Mass Rapid Transportation Systems in India

Background Paper

1 About the Author

Mr. Rakesh Ranjan is Adviser with NITI Aayog. He has handled large number of MRTS projects including Delhi Metro Phase-III, Faridabad Metro, Bengaluru Metro Phase-I &II, Nagpur Metro etc. and bus funding under Urban Mission during his tenure in erstwhile Planning Commission and subsequently in NITI Aayog. (View expressed here are personal.) Background Paper for the Lead-up Event on ‘Mass Rapid Transport Systems for Urban Areas: Opportunities and Challenges’ 13 March 2018, Kolkata

Mass Rapid Transportation Systems in India

Abstract For inclusive and environmentally sustainable growth process, an efficient urban transport system including Mass Rapid Transportation System (MRTS) is vital. By and large, MRTS segment, like the entire urban transport sector remains hopelessly under-invested which is imposing a huge social cost on this country. However, such basic realizations are often lost in nitty-gritty of project details, apparent lack of finances and consequently, inability to roll out project. This is all the more ironic as India’s Public-Private Partnership (PPP) regime, anchored by Department of Economic Affairs, especially its arrangement to offer up to 40 per cent of viability Grant Funding is perhaps one of the most nuanced regulatory and enabling frameworks to attract private investment in the world. True, the policy governing metro rail has been revised in 2017. Notwithstanding its robust PPP regime, majority of MRTS projects are funded through budget. However, greater the reliance on budgetary support, lower the pace of rolling new MRTS projects. MRTS systems are natural monopoly and hence are regulated. They are capital intensive with very long gestation period and there are limits to which return on investment can be secured through user charges. They can’t be, except in rare cases, hundred per cent financed by private capital and as such the sector requires a bouquet of well-structured projects in which the uncertainties are minimized, risks are properly assigned, public interest is safeguarded while private sector is ensured a reasonable return. The Business-as-Usual is simply not sustainable. One method of breaking this logjam is to create an enabling environment so that government entities take recourse to innovative method of financing. The private sector on its part needs to show its willingness to invest. While there can be many innovative methods of raising finances, public authorities in India, especially in larger cities have a unique opportunity to generate revenue for infrastructure through land based instruments, especially by commercially utilizing inefficiently used or vacant land in the heart of city. Value capture where the laying down of a trunk infrastructure has given rise to an enhancement of value of real estate around it is another important channel for getting finances. The deteriorating environmental condition in larger Indian cities is another concern which needs to be brought center stage. While much attention has been devoted to emerging technologies like hyperloop, pods etc., it is raising the share of electric mobility exponentially which is of great relevance. While one increasingly speaks of electric mobility, however, the attention generally remains confined to either hybrid or electric car and with occasional reference to electric buses. Rail based MRTS systems, including sub-urban rails, like elsewhere in the worlds should be accorded focus in the emerging agenda of electric mobility.

Mass Rapid Transportation Systems in India

1. Introduction An efficient urban transport system matters to India on many counts. If improving “ease of living’ is the key policy objective in India as increasingly being emphasized by the Hon’ble Prime Minister of India, the state of urban transport infrastructure goes a long way in determining the livability. An efficient urban transport is also critical for raising economic productivity and consequently making Indian enterprise competitive. Admittedly, Mass Rapid Transportation systems (MRTS) is one of the modes of urban mobility, its importance, especially when cities are seen as a growth node of an economic region rises significantly as inclusive growth is determined not only by the state of transport system within a city limit, but its connectivity to its periphery, rather is entire zone of influence. A clear appreciation of the urban context in India at this stage of her development has the potential to inform our decision on prioritizing investment towards MRTS, a sector which is under-invested.

2. The Urban Context and Desirability of Investment in MRTS • Seen from the global standards, the Indian economy has been on a high growth trajectory for quite some time now. However, sustained economic development world over is often associated with rapid structural changes in the economy. Despite a significant reduction in share of agriculture and allied activities in India’s GDP from 51.45% in 1951 to 16.82% in 2014-15, per cent of labour force employed in these sectors has almost showed an occupational stasis, decreasing from 70% to 54.6% only since 1951. For a rapid inclusive growth, a core imperative is faster creation of remunerative employment opportunities in non-farm sector. While there is some evidence of creation of non-farm employment in rural sector itself, if experience in other countries undergoing economic transformation is an indicator, much of such opportunities need to be created in urban sector and therefore cities in India must emerge as an ‘Engine of Economic Growth’. • Secondly, Indian cities are visibly deficient in providing basic amenities to its citizens even at their current level of population. Assuming that the rate of rural- urban migration which has so far remained muted would accelerate, cities have to create these amenities at a rate faster than what has been accomplished before. While every service counts, poor transport infrastructure adversely affects the ability of cities in attracting investment in this globalized world. Coping cost, especially due to long commute time or health hazards due to deteriorating pollution as well as loss of productivity due to absence of an environmentally sustainable and efficient public transport are significant. It is also important to realise that the incidence of such coping cost is disproportionately higher on economically weaker section (EWS) and other vulnerable groups not only due to deficiency in provision of such facilities themselves but due to relatively higher living expenses in center of cities, they live on periphery and their average commute length is much higher. Alain Bertaud, an urbanist, once aptly remarked that proletariat of today are those who have long commute time.

