INTRODUCTION:

Public agencies inadequacy in provision of infrastructure supports for urban development hardly needs any reiteration, nor does the fact that infrastructure provision, particularly in the context of a city with per capita income as that of metropolis, would remain and should remain largely a public service.

The main tasks involved in providing the MRTS are preparation of Technical Design, Construction of the facilities and Operating and Maintaining the facilities of these it is only the construction that requires private sector inputs, rest everything can be managed by metro utility. The approach needed would essentially have to be one which is able to identify a common goal or, in other words, bringing a common vision so that all sides "own" the project. This goal convergence could be the integration of transport with land development.

The public utility and private sector developers/builders could be involved in the process of real estate development to overcome the government's inability to mobilize public sector funds for the project.

BACKGROUND OF THE STUDY:

India is getting urbanized at a fast pace. Due to urbanization there is great increase in population. The forecasted population in Tier1, Tier 2, and Tier 3 cities are illustrated in Table below. Tamil Nadu (67%), Gujarat (66%), Maharashtra (58%), Karnataka (57%) and Punjab (52%) would have population far in excess of 50 per cent in urban areas (Ref – 4).

Forecasted population by 2030

Urbanizing Cities	Population by 2030*
Tier l	155
Tier 2	104
Tier 3	331
Total	590

* - in millions

The most critical issue in urbanization is efficient transportation. Providing transportation via road makes it more congestion and all causes loss of non-renewable energy and thereby causing pollution .The pollution figures of different modes of transportation are shown.

Mode	Load factor (average occupancy)	CO2 emissions (gms/ passenger Kms)
Car (petrol)	2.5	130-170
Car (diesel)	2.5	85-170
Car (electric)	2	30-100
Scooter (two stroke)	1.5	60-90
Scooter (four stroke)	1.5	40-60
Bus (diesel)	40	20-30
Rail transit (electric)	75%	20-50

IMPORTANCE OF THE STUDY:

India has planned to build more Metro rail networks in the coming years due to greater deal of urbanization. It is planned that all Indian cities having population more that 2 million will have Metro rail network system .But despite the progress and benefits, financing of these Metro rail network is a big hurdle in front. PPP in Metro rail network is not a great success in India so there is a need for alternative models.

The government has planned new Metro rail network in 17 different cities ranging for 934.77kms approximately and it would cost Rs.1,82,280(approx.).In order to effectively construct these planned Metro rail network and enhance development in the country, there is great importance in identifying financing models which will be viable to India.

Mass Rapid Transport solutions such as metro rail network answers the transit needs of urban areas most effectively and has the potential to bring all round benefits to business, to environment and multiple benefits to people in all walks of life. Investment that is required is high even though there are many benefits. India being a developing country the sources of funds for financing such a project is limited.

Integrated land and infrastructure development

Introduction of a high speed, high capacity transport system, would automatically, result in increased demand for commercial and certain kind of residential properties along the route, particularly in the areas in the immediate vicinity of the stations, thereby boosting the land values in these areas and triggering off building activity in the area. Real estate development will boom benefiting builders and developers in both formal and informal sector. It would be therefore relevant to look for ways and means of internalizing these benefits into the project and planning to exploit the increased property demand on a larger area rather than seeing property development over the station areas and MRTS facilities only as sources of revenue generation. Since the benefits of improved accessibility would not be limited to a small area but would be spread over a larger area, looking at MRTS project as an integrated land and infrastructure development would be the right perspective.

Enhanced land values and increased demand for commercial space around the stations, thus are the positive externalities of the project that could be internalized to finance the system. The under/ unutilized properties/lands belonging to the public agencies have high commercial potential, which could be tapped. The returns from these projects could then be (at least partly) diverted into building the MRTS facilities, since that is, in a way, the raison d'être for these developments.

Structure of the Partnership

From the point of view of potential investors, the main risks involved relate to project completion, markets and supply of inputs. The objective should be to allocate risks to those partners who are in the best position to control the particular risk factor. Sharing, not only, of the resources and returns, but also risks is essential for the satisfactory functioning of a PPP.(Sinha). Other issues such as the legal status of the partnership, balance of power among the partners and conflict diffusing mechanisms could be satisfactorily addressed, if the Public Private Partnership took the form of a Joint Venture.

