More VGF for metros to encourage PPPs

Jun 06 2014, 02:15 IST
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NDA government believes a VGF of close to a third of the total project cost would make it more attractive for concessionaires compared with the current quantum of 20%. NDA government believes a VGF of close to a third of the total project cost would make it more attractive for concessionaires compared with the current quantum of 20%.
SummaryNDA government believes a VGF of close to a third of the total project cost would make it more attractive for concessionaires compared with the current quantum of 20%.

To encourage more private sector participation in metro and rapid rail projects, the government intends to make investments more remunerative by providing viability gap funding (VGF) of as much as 30-35%. The NDA government believes a VGF of close to a third of the total project cost would make it more attractive for concessionaires compared with the current quantum of 20%.

“A Cabinet note on the enhanced VGF as also easier rules for acquiring land and allowing government-to-government pricing for land is in the works,” a senior urban development ministry official told FE.

While there are several ongoing public-private partnership (PPP) projects in the metro space, some have seen costs escalate. For instance, the Hyderabad metro being constructed by Larsen & Toubro under PPP/build-operate-transfer model, proposed to be completed in 2017, has seen a project escalation, at current interest rates, of R2,000 crore on an estimated project cost of R16,000 crore. VB Gadgil, CEO and MD, L&T Hyderabad Metro, confirmed to FE that costs have run up on the back of higher interest rates, the depreciation of the rupee and inflation.

“We have already indicated to the government that some help might be required in the form of additional VGF,” Gadgil said. He pointed out that it would not be possible to revise the fares too much since it was a public utility.

The metro in Mumbai, being built by Reliance Infrastructure and slated for completion in 2013 has seen a 70% cost escalation and is now estimated at R4,300 crore, Abhay Kumar Mishra, the head of Mumbai Metro One (the three-way joint venture implementing the project), said recently.

Meanwhile, Delhi Airport Metro Express, the special purpose vehicle operating the line to the Indira Gandhi International Airport, has terminated the concession and was taken over by Delhi Metro Rail Corporation from July 1, 2013.

McKinsey and a high-powered expert committee commissioned by the urban development ministry have independently projected that the investment needs for urban transport (metro and urban roads) are more than R1 lakh crore every year for the next 20 years. The upcoming National Capital Region rapid rail project connecting Delhi with Meerut, Panipat and Alwar to be built via the PPP model alone will entail an investment of R80,000 crore.

The urban development ministry under the UPA government had worked on a similar plan to make the projects more viable by easing the debt-equity ratio, providing additional VGF in the case of

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