1 • As the pressure on natural resources is increasing, sustainability of cities has emerged as a major concern. It’s a common knowledge that a shift towards public transport would significantly reduce energy footprint of the city as well as release of pollutants. Among various modes, a shift towards rail based electric mobility is amongst a preferred solution, if not an ideal solution. Environmental sustainability of Indian cities is therefore a major imperative for guiding efficient urbanisation.

3. MRTS and Goal of Inclusive Development • MRTS projects are capital intensive and often earn an unfair criticism of their being elitist. To realise the vision of the Prime Minister of India, aptly encapsulated in “Sabka Saath and Sabka Vikaash, it is important to realise the crucial role that MRTS can play in cities of India which are far from compact. • One of the biggest developmental challenges and quite contrary to perception held in many quarters is to address the observed phenomenon of low pace of urbanisation in India. About 377 million Indians comprising of about 31% of the country’s population, lived in urban areas according to Census 2011. This is a smaller proportion compared to other large developing countries, e.g. 45 per cent in China, 54 per cent in Indonesia, 78 per cent in Mexico, and 87 per cent in Brazil. There is no evidence of an acceleration of urban growth rate yet. While it is true that between 2001 and 2011, India added more people in urban areas (90.98 million) than in rural (90.46 million), the annual exponential growth rate (AEGR), which had peaked during 1971-81 has in fact decelerated in recent decades and has picked up only marginally in 2001-2011. The AEGR of urban population during the 1950s was 3.5%. The 1970s saw a very high urban growth of 3.8%. The growth rate, however, came down to 3.1% in the 1980s. It went down further to 2.73% in the 1990s. The corresponding growth rate for 2001-2011 is of 2.76%. • In addition, rural urban migration has played a rather modest role in increase in urban population and a significant part of growth in urban population is in form of emergence of census town. Census 2011 noted that the number of towns in India increased from 5,161 in 2001 to as many as 7,935 in 2011. It points out that almost all this increase was in the growth of ‘census’ towns (which increased by 2532) rather than ‘statutory’ towns (which increased by only 242). ‘Statutory’ towns are towns with municipalities or corporations whereas ‘census’ towns are agglomerations that grow in rural and peri-urban areas and are yet to be declared urban areas. • The fact that core of large Indian cities are not attracting population to the extent, their growth potential is symptomatic of a rather exclusionary character to Indian cities, notwithstanding the attempt by municipal authorities to take measures for the benefit of urban poor. There are many reasons such as strict land use pattern and regulation, artificially high prices of urban

Inclusive Growth and Investment in MRTS Are MRTS elitist? This myth needs to be countered; an efficient urbanization is critical for maintaining high growth rate. Indian cities have to emerge as a vibrant engine of inclusive growth. An efficient MRTS has the potential to not only improve the mobility within the city limits but also at regional level. At this juncture of development where large cities have shown rather exclusionary character and their core have modest growth rate, largely due to restrictive land use policy, investment in MRTS is crucial to impart much needed mobility to people living on fringes and in zone of influence of cities which in turn improves the bargaining power of relatively weaker section and leads to a socially desirable labour market outcome.

2 land in the core of city, and so on. Of those, lack of an efficient urban transport system is a major one. In order to correct this imbalance, while in long run, India has to drastically alter the way it determines the land use pattern and has to shift towards strategic densification of cities, especially in favor of mandating sufficient land in the core to affordable housing and other such amenities which directly benefits the urban poor in the short and medium run, it has to invest heavily in MRTS to provide a reliable, fast and affordable transport to people living on the periphery or in the influence zone of Indian cities.

4. Category of MRTS, Recent Technological Innovations and Factors Affecting their Choice 4.1. The mass transit systems in cities/ urban agglomeration can be broadly classified into the following five categories: • Bus-ways and Bus Rapid Transit System (BRTS): Bus-ways are physically demarcated bus lanes along the main carriageway with a segregated corridor for movement of buses only. At the intersections, the buses may be given priority over other modes through a signaling system. BRTS is an enhanced form of a bus-way which incorporates features such as facilities for pedestrians, Non-Motorised Vehicles (NMV) and many other associated infrastructures including operations and control mechanism. • Light Rail Transit (LRT): LRT is generally at-grade rail based mass transit system which is generally segregated from the main carriageway. • Tramways: These are at-grade rail based system that are not segregated and often move in mixed traffic conditions. • Metro Rail: Metro rail is a fully segregated rail based mass transit system, which could be at grade, elevated or underground. Due to its physical segregation and system technology, metro rail can have a very high capacity of 40,000– 80,000 passengers per hour per direction (PPHPD). Metro systems also include monorails, which, however, has lower capacities and higher maintenance cost. • Regional Rail: Regional rail caters to passenger services within a larger urban agglomerate or metropolitan area connecting the outskirts to the centre of the city. The services have greater number of halts at smaller distances compared to long distance railways but fewer halts and higher speeds compared to metro rail. Regional rail are common in large metropolitan cities and help in decongesting the city centre by providing safe, and speedy access to the city centre for commuters residing in less congested suburbs.

