Topic of the Day – New Metro Rail Policy

UPSC Exam Preparation: Topic of the Day – New Metro Rail Policy

The Union Cabinet, in August 2017 approved the New Metro Rail Policy focusing on compact urban development, cost reduction and multi-modal integration. The policy seeks to ensure accomplishment of increasing metro rail aspirations of a huge number of cities in a responsible manner. It treats the urban mass transit project as “urban transformation projects rather than merely treating them as “urban transportation projects”.

  • With a view to efficiently harness private resources, expertise and entrepreneurship, the policy has made it mandatory to include the Public Private Partnership (PPP) component in order to be able to obtain central assistance for new Metro Rail projects. This has opened up larger opportunities for private investors across a range of metro operations.
  • The policy lays down guidelines to the state requiring them to ensure last mile connectivity which is inadequate or lacking at present. The policy requires the states to focus on five kilometers catchment area on either sides of the metro station and to commit in the project reports, development of feeder services, non-motorized transport services like walking path ways, cycling pathways etc. The project report must contain the details of such services that will be provided and the investment that would be made for the development of those services.
  • It has been made mandatory to set up a Urban Metropolitan Transport Authority (UMTA) which would be involved in drafting comprehensive mobility plans for cities, with multi modal integration for efficient exploitation of capacities.
  • It proposes agencies to be identified by the government for to put in place, a third party assessment mechanism for a thorough assessment of new metro proposals.
  • To bring the economic gains of metro project in line with the global practices, the policy suggests a shift from the current Financial Internal Rate of Return of 8% to Economic Internal Rate of Return of 14%
  • To ensure efficient land use and reduce the travel distances, the policy mandates Transit Oriented Development.
  • States will be required to issue corporate bonds in order to enable low debt capital.
  • The states will be empowered to set up a permanent Fare Fixation Authority for timely revision of fares.
  • The states must strive to generate maximum non fare revenue through lease of space, advertisement etc to ensure financial viability of the projects.

 

Options for availing Central assistance under the New Metro Rail Policy:

Metro Projects can be implemented by the States by choosing any of the three options to avail central assistance:

  1. PPP with central assistance under the Viability Gap Funding scheme of the Ministry of Finance.
  2. Grant by Government of India wherein 10% of the project cost will be advanced as a lump sum central assistance.
  3. 50-50 equity sharing model between the state and the central governments.

 

Options for carrying out the management of metro stations under the New Metro Rail Policy:

The operations and management of the metro stations are to be carried out in any of the following manner:

  1. Cost plus fee contract: Under this contract model, the owner bears the operational and revenue risk, while the private operator is paid a monthly or annual sum for operation and management of the station. The payment could include fixed and a variable component based on the quality of services provided.

 

  1. Gross Cost Contract: Under this contract model, the owner only bears the revenue risk. The private player is paid a fixed amount for the duration of the project. He must bear the operation and management risks.

 

  1. Net Cost Contract: Under this contract model, the operator is entitled to collect and retain all the revenue that is generated. The owner might agree to compensate for losses if the revenue cannot cover the operational and management costs.

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