high capacity metro projects.
• No central assistance can be availed without the PPP component. Private participation either for complete provision of metro rail or for some unbundled components such as Automatic Fare Collection and Operation and Maintenance of Services will form an essential requirement for all metro rail projects that seek financial assistance from the central government.
• The policy also seeks to ensure last-mile connectivity by focusing on a catchment area of five km on either side of metro stations requiring states to commit to provide connectivity through feeder services, walking and cycling pathways and introduction of para-transport facilities.
• The states proposing new metro projects will be required to indicate in project report the proposals and investments that would be made for such services.
• The policy also makes it mandatory to set up Urban Metropolitan Transport Authority (UMTA) to prepare Comprehensive Mobility Plans for cities for ensuring complete multi-modal integration for optimal utilisation of capacities.
• The new policy empowers states to make rules and regulations and set up permanent Fare Fixation Authority for timely revision of fares.
• The states would also be required to commit to accord all required permissions and approvals.
• States can take up metro projects exercising any of the three options for availing central assistance -- PPP with central assistance under the viability gap funding scheme of the Finance Ministry, Grant by the government under which 10 per cent of the project cost will be given as lump sum central assistance and 50:50 equity sharing model between the central and state governments.
• The policy requires the states to clearly indicate in the project report the measures to be taken for commercial property development at stations and on other urban land, and for other means of maximum non-fare revenue generation such as advertisements and lease of space.
• Under the policy, states need to adopt innovative mechanisms like Value Capture Financing tools. They would also be required to enable low-cost debt capital through issuance of corporate bonds for metro projects.

The policy mandates alternate analysis including evaluation of other modes such as Bus Rapid Transit System and provides for rigorous assessment of new metro proposals.
The policy envisages private sector participation in O & M of metro services in different ways. These include:

• Cost plus fee contract: Private operator is paid a monthly/annual payment for O&M of system. This can have a fixed and variable component depending on the quality of service. Operational and revenue risk is borne by the owner.
• Gross Cost Contract: Private operator is paid a fixed sum for the duration of the contract. Operator to bear the O&M risk while the owner bears the revenue risk.
• Net Cost Contract: Operator collects the complete revenue generated for the services provided. If revenue generation is below the O&M cost, the owner may agree to compensate.

By: Vishal