Regional Rapid Transit System (RRTS) For improving regional mobility in NCR region, projects of linking cities in NCR region across three major axes: Delhi –Meerut; Delhi –Panipat and Delhi-Alwar are under consideration of the government of India and State Government. These projects which are designed for faster transit to Delhi from these cities are expected to de-congest Delhi and generate economic stimuli to the entire area falling under the zone of influence of these corridors. However, funding of these projects remains a challenge.

3 4.2. Options of Mass Rapid Transit Systems (MRTS) While ideally choice of technology is a multi- determinant variant, including population, per capita disposable income, densification in city, availability and opportunity cost of land, morphology of the city and importantly, aspiration of people revealed through political demand, as a general guideline, the Ministry of Urban Development (MoUD) has proposed following criteria:

Mode Choices Criteria Value Remarks i) Metro Rail Peak Hour Peak >=20,000 by 2030 Trunk infrastructure like MRTS Direction Traffic can be built in a city with a linear (PHPDT) on the morphology at a much lower proposed corridor PHPDT. Such criteria which become part of the policy document Population of >=2 million as per should at best be used for guidance the city/urban 2001 census and should not be seen as binding agglomeration constraints in case the economic Average Trip More than 7-8 potential of the city is evident Length kms and much higher traffic growth is projected in relatively short run. ii) Light Rail Transit PHPDT <20,000 in 2031 Would also depend upon (LRT) primarily at availability of land on the Right of grade Population >1 million as per Way. 2001 Census Average Trip length More than 7-8 km iii) Monorail PHPDT <20,000 in 2031 Suitable for narrow right of way with high rise buildings on the Population >2 million as per sides as well as sharp curves. Has 2001 Census almost same cost of construction Average Trip as elevated metro with less than Length About 5-6 km half the carrying capacity and high maintenance cost. Can be used as feeder network. iv) Bus Rapid Transit PHPDT >4,000 and Can be provided for higher PHPDT System also with overtaking lanes. For Upto 20,000 in smaller cities also, BRTS may 2031 generally. be provided if the ridership on Population certain corridors is high and transit > 1 million as per oriented development is planned. 2001 Census Average Trip Length More than 5 km

v) Personal Rapid PHPDT <5,000 in 2031 System is still in final stages of Transit development globally. So it can Population 1 million be taken up only as a pilot in one or two cities and based on the Average Trip 5 km experience gained, further decision Length can be taken.

4 5. Financing and Structuring of MRTS Project a) Investment Requirement in MRTS and Trend Elsewhere • Projection of investment requirement in urban transport in general and MRTS in particular is quite difficult as the result varies significantly with the assumption regarding the emerging portfolio of cities as well as compactness of the city which again is, to a large extent determined by the urban planning and attendant land use regulations. Since capital intensity per passenger kilometer of different modes of urban transport varies, the investment estimates are dependent on choice of mode of urban transport. In addition, if cities emerge as hubs of economic activity, serving the region around it, urban transport requirement would have to cater for mobility in the region and not simply within the limits of the cities or the metropolitan area, but the zone of socio-economic influence of the city. • A further complexity is added due to the critical role played by urban transport in the economy of the country. Firstly, cities in India contribute more than 60% of its GDP. Secondly, urban transport in terms of value is a significant contributor in GDP both directly i.e. Value added in the urban transport sector itself and secondly, it being an enabling condition for large number of economic enterprises in a city. • Indeed a desired framework to assess the investment requirement should be to first assess the requirement of the transport infrastructure against an acceptable service level benchmark, and then make addition to the enabling role of urban transport in increasing economic productivity as well as the potential of a suitable mass rapid transit system to impart sustainability to city from environmental point of view, i.e. its investment decision ought to be based on the Economic Internal Rate of Return (which accounts for monetized value of social benefits like reduction in congestion, saving of commute time, reduction in pollution as well as energy footprint of the city and health benefits) instead of exclusively dependent on Financial Internal Rate of Return ( FIRR). • Given these limitations, one can indeed argue against any attempt to make investment projection. However, even with these complexities an estimate helps in understanding the order of the investment required which itself can give rise to policy implications. In recent years, while there are different estimates, due to paucity of space, one may refer to following: »» The National Transport Development Policy Committee (NTDPC)-2014 constituted a Working Group which projected the investment requirement between 2010 to 2030 under three scenarios:

Scenario Investment Requirement in Urban Transport A) Business As Usual Rs. 27 trillion B) Between a desired sustainable scenario and Business as Usual Rs. 17 trillion C) Desired scenario (Sustainable urban transport scenario Rs. 15 trillion. ( Rs. 1 trillion = Rs. 100, 000 cr)

»» The Mckinsey Global Institute (MGI) (2010) used a transport demand model by firstly assuming total transport volume and split the same with different modes under a set of assumptions including some guidance from global benchmark. It then worked out three different scenarios by varying assumptions regarding FAR (Floor Area Ratio.) it further

5 made certain set of assumptions regarding provision of MRTS with cities of certain size (assuming provision of rail based MRTS in 35 top cities and BRTS in all million plus cities). »» The High Powered Expert Committee ( HPEC-2011) in its report on investment requirements for Indian urban infrastructure included sub-local and local roads and provided a larger share for these roads due to visible deficiency of roads arguing that due to presence of very large externalities, efficiency gains due to improvement in urban transport cannot be quantified. Like MGI, which used FAR as a proxy for compactness, HPEC used population density by highlighting that an increase of population density by 2500 per sq km reduces the investment requirement of urban transport including urban roads by Rs. 4 trillion whereas a reduction in density increases it by about Rs. 6.5 trillion.