Special Purpose / Project Vehicle (SPV)

Building of stations and other MRTS facilities along with the redevelopment of properties is proposed to be taken up jointly by the public and private agencies though a statutorily created "special project vehicle" (SPV). The SPV would comprise all stakeholders who believe in the project. All partners pool in their resources, monitory as well as non-monitory. They work out, jointly, a project proposal (capital investment, debt servicing, cost estimates, cost recovery strategy fully or partly through property development). Additional funds required might be raised through loans, and after the project takes off and the public confidence in it is established, capital markets could be approached. The SPV would need to inventorise its "assets" such as the re-developable properties and financial commitment of the parties. Next it would have to list out it's "liabilities" i.e. space needed to accommodate the functions presently housed in the properties as well as the functions for which unutilized land is held by, say the Railway; and the costs that might be incurred to re-house people and activities that need to be moved for considerations of optimal land use, as a starting point in the property development strategy.

The property development details will have to be such that the returns from them are sufficiently higher than the costs (capital cost + debt servicing + O&M Corpus) to allow a reasonable return to the participating agencies, and to the shareholders when there is a public issue. Depending on the primacy of the location of the property development sites along the metro alignment, this may be viable as it is. Alternatively, or in addition, the SPV could negotiate certain project advantages. The SPV could capitalize on this by providing opportunity for legal activity by builders, If it can ensure strict control on illegal activity elsewhere for the duration of the project, it can effectively increase the competition and, thereby the price on development rights.

A joint sector venture will address the most important issue that either side is much concerned with, that relating to the risks regarding supply of inputs (in this case the commitment of the resources), markets and completion. Advantage of a contract of intent would be for both sides. The public sector would, by this process secure the financial commitment of the private sector, which would be crucial for completion of the project particularly in case the real estate markets fluctuate. Secondly, since the actual construction would take place a few years from the time of the initial agreement, covering the market risk is also extremely important for the public sector, particularly since it has not much experience of markets behavior.

A joint sector venture could be used for allocation of this risk to the private sector that knows very well how to control this risk factor. For the private sector on the other hand, this would mean covering the political risks and ensuring that the government would continue to support the project, and the changes in the political environment would not make the PPP fall apart. This security will help the private sector, plan and mobilize its resources, in a better way.

L&T - Hyderabad Metro Rail Ltd (HMRL): PPP at its best (Caselet)

Highlights

Larsen and Toubro Limited was awarded the Hyderabad Metro Rail Project by Government of Andhra Pradesh. L&T incorporated a Special Purpose Vehicle - L&T Metro Rail (Hyderabad) Limited ("The Company") to implement the Project on Design, Built, Finance Operate and Transfer (DBFOT) basis (Ref – 12).

The Company has signed the Concession Agreement with Government of Andhra Pradesh on 4th September, 2010 and completed the financial closure for the Project on 1st March, 2011 in record six months. A consortium of 10 banks led by the State Bank of India has sanctioned the entire debt requirement of the project. This is the largest fund tie-up in India for a non-power infrastructure Public Private Partnership (PPP) project.

The Company is a subsidiary of L&T Infrastructure Development Projects Ltd., an infrastructure development arm of Larsen of Toubro Ltd.

The Company has inducted world class consultants for the execution of this prestigious Metro Rail Project. Some of the renowned consultants are Louis Berger, AECOM Feedback Ventures Consortium, Parsons Brinckerhoff, Halcrow, E&Y etc.

The company will develop 18.5 million s.ft. of Transit-Oriented Development (TOD) and is expected to trigger robust economic activity in and around the city of Hyderabad and will generate substantial employment.

Hyderabad Metro rail network

	Metro	Real estate development
Funding of the project (in rs.)	14,132	2243
Consortium of 10 banks led by SBI
Equity	20%	30%
Debt	70%	70%
Government grant	10%	-
Cost has frozen over rs.12,132 crore, the remaining is to be funded by L&T through equity and debt using viability gap funding

L&T Metro Rail (Hyderabad) Ltd (L&T MRHL) Tuesday announced that it had achieved financial closure for the Rs.16,375 crore Hyderabad Metro rail network project, described as the largest ever fund tie-up in India for a public private partnership.

The firm has tied up funds from a consortium of 10 banks led by State Bank of India for the project, which includes Rs. 14,132 crore for the Metro rail network system and Rs. 2,243 crore for the first phase of real estate development.

The Metro rail network system cost is being financed through an equity of Rs.2, 768 crore (20 percent), debt of Rs.9, 906 crore (70 percent) and government grant of Rs.1, 458 crore (10 percent).Since the government has already frozen the Metro rail network project cost at Rs.12, 132 crore and the viability gap funding (VGF) at Rs. 1,458 crore, the balance portion of the increased cost is being funded through debt and equity by L&T. The real estate (phase-I) cost of Rs. 2,243 crore is being financed with an equity of Rs. 671 crore (30 percent) and debt of Rs. 1,572 crore (70 percent).

Final approval for viability gap funding of Rs. 1,458 crore (12.35 per cent of total project cost of Rs. 11,814 crore) under the VFG scheme to the project from government of Andhra Pradesh for development of Hyderabad Metro rail network on DBFOT (toll) basis.

