India’s Race To Expand Metro Rail Projects Comes With A Viability Risk

The nation has a poor execution record as infrastructure projects are notorious for delays and cost overruns. Not just that, metro networks in the nation are unable to recover their operating costs, making them financially unviable. And ridership is not adequate as commuters struggle to commute to and from their homes to stations and back.

Mass transport systems are crucial as cities grow bigger in the world’s second-most populous nation. They will help wean away Indians from cars and two-wheelers to make the air cleaner as pollution, according to World Bank’s estimates, shaves of 8.5% of the nation’s GDP and shortens lives. And metros will also save on productive time wasted in traffic congestion in some of the world’s worst-hit cities.

That explains Modi’s push. “In 2014, only 248 km of metro lines were operational in the country and today it is about three times, more than 700 kilometres,” he said in December. “By 2025, we are trying to expand it to 1,700 km.”

Unviable

Metro rails are mostly joint ventures between states and the central governments. While some are built in partnership with private companies, with central government support through one-time grants, others are financed entirely by states.

According to Finance Minister Nirmala Sitharaman’s budget 2021 speech, the central government’s share in funding for metro rail projects are:

• Rs 1,957.05 crore for Kochi Phase-II of 11.5 km.
• Rs 63,246 crore for Chennai Phase-II of 118.9 km.
• Rs 14,788 crore for Bengaluru Phase 2A and 2B of 58.19 km.
• Rs 5,976 crore and Rs 2,092 crore for Nagpur Phase-II & Nashik Metro, respectively

Most operational networks, however, reported losses even prior to the pandemic.

Metro projects in Delhi, Bengaluru, Hyderabad, and Mumbai had a positive operating margin during FY18-19, while the rest were not able to cover their operating expenses during the period, according to Mihir Shah, partner-government and public sector, strategy and transactions, EY India. “The Covid-19 pandemic has further deteriorated the financial position of all transit authorities.”

Yet, Shah told BloombergQuint, there are very few cities in the world where conventional metro projects are operationally self-sustainable. “Majority of them are financially supported by the government.”

Elias George, former head of Kochi Metro Rail Ltd and currently partner and head-infrastructure, government and healthcare at KPMG, puts the financial success rate world over at some 5%. Of the 200 odd metros in the world maybe 10 make a profit, like the Hong Kong or Tokyo metros because of the sheer size of the passenger traffic and monetisation of commercial real estate, he told BloombergQuint in an interview.

One option to boost revenue is to allow more land development close to the metro network.

According to V Sivakumaran, former financial commissioner (railways), just fare revenue will not be able to sustain the system. “Normally what the world does is, along the metro route whatever vacant land is available, you give it a higher FSI (saleable area) and whatever money you get from that is ploughed into the metro.”

“So, the government has to spend on metro initially and they recuperate it by giving more FSI, etc. Or it’s an outright subsidy in the budget.”

But, policy motivation for a metro administration to look at other revenue streams is still inadequate in this country, said George. “A lot more pressure needs to be put on state governments, city administrations and the metro companies to leverage things like land capture or transit-oriented development where new areas automatically develop when a metro goes there... Sometimes there is a disconnect between the metro company and the municipal corporation where the metro is planned. They need to work and plan seamlessly. If that part works well a lot of non-fare revenue challenges can be settled in a much better way.”

Kshitish Nadgauda, senior vice president and managing director-Asia, Louis Berger, cites the benefits of metro and said “if you build infrastructure, the investment will flow if the infrastructure is efficient”.

But there’s another angle to financial viability, of finding enough commuters.

Ridership Issues

India needs metro rails and metro rails need passengers. For that, the first- and last-mile connectivity are crucial.

“One metro line in isolation is never going to do anything,” Nadgauda said. “You need a network of interconnecting mass transit lines and those could be a combination of heavy-duty metros, light metros, trams (like metro lite or metro Neo) walking and other modes of transport like auto-rickshaws, bicycles etc.”

Transportation Consultant Vivek Pai rates the last-mile connectivity in India at 5 on a scale of 10. “Most of our metro stations have very poor connectivity. There are not many facilities for walking,” he said. “The game is all about ridership. If you don’t have ridership your project will go for a toss.”

But it is changing now, he said, because policymakers are realising ridership won’t increase in the absence of proper connectivity. BloombergQuint reported earlier how Mumbai metro authorities are working to improve connectivity to metro stations.

To lower costs to address the ridership issue, India plans to launch a light model—Metro Lite and Metro Neo—in some smaller cities like Nashik. Metro Lite, according to a government statement, would be built at 40% of the cost of a usual network, while Metro Neo would be built at 25%.

Even cheaper or such adapted metro networks may not be ideal for many Indian cities, say experts. They fear access to low cost, long term multilateral funding may tempt local governments to clamber on to the metro bandwagon whereas other mass rapid transport solutions might offer better solutions.

Vijayshree Pednekar, urban transport planner and co-founder of The Urban Project, isn’t in favour of considering a metro rail for smaller cities, citing lifestyles and incomes. “Why can’t we take a leap in re-thinking our cities by not always choosing designs from Western countries?” Pednekar asked. Even Western cities that have tried all kinds of metro, monorail, bullet trains are now looking at non-motorised transport, she said.

“They want to make their cities inclusive and sustainable,” Pednekar said. These high-cost technology projects are not inclusive of all. Because of the cost involved, many people are excluded.”

Yet, George advises that metro viability be measured in terms of economic internal rate of return and not just financial return. An EIRR would factor in gains on account of not just reduced pollution and congestion but also enhanced working hours for citizens - especially women, higher property s for remote locations on routes, and a culture of modernism to the city, he said.

“The Government of India has postulated the minimum economic rate of return to about 14-15% by evaluating these metro projects, that is the way of looking at metro requirements in any city.”

Watch the interview with Elias George here...