Investment Requirement in Urban Transport in Next 20 years ( in Rs. Trillion) Items MGI HPEC Working Group Sprawl Desired Urban Form Urban Roads 8.90 17.29 12.08 9.17 Transit 17.64 4.49 10.55 5.56 Others 0.50 0.90 0.15 0.27 Total 27.04 22.68 22.78 15.00 (Rs. 1 trillion- Rs. 1 lakh cr) b) Investment Requirement in Sub-Urban Rail India’s sub-urban rail carries a significant number of passengers, especially in cities like Mumbai and Kolkata. Its role would continue to be relevant. From the railways point of view, the foremost concern stems from the operational losses suffered in these services. They contribute roughly 53 percent in number of passengers over the Indian railways’ total passenger traffic but their earning share in 2010-11 was just about 7%, a scenario which has not changed in last 7-8 years. The NTDPC report projected an investment requirement of about Rs. 1 trillion over the next 20 years.

Total investment in Metro Rail Projects (Government Sector)*

*This figure pertains to metro rail projects being developed under Government sector. While working out the investment, the state share of equity has been taken into account. However, the figure does not include investment by private sector.

6 c) International Trend in MRTS - A Comparison of Approach International experience can be broadly divided under three areas: • Structuring and financing of the MRTS project • Choice of technology • Pricing arrangements c.1 Structuring and Financing of the MRTS Project • MRTS projects are capital intensive. If their funding remains confined to limited budgetary resources, the sector would remain under-funded. As brought out, such under-investment imposes opportunity cost on the economy especially for a country which is in the midst of structural changes. It is axiomatic that countries seeking reform in the sector would seek larger private investment. Reforms in this sector, which is often a natural monopoly and has been the reserve of the public sector is therefore to seek private investment both from efficiency point of view (especially where operation and maintenance contract has been awarded to private entities) but more often due to desirability of seeking more investment. Operation of urban and sub-urban rail systems has been taken over by the private sector, in whole or in part in many countries but with varying degree of success. »» There are indeed many variations, depending on the appetite of the private sector to assume risk but also on the competence as well as the willingness of the regulatory authorities to roll out projects. The models differ from entrusting only service provision to private entities to assumption of entire commercial risk. Another variant has been to use land as an instrument for generating finances. »» However, there is a general consensus that international experience offers less optimism in use of private finance as a dominant source of fund for these projects. As has been observed, the failure of many franchises suggested the prevalence of the “winners curse” syndrome, as bidders overreach themselves in order to win contracts. Unrealistic bids may occur because of excessive optimism of bidders.

International experience indicates that renegotiation is problematical whether the pressure to renegotiate arises from unforeseen changes of circumstances or from gaming behavior. First, any renegotiation will tend to undermine the integrity of the contract process and are open to be challenged in the courts. Second, allowing a relief during adverse circumstances may encourage disincentive to control costs.

Long- Period Concession of Capital Intensive Projects The extant protocol of designing contract in different countries greatly determines the success with which a MRTS can be structured to attract private investment. MRTS projects are capital intensive with steady but low or often negative Financial Internal rate of Return (FIRR). While desirability of investment in these projects are clearly indicated due to large social benefits which get broadly reflected in high Economic Internal rate of Return, given the long period of concession, it is often difficult to address unforeseen circumstances. In such case, there is a general demand for creating a mechanism for renegotiation. The Vijay Kelkar Committee which went in to the entire gamut of factors that are affecting the PPP projects cautiously recommended making such provision but added that desired safeguards are built into this provision to prevent misuse against gaming behavior of initially quoting lesser bid and finally re-negotiating. The problem can be serious where the contract has been sweetened due to land based instruments and the value of real estate rises or falls in significant variation to the assumptions made during contract by either the bidder and/or the Authorities.

7 An alternative approach is to make broad provisions regarding many of these circumstances in the concession agreement itself, say for instance providing of a clause pertaining to change in law where the Authority has to insulate the concessionaire against the adverse effect of any abrupt change in law. Another such provision has been to provide some flexibility in change of scope (generally not exceeding 20% of the project cost) during concession period. To prevent windfall gains accruing to the concessionaire, the approach has been to insert clause pertaining to value share in case the project revenue exceeds a threshold per cent. Yet another approach applied internationally is to vary concession period (Malaysia), in case it is not expedient to raise the user charges or the commercial return in the project is less than a threshold. c.2 Choice of Technology Rail based public transport has been a focus area in many parts of the world but their varied circumstances that ultimately determines the affordability has dictated their choice of technology. For instance, there is a near resurgence of tramways in many cities in the developed nations. Higher per capita paying capacity, attachment of higher value to environmentally sustainable transport solution and the desirability of improving the livability in cities, especially from the point of view of keeping them as favorite tourist destination have implied that major investment has been made in tramways and other mode of the LRT in addition to metro rails and regional sub-urban rails. Another important trend has been to equip the MRTS with IT-enabled services and ensure seamless integration of different modes of public and private transport. These have not only resulted in significant efficiency gains but also have improved the ease of living in these cities. Another important trend has been to improve the regional connectivity. Attractiveness of a typical metro rail project gets greatly reduced on longer stretches as the train must stop at large number of stations. For such mobility, the approach has been to integrate the rapid regional transport services to city based slow moving metro rails. The NTDPC report points out that for smaller stretches, the speed of the movement of the rolling stock is not a critical factor as the actual ride on a train is just a part of the overall trip time, the other part being approach to the terminal

