Govt plans to modify debt-equity ratio for Metro, rapid rail projects
The central government is planning to alter the current equity-to-debt ratio for metro and rapid rail projects in order to increase private investments in these projects. It has proposed an equity-to-debt ratio of 20:80 while the prevailing ratio is 30:70.
Metro projects are highly capital-intensive and an equity-to-debt ratio of 30:70 requires a high investment by the concessionaire, stated the urban development minister in a Cabinet note. In this regard, the metro rail projects on public-private partnership (PPP) model are proposed to have an equity-to-debt ratio of 20:80, he added. The ministry has also pointed out that it is necessary to introduce a new mechanism to review fare structure is required in case of cost-hikes in future.
Some sources have also been estimating that, the government’s new proposal is likely to attract more private investments for the metro projects.
Increase in project costs lead to revision of fares
The projects which are being developed under the public-private-partnership (PPP) – Build Operate transfer (BOT) model have been seeking additional viability gap funding and revision in fares in case there happens to be an increase in project cost. Some of such projects include Hyderabad Metro being developed by L&T and Mumbai Metro being developed by Reliance Infra.
Mumbai metro rail network has faced huge increase in cost of the project compared to the initial estimates of the cost. So the concessionaire RInfra has asked to revise the fare structure though the project is yet to be commissioned.
The NCR Rapid Rail Transit System (RRTS), which is estimated to involve a project cost of around Rs 72,000 crore, has been proposed to be developed on the PPP mode. According to the cabinet note put forth by the urban development ministry, if there is a cost escalation of the project on account of reasons that are not under the control of concessionaire, 50 percent of the cost increase may be taken into account for revision of fare structure than that provided in the concessionaire agreement.
Avoid excess commercial usage
Besides providing certain privileges to the private players, the ministry also puts in some conditions. It strongly opposes commercial exploitation of the projects in the form of property development. For instance, in the case of Delhi Airport Express Metro Line, the property development component was found to be as high as 37 percent of the total revenue.
In order to overcome such issues, the ministry seeks the metro projects to remain as public transport projects, said sources. The private developers should not try to transform the projects into real estate-based projects which are often exposed to various market risks, they added.
