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Us and Them - Metro for free!

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Metro Rail

Metro work 2

Read in newspapers last week that if things go as being planned Hyderabad will end up getting a 71 km long Metro for free! Actually, not just free, they will end up getting paid some money (Rs 1240 crores, about 10% of the project cost of Rs 12410 crores) by the winning consortium. Read it yourself, this biz-standard article - Hyd to get 71 km Metro for free. Stats to compare from cost angle are - 65 km Delhi Metro comes at Rs 10500 crores, and 42 km Bangalore at Rs 6500 Crores, both are state funded.

An infrastructure project possibly made attractive by associated land assets more than the actual operational revenues - how will this work out? It sort of reminded me of BMIC/NICE. Bangalore Metro may be state funded, but we almost have a parallel for this Hyderabad experiment. Remember the talks of High speed Rail to BIAL? Thats supposed to be a Rs 3000 crore PPP at zero cost to the government. The difference there though is that the PPP owner may be expected to recover cost mainly from revenues from running the rail as opposed to building/leasing out land assets.

And BTW, AP govt didn't plan it to be this way - Metro for free. GoAP and GoI were willing to fund upto 30% (source - Hindu article) or 40% (source: Deccan Chronicle, via this blog) of the project cost. The consortium quoting to take least financial support from the governments was expected to win the rights to execute the project. Maytas did that (not Satyam as newspapers originally reported), and bagged the PPP.

Nice model, though execution is when the fun starts. Imagine if some Vijay Mallya promoted consortium was building Namma Metro.

  • How would have CMH Road traders' protest played out then? I am thinking political colors, long court battles etc. But I am alos thinking faster resolutions, perhaps better and transparently planned alignment that would have avoided such protest in the first place.
  • How would they decide the Metro routes? Wouldn't the PPP entity have preferred routes with high value or high potential land assets.
  • How would the PPP price the tickets. As per an agreement, of course. Will an unexpected drop or surge in passenger numbers lead to BIAL UDF issue like situation?

Such large PPPs can throw up interesting questions. And if you see from Bangalore's eyes (BMIC - loooong delay, BIAL - delay + disappointment etc), it may not be easy to execute them. So, we should track this Hyderabad Metro thing rather closely.

  • What would be the transparency norms here (a key thing to get right in lrge PPPs, as we just debated here)?
  • How would this project run once Cong/YSR govt goes and TDP or Chiru's party comes to power in a few years?

Dear Hyderabad, watch, watch and watch. Large PPPs could be double edged swords, says your cousin Bangalore. Brace yourself, and demand transparency from the word go, and not after the project is 30% done and into controversies. Wish you well.

Meanwhile, back here in Namma Bengaluru, is GoK going to change course for Namma Metro Phase 2 and Phase 3? Convert it to a PPP? Since the BIAL High Speed Rail link is likely to be floated in that mode, I bet this Hyderabad development is going to start talks of bye bye BMRC and hi hi PPP.

Comments

kbsyed61's picture

Are we learning?

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64 users have liked.

SB,

 Nice posting and observation. I do hope that BIAL, HIAL and metro projects have given us enough lessons to be learnt and ensure that we do not repeat the same mistakes in upcoming projects. I am sure, experts on Praja can list of items that new PPP projects should incorporate and avoid the last minute surprises. General public and their representative should keep it in mind that PPP is just the vehicle in creating the asset. Ultimately the asset that is created belongs to public and it is in their and future generation interest to see that asset that is created gives the value for the money that is spent and generated.

 My 2 cents. Praja, shouldn't afraid to advice the PPP project stake holders about the steps they need to take for making it a successful project both in terms of money and value of the asset. Projects could be in Hyderabad, but it is a public interest project and we all are part and parcel of that great community called "PUBLIC". After all we are Indians first, Kannidagas next.

 

kbsyed61's picture

Urgent need for Infrastructure Regulatory Authority!

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66 users have liked.

 I am sure going forward, more and more PPP models will be adopted for infracstructure projects all over India. These are public assets and are created to serve the public for years to come. For their success and safegaurding the public interests in such projects, some authority should take the responsibility of safegaurding the public interest.