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8 and the time taken in the MRTS stations. However, for a longer regional transport system, speed as well as lesser number of stoppages is critical to make them attractive. Cities in developed nations, especially with relatively larger population like Paris, Amsterdam have a network of metro rail (having many stoppages) interspersed with fast moving regional rail while ensuring inter-modal integration. A major implication for large metropolitan cities in India is therefore significant opportunity to create these regional transport systems (either as sub-urban railways or Regional Rapid Transit Systems). c.3. Pricing Arrangements The social benefit of MRTS projects has dictated that the objective remains to shift away from personalized transport. While high per capita disposable income in developed nations have allowed many of these projects to improve the prospect of financial viability even with low ridership, the cities that attach larger values of keeping their cities attractive from tourist point of view, or have the social policy of subsidizing the Economically Weaker Sections have subsidized the MRTS system and mere revenue realization has not been the goal of such city governments.

6. Pricing Arrangements and Lessons for India • Recent protest in Delhi and difference in view between the SPV partners that own DMRC, i.e., Government of India and Govt. of National Capital Territory of Delhi clearly brings out the conflict in policy objective of pricing of tickets in MRTS system. While on one hand, metro rail being highly capital intensive, its financial viability demands rise in ticket price and arrangement for linking of the ticket price with prevailing inflation. On the other hand, the EWS in India are highly price sensitive and a rise in ticket price beyond a certain limit would result in shift away from the metro rail to buses as well as non-motorized transport. (While NMT is desirable if the commute length is short, for longer commute length, this can result in significant loss of productive hours and would adversely affect the ease of living). • Environmental concern in large Indian cities are much higher and besides significant health cost, they also constrain the cities in many ways, a drop in attractiveness of city and choking traffic conditions. Together, with the policy objective of providing cheaper but faster transit to EWS of population, there are obvious limits to raising the price of ticket. Hence raising the ridership through ensuring modal shift as well as through medium terms and long- term arrangement of allowing higher population density in the zone of influence of trunk infrastructure is a preferred course of action. In addition, non-fare box revenue, whether in terms of rentals from spaces in stations and other commercial property developed on project land should be the preferred norms to improve the financial viability of MRTS.

7. Technology in MRTS 7.1. The market is buzz with new technology. Prototypes of many new technologies are in various stages of development. They broadly promise two sets of improvements over the existing technologies: firstly, they promise to be gentle on environment which include lesser release of pollutants and lesser energy footprint per passenger km. Secondly, they claim to offer better quality ride. Some of the much talked about technologies are enlisted below. However, it is important to note that many of them are not proven for large scale commercial adoption and secondly, affordability of many of these systems, at least at present juncture is issue. Also, the focus of the conference is mass rapid transit whereas good numbers of them are in the segment of personalized transport. Hence a very brief mention is made of them:

9 7.1.a. Hyper Loop It envisages a series of pod inside an evacuated tube. Reduced wind resistance inside the tube promises the speed to exceed 750 miles per hour. However, at this stage, its commercial prototype is not ready.

7.1.b. Pod Taxi System On an elevated rail, pods having capacity of about 5-6 passengers is claimed to be an ideal replacement of cars. However, since the capacity of pod is just 5-6 passengers, it is not suitable for trunk transport infrastructure like buses or metro rail unless one imagines a series of pods. As unlike buses, capacity of a pod is only 5-6 persons and hence is suitable for point to point traffic where number of passenger at a time is less. However, the Indian cities have high population density which can support transport systems requiring greater number of passengers with a much affordable rate of passenger km.

7.1.c. Electric/Hybrid Vehicle It is important to realize that MRTS (including the conventional metro rail systems and sub-urban railways) are one of the mainstays of electric mobility in a city and region though much of the attention in public perception is given to desirability of replacing the Internal Combustion Engine (ICE) bus system by hybrid or fully electric buses and/or promotion of electric cars or two wheelers. Since the focus of the paper is MRTS, only general issues are noted: Firstly, at this stage, the cost of electric vehicles is higher than the ICE ones. Unless funding is arranged, the poor finances of city governments, especially in India would continue to pose a serious constraint in adopting this technology. Secondly, adoption of large scale electric buses (as well as cars) would require: • A significant investment in charging infrastructure • Reduction in battery cost and production of same in India. »» While there are great promises in shifting towards a lithium ion based batteries instead of Lead based batteries, the technologies are yet to stabilize and unless they are affordable, their attraction for municipal government would remain limited. At the same time, in personal car segment, they have good potential.

