UD ministry proposes non-reliance of metro and infra projects on Realty
The failure of the Delhi Airport Metro Express Line, following the exit of a private player within three years of its operation has been an eye-opener as far as the reliability of Public-Private partnership (PPP) projects is concerned. As a result, the Urban Development (UD) ministry has been forced to curb the over-dependence of metro rail as well as infra projects on realty revenues.
Ministry proposes revenue expectation not more than 20% for private players:
To lend credence to this move, the ministry has proposed that for infra projects as well as for the Hyderabad Metro project, restrictions needed to be imposed to prevent the over-reliance of private players on revenue generated from the realty sector. In this regard, it was proposed that the revenue expectation should be restricted to not more than 20%. Considering the fact that the real estate market is subject to market risks, it would be a folly to club infra and public transport projects along with realty projects.
Instance of Concessionaire of Delhi Airport Metro Express Line cited:
The UD ministry cited the instance of the concessionaire of the Delhi Airport Metro Express Line project to bring home the point with regards the risks involved due to the revenue expectations harboured by private partners. The concessionaire of the project had projected income from property development along the corridors of the project to about 70% of gross revenue, for a period of 20-25 years, which was expected to fall to 37% subsequently. However, due to the downslide in the realty business, the revenue collection along this line went for a toss, thereby resulting in the withdrawal of the concessionaire.
Similar instance in case of Hyderabad metro project:
In the case of the Hyderabad metro project, the private bidder who was successful in bagging the project in 2007, relied heavily on the revenue that would accrue through real estate development. This prompted the bidder to even quote a negative grant. Though this move was felt to be a master stroke, the euphoria generated was short-lived due to the repercussions of the economic slowdown in 2008. Even thought the project was bid-out again in 2010, the new concessionaire is in a conundrum due to the prevailing financial situation.
Ministry suggests control measures:
In instances where the project costs increase more than 10%, the ministry supports the provision of auditing by the Comptroller & Auditor General of India (CAG) for expenditure made by private companies in major development projects. The ministry also stipulates that no government agency should seek alternate land while providing land for the development of the metro project. Moreover, the price of land thus provided should be at government rates.
Ministry moots for necessary permissions and clearances:
The ministry also stressed that all departments coming under the purview of such projects should grant permissions as required so that there is no lag in construction activity, and cost overruns are taken care of. Exemption was also sought by the ministry to obtain clearances under the Ancient Monument and Archeological Sites & Remains Act, to carry out construction in the vicinity of monuments as also in protected sites. It was also argued that the metro service of many other countries provides connectivity to such sites of historical importance. Exemption from forest clearance was also sought by the ministry for such projects, considering that they were public utility projects.