One lesson I have learnt from BIAL Saga is, For PPP projects a regaultory authority is a must. It should have the authority and mandate to:

  1. Ensure the transparency in all apsects of the projects
  2. Ensure that public is not overburdened with unreasonable User Charges for use of the facility
  3. Ensure that the projects are built to right size and capacities to serve the needs  of future as well. Not designed to meet demands of yesterday.
  4. Projects should serve both public interests as well as the interest of its private partners.
  5.  Means and machanism for addressing the failures of the project with holding the stake holders accountable with possibility of prosecution and punishment of the guilty.
 

 

Rithesh's picture

Interesting

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It is an interesting experiment. But as people say - devil lies in the details. One should take a closer look at the tarrif structure that will adopt. It is not very clear in the article.

Some time back (probably an year back) newspapers had reported that some Malayasian firm wanted to build the monorail (as a feeder to metro) in Bangalore for free. Dont know what happened to it latter.

Maytas - is owned by the promoters of Satyam - Maytas is satyam spelt in the reverse order.

tsubba's picture

not that easy

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80 users have liked.
world over, in the best of systems metros barely manage to hold their head above water. here we are about giving monies back. not that easy. they might indeed be giving back, but that is not money made from running pubT. they are going to cross subsidize it against RE. now that RE comes out of a public bank or a private bank is the question. if there are people with land banks large enough to bankroll an entire city's metro then your primary problem is not pubT. DMRC and BMRC are both going to be making a significant amount of their monies from non rail areas i.e., RE. but even they donot have enough lands to make completely write off govt grants.
blrsri's picture

cost escalations for infra prj's

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82 users have liked.

PPP or putting it as private co's can do a metro in Hyd..why not implement a metro with PPP for the BIA-MG rd link?

why should we have a 1 billion $ express??

Btw news today in Times Biz is that China has increased taxes on coal to 40%..Indian steel co's depend on china for 1/3rd of their coal needs..what will they do?

Hike steel prices and what will that do? Hike infra project costs!

How will PPP handle that? Wash their hands off??

 

s_yajaman's picture

PPP

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94 users have liked.

My biggest issue with PPP is that profits will be private and losses will be socialized if the Freddie Mac and Fannie Mae episode in the US is anything to go by.

Given our governments' abilities to regulate and to ensure public interests are not compromised, I can't see this as the win-win that PPP is being touted as.

SB - only fools rush in where angels fear to tread.  I would like to read the fine print on this.  Why would any company do this sort of thing? 

PS - have been very busy and only been occasionally visiting here.  will post more often from Sep onwards.

Srivathsa

Drive safe.  It is not just the car maker which can recall its product.

Vasanth's picture

It is not late even now

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90 users have liked.

This model is not late even now. 2nd Phase of Metro can be started right now in this model with all the specifications given by BMRCL.

Atleast, the monorail project is still on the papers. Why not plan for this right away in this model?

silkboard's picture

breaking these large PPPs into smaller projects

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77 users have liked.

Perhaps, having one party do it all is something that can be fine tuned.  are some other models possible:

  • Tracks to be built by one party - A
  • Stations to be built and maintained by another - B
  • Surrounding real estate to be leased out to another party - C
  • Trains to be operated by another - D

Now, how about: 

  • D pays A and B for making use of tracks and stations
  • C shares profits with A and B as the value of the RE is partly derived from proximity to Metro
Just thinking aloud, and could come up with only one way of splitting it up. But are there other creative ways of structuring these projects into multiple smaller PPPs in such a way that one controversy, or one business-political rivalry or one bankruptcy won't derail the entire project.
tsubba's picture

Metro Financing

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75 users have liked.
This might be very important thing to gets our minds around. What are metro costs? how does metro make money? Where does redevelopment land come from? What are the true costs of Hyd style financing and what are the benefits of it.
s_yajaman's picture

Really free?

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66 users have liked.

I read somewhere that if something sounds too good to be true, it is probably neither.  Would like to see how the Hyderabad Metro project proceeds now.

Srivathsa

Drive safe.  It is not just the car maker which can recall its product.

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