8. Overview of Legal and Institutional Structure and Issues of Concern a) Metro Rails projects have been structured and financed through different modes in India. They are summarized below:

Electric Mobility in India For large Indian cities, struggling to address level of pollutants, electric mobility is of increasing importance. While at one end, the battery- operated e-auto rickshaw, if properly regulated holds a great promise to answer some of the nagging problem of addressing the problem of ensuring last mile connectivity and thereby increasing the ridership of trunk transport infrastructure like metro rail and sub-urban transport, on the other, the potential to replace India’s fleet of ICE buses and car is also promising. However, for large scale adoption, charging facilities as well as production of Lithium batteries is required. Though they are challenges, at the same time, they also indicate huge investment opportunities.

10 • SPV having 50:50 equity partnerships between central and concerned State Governments. The Delhi Metro Rail Corporation and metro rail projects in Mumbai Line-3, Chennai, Bengaluru, Nagpur, Lucknow, Kochi and Ahmedabad are structured in this pattern. • Full funding by the central government. Kolkata metro rail by Indian Railways, followed by East-West Corridor in Kolkata where equity is divided between two Ministries in Government of India (Railways and Urban Development Ministries). • Funding by state government; Metro rail in Jaipur and Monorail in Mumbai are structured under this mode. • Public Private Partnership (PPP). Mumbai Metro Line- 1 and Hyderabad metro rail have been taken up with Viability Gap Funding • (VGF) from Government of India. • Full funding by private entity: The Rapid Metro in Gurugram in Haryana is fully funded by the private Concessionaire. b) Institutional Arrangement to Attract Private Investment in India Under the Viability Gap Funding (VGF) Scheme of Government of India, any project falling under the approved list of infrastructure (Urban transport projects are included in the list) are eligible for 20% of the Total Project Cost (TPC) as viability gap funding from the Project Authorities and another 20% of the TPC from Government of India provided the project is bid out to a private entity through a competitive process. These projects are first appraised by the Public Private Partnership Appraisal Unit (PPPAU) of Niti Aayog and finally approved by the PPP Appraisal Committee (PPPAC) headed by Secretary, Department of Economic Affairs.

Pune Metro Phase-III Pune Metro Phase-III – a 21 km long project connecting IT part to Pune city is being envisaged to be developed through PPP (Design, Build, Finance Operate and Transfer-DBFOT) mode. The project involves investment of about Rs. 6,200 cr. c) Issues that Affect Private Investment in MRTS • Since MRTS projects have very large socio economic benefits, often not captured through financial return, left to market alone, such projects would receive sub-optimal investment. • Urban transport in general and MRTS projects are quite complex. Firstly, given their ridership and capital intensity, they are natural monopoly and hence need to be regulated. This has many implications for private investment: »» Factors affecting recourse to innovative finances: If innovative finances are not resorted to, despite a felt need of the project, the authority may roll out much lesser number of them. This can emerge as a serious constraint and explain relative absence of projects depending largely on innovative finance especially if the part financing of the project is envisaged through land based instrument like allowing the concessionaire development rights. This is so because these instruments often involve permanent or even partial or temporary alienation of urban land. Since urban land markets are either non-existent or weak, it is often difficult to attach an a priori value to the assets being transferred to a private entity. Since any estimated value assumed during contract can be questioned with the benefit of hindsight, and such occasions often occur in case of contract with long concession period, there is an in-built disincentive for the Authority to assume this

11 risk whose incidence fall in their individual capacity. Such risk especially for the project authorities exposes them to transparency agency in the post award period of project. »» Regulation of price and issue of technical price versus actual price: reasons for relative success in attracting private investment in road project include a clear articulation of formula based toll policy. If the policy objective is to ensure that the private entities can bear the revenue risk (this provision helps in weeding out underserving project a slack of bid in such project clearly implies that the project is not market worthy), it is utmost importance that for the contract to be successful, avoidable uncertainties should be eliminated. A careful evaluation of the project by a bidder can reduce much of the uncertainty regarding ridership. However, if fare fixation is outside the purview of contract, which is currently the case, it significantly adds up to the uncertainty in the project. The extant legal provision in the acts governing metro rail in India provides for a fare fixation committee. A way out in creating an enabling framework for attracting private investment is to determine a technical fare with a formula based escalation. If the contract can provide that any variance between actual and technical fare is to be compensated by the respective parties, much of this problem can be sorted out. »» Strengthening of regulatory framework governing the sub-urban rail and involvement of State Government: Importance of sub-urban rails in improving mobility in large Indian cities can hardly be over-emphasized. However as pointed out earlier, despite sub-urban railways contributing roughly 53 percent in number of passengers over the Indian railways total passenger traffic, their earning share of around 7% implies that unless resource position of railways improves considerably, this sub-sector would remain under-funded. There is a great deal of opportunity here, if the Centre and States come as a partner for creating to conceive and build sub-urban projects. Much of the financing of these projects can be developed through land based financing instruments while embracing the concept of Transit Oriented Development. d) Importance of Role of States (Issue of Appropriate Authority to promote MRTS): For ensuring that much better investment climate is created in MRTS project, it is important to determine as to who should be the appropriate authority? Since this is a complex subject, a little bit of elaboration is in order: a) Urban transport is a state subject. While projects like BRTS are easily justified and should remain as a State subject, the decision gets increasingly difficult as the technology becomes more complex and capital intensive. The extant Metro Rail Policy 2017 stipulates that all metro projects should be taken up under Metro Act. To an extent, this clear articulation of policy put to rest confusion in the sector. Bringing all Metro rail under a uniform legal cover has following advantage: i) Standardization of the system and innovation: with expansion of MRTS network, particularly metro rail, the domestic demand for components of network and rolling stock is likely to become significant. This may stimulate development of domestic capabilities in producing these products which are high on value chain. Besides meeting domestic demand, they may have export potential. For this to happen, we need to ensure: a) There is standardization in components of network and rolling stocks. (This has in turn implication for mode of execution which is given in subsequent section.)

12 b) Policy framework to foster innovation in these products is put in place so that India can emerge as technology leader in long run.

Investment Opportunity in Component of MRTS Investment opportunity in metro rail project is not only confined ot investment in the project as a whole but there are ample avenues for investment in manufacture and maintenance of rolling stock, signaling equipment’s and other such infrastructure.

Issue of safety: This can hardly be over-emphasized. For a Central project the procedure for safety certification and its monitoring is well laid out. For a State project of this nature, a proper mechanism for central over sight is needed to be developed. d) At the same time, an effective policy stance should enable integration of following: Multi-modal integration and common mobility smart card: an MRTS project is a trunk infrastructure. Its viability is critically dependent on integration of secondary and tertiary transport networks like buses, auto-rickshaw, taxi systems, feeder services etc. These services are State subject. Despite an excellent track record of metro operation in India, especially that of the Delhi Metro Rail Corporation, its success in integrating it to various mode to reap full potential of capacity of metro rail has remain limited. On the other hand, available technology today allows a much simpler and better integration than cities that have effected such integration decades ago.

Multi-Modal Integration Viability of a trunk infrastructure is critically dependent on last mile connectivity. Like MRTS, investment in these activities have remain either disconnected or insufficient. As pressure for maintaining higher readership of the MRTS would rise, there is a significant investment opportunity in finding last mile connectivity to this trunk infrastructure. Similarly, smart card and creation and integration of data bases of different modes would also generate avenues for private investment.

ii) Integration of land use pattern and MRTS: Singapore offers perhaps best example of raising the ridership of MRTS with all its attendant benefit through strategic densification along corridors of Metro rail project. The policy instrument here is the variation of Floor Area Ratio (FAR) which, in simple words means the extent of construction allowed on a given plot. ( Higher FAR permits adding more storeys.) Performance of Indian cities to raise the FAR in a granular manner along metro corridors is quite modest, to say the least. There are indeed difficult challenges: legacy issues, lack of appropriate institutional arrangements to effect such change and deficient state of infrastructure as the city As against the effective use of FAR variation to strategically densify the city as well as create a sense of space, the Indian cities have placed restriction on raising FAR. It is readily admitted that using plot by plot variation of FAR as a planning instrument in Indian cities at current juncture is easier said than done as it requires a paradigm shift in Indian planning. Singapore has integrated land use pattern with efficient transport by setting up Land Transport Authority.

13 Source: World Bank as quoted in the 12th Five year Plan

Source: World Bank as quoted in the 12th Five year Plan

Land Use Planning and Funding of Metro Rail Project Urban transport which includes MRTS in India is heavily under-invested sector. Lack of resources are cited as a major reason. While this is true, India is yet to utilize its land value capture to its potential. Indeed there are parcel of Government land located in prime location which are either unutilized or under utilized. Changing the land use pattern and commercially exploiting these lands can generate significant revenue for Government for infrastructure.

14 iii) Land monetization and raising fund for investment: it is often argued that a significant portion of urban land, especially because of restrictive planning are under-utilized or are vacant. While such land are held publicly as well as privately, as a first step, it is often recommended that Government commercially exploit such land by suitably varying its permitted use for public purpose. There can be other fiscal instruments for discouraging leaving the privately land vacant in the heart of cities. There are indeed resistance from within as listing of vacant or under-utilized land has been a challenge. This instrument, essentially leads of transfer of resources from those who held land at periphery and speculate to Government which commercially exploit its land located in prime locations as demand for land or real estate in the periphery decreases. However, this would require a major commitment by the concerned State Governments as land is a state subject. Indeed, part financing of MRTS projects through ‘property development’ (as it is termed in Indian detail project reports!) is becoming essential feature of fund arrangement, however, the country has a potential of altogether different order, especially when the MRTS is traversing through inter-city in any economic region. For example, out of about Rs. 35,000 cr of investment in about 100 km of Delhi metro phase-III, the contribution from Delhi Development Authority is a paltry Rs. 1500 cr. It is only in PPP projects where contracts are made viable due to upfront provision of provision of land on long term lease for commercially utilization ( The concessionaire of Hyderabad Metro rail project is permitted to develop 18.5 million square feet of project land for real estate development which forms more than 40% of the projected revenue.)

Urgent Need to Make States as Drivers of MRTS Projects Given the huge capex requirement of MRTS projects and limited availability of budgetary support as compared to requirement, private investment under PPP framework holds the key. However, there is a limit to which return to private investment can be provided through user charges. This implies that both at construction as well as operation and maintenance stage, such projects would required to be supported. States are better placed to not only structure the project by allowing commercial exploitation of project land ( land being a state subject), they have the incentive to change the land use pattern in the influence zone of such transport corridor, especially when they traverse through part of cities which is being developed. Seen from this perspective, it is important that if a State want to develop a metro rail project on its own, it may be allowed to do so as a state subject, while stipulating the safety and other norms as per laid down standards. iv) Suggested Approach While the new Metro Rail Policy has stipulated that Metro Rail Project should be taken under the Metro Act which is a Central Act, there are many important arguments in favour of giving State a major role. The issue therefore needs re-visiting. Following arrangement may be put in place. • Metro Railways transcending more than one municipal area or built outside municipal areas would ordinarily fall within the jurisdiction of the central Government. However, where a State Government want to construct a metro transcending more than one municipal area, they may be allowed to do so. The financial support from Central Government should be in the form of VGF for PPP project or outright grant equivalent to admissible VGF in case the project is being executed by an agency including an SPV within the control of the State Government. • It would be open to the central government to build a Metro railway within a municipal area if the project is treated as a railway subject. This will get covered under List I of the Constitution.

15 • Wherever a state Government is desirous of making metro within one municipal corporation by treating it as a State Subject, it should be allowed to do so. The financial support from Central Government should be in the form of VGF for PPP project or outright grant equivalent to admissible VGF in case the project is being executed by an agency including an SPV within the control of the State Government. In such project, central Government should not take equity.

9. Issue of Elevated Vs. Underground Corridor in a Metro Rail Project • While any decision on this aspect would depend on the local conditions including availability of land in the first place, in the metro rail project taken so far concern to keep the cost within manageable limits has seemingly resulted in a preference towards elevated corridors. • Suggested approach: MRTS projects have a very long project life. Hence, cost calculation as above, may be specious, as they do not take into account the long term opportunity cost of the land as elevated structures are more land intensive. Besides, underground metros have the advantage in keeping the city landscape more aesthetic. Hence as far as possible, especially in projects which are in the nature of retro-fitting, project should be designed as underground corridor. For this decision, the cost of land used in case of elevated corridor should be compared with the escalated cost of underground corridor.

10. Institutional Arrangements to Promote MRTS

1. Innovation, capacity building and general supervision - Formation of India MRTS Corporation Lack of capacity in different states in conceptualizing and executing the projects can pose a serious constraint in faster expansion of MRTS network in Indian cities. Currently, practically all the DPRs for various metro projects are being prepared by DMRC which itself is facing scarcity of trained personnel. At national level we do not have expert body which can suggest choice of technology, thrust of innovation effort, best international practices and safety measures.

Suggested approach • An Indian MRTS Corporation (IMC) - a fully owned Government Company under Ministry of Urban Development may be constituted whose function may inter alia include: • Careful examination of a MRTS proposal in accordance with the guidelines suggested in section A.

• Periodic review and modification in the guidelines for choosing a mode. • To encourage and supervise research for indigenization and cost saving innovation in MRTS projects, especially metro rails. To disseminate best practice documents.

16 • Creation of pool of trained personnel for implementation and operation of metro projects. For this, IMC may collaborate with Ministry of Railways and Institutes of Excellence to use their existing facilities and create their own facilities wherever shortfall emerges. • To function as a nodal agency to ensure that metro projects across the country have access to professional project and transaction adviser. • To function as a body for technical evaluation of DPR of a MRTS Project. • To examine and evaluate the City Mobility Plan. • To recommend optimal utilization of Urban dedicated MRTS Fund. • To aid MoUD, MoR and State urban Planning bodies to integrate land use pattern with transport Planning.

2. Funding of construction of MRTS project in Government sector- creation of a Dedicated MRTS Fund: For next 10 years, a dedicated urban infrastructure fund for taking up projects of urban infrastructure including MRTS should be created:

Suggested Approach • During budgetary allocations exercise, MRTS projects, in view of their huge social return be given priority. In addition, soft loan for the project should be facilitated by Govt. of India. • Expensive MRTS projects may be developed only when it is justified in accordance with the guidelines mentioned in section above. Possibility of meeting urban transport requirement through encouraging cheaper modes like BRTS, non-motorized modes should be exhausted before contemplating a project like metro. • Budgetary provision for a project should be supplemented by contribution from a dedicated urban Transport Fund to be set up at State level in consultation with MoUD through levy of dedicated taxes /levies, capturing the increased land and property value as well as increased FAR along the metro corridors. • Success of this strategy would critically depend on aligning the land use regulations along the metro corridor to allow densification, flexible land use policy and construction of high rise structures. This should become part of the conditions for sanctioning of a project. • It is most likely that in the initial stage of financing of a central Government project, it may not be possible for the ‘fund’ in that State to raise sufficient money. In the initial stage, the project may be partly financed by Development Authorities which ordinarily holds the bulk of Government land and receives the revenue out of regulation of its use. (For instance, DDA). MoUD may work out detail mechanism of functioning of the ‘Fund” in consultation with the appropriate institution of Central Government and with the State Governments