CONCLUSION:

Alternative methods of financing of metro rail projects in India: Value Capture Mechanism

Value capture is a mechanism by which all or a portion of the financial benefits received through property value increases, generated by geographically targeted public capital investments, and are appropriated by a local public authority. The concept of value capture appeared many decades ago in the form of special assessments. The City of New York drew up a proposal for financing its 1930s subway extension through property assessments, demonstrating that increased land values along existing lines amounted to more than four times the cost of constructing them. Lately, a keen interest in transportation - land use linkages and transit oriented development has refocused attention on this potential funding device. A 1987 Washington state statute authorized the formation of local “transportation benefit districts”, although no TBD has ever been formed. Over the past years, several methods of capturing value added have come into practice. Some mainstream value capture techniques include (Miller & Hale 2011): Benefit Assessment Districts (BADs); Ticket Surcharging; TOD or development rights; and Tax Increment Financing (TIF) analysis (Ref – 8).

Strategies in Value Capture

The strategies used in value capture are as follows:

1. Special Assessment Districts

2. Ticket Surcharges

3. Tax Increment Financing

4. Joint Development

5. Land value taxes

6. Transportation utility fees

These can be the used an alternate to the main source of funding.

REFERENCES:

[1] A report on Delhi MRTS Cost and Funding Plan For Phase I , II and III

[2] Special Issue On Basic, Applied and Social Sciences, Volume II, July 2012 [ISSN: 2231-4946] : Financial Management In PSU’s: DMRC, A Case Study - Parveen Kumar Research Scholar Of CMJ University, Meghalaya, Shillong

[3] 27th IPMA World Congress -The Financial Performance of an Innovative Megaproject By Ana Irimia-Diéguez, Juan Bernal González-Villegasa, M Dolores Oliver- Faculty of Economics and Business Administration, University Of Seville

[4] Social Cost-Benefit Analysis of Delhi Metro By M N Murty, Kishore Kumar Dhavala, Meenakshi Ghosh And Rashmi Singh

[5] Project Report on PPP in Jaipur Metro, Submitted by Sri V. Arun Kumar, Dy. Cmm/Wr - Indian Railways Institute of Transport Management, Lucknow, Uttar Pradesh

[6] Cuts Institute for Regulation and Competition, Case Study on Public Private Partnership: Mumbai Metro, India

[7] Innovative Financing Techniques : European Urban Rail Projects and The Case of Athens Metro Extensions By A.Deloukas, E.Apostopoulo, Atiko Metro S.A

[8] Funding Public Transport Development Through Land Value Capture Programs by Matthew Doherty

[9] Financing for Rail and Transport Projects presented By: Yusuf Saeed, Head Of Structured and Project Finance Qatar National Bank

[10] Alternative Investment Fund (AIF), Real Estate Investment Trust (REITS) and Infrastructure Investment Trust (INVITS) New Kids on the Horizon by Pavan Kumar Vijay, Corporate Professionals

[11] Financing Infrastructure through Bond Markets: Lessons from Latin America by Guillermo Larraine, World Bank-Sida

[12] Hyderabad Metro Rail (MRTS) Project Executive Summary of Detailed Project Report Prepared By DMRC for Phase I, II and III

[13] Detailed Project Report, Kochi Metro Project Prepared By DMRC

[14] Updated Final Detailed Project Report for Lucknow Metro Rail Project (Phase – I) By DMRC, October 2013

[15] 8th Nordic Conference On Construction Economics And Organization Management And Planning - Complexities Of Metro Construction Mahdi Khosravi*And Kalle Kähkönen, Tampere University Of Technology

[16] Www.Unep.Org/Transport/Lowcarbon

[17] Bangalore Metro Website Http://Bmrc.Co.In/Index.Html

[18] Business Standard (2011), “QandA: E Sreedharan, Md, Delhi Metro Rail Corporation”, Accessed Online On April 9, 2012 From http://Www.Business-Standard.Com/India/News/Qa-E-Sreedharan-Md-Delhi-Metrorail-orporation/422021/

[19] DMRC (2011), Annual Report 2010-11, Delhi Metro Rail Corporation, New Delhi.

[20] DMRC Phase II Handbook “Delhi Metro Project Implementation Handbook Phase II”, Delhi Metro Rail Corporation, New Delhi.

[21] Siemiatycki, M. (2006), “Message in A Metro: Building Urban Rail Infrastructure and Image in Delhi, India”, International Journal of Urban and Regional Research 30 (2): 259–277.

Received on 19.11.2015 Accepted on 29.12.2015

Int. J. Tech. 5(2): July-Dec., 2015; Page 335-338

DOI: 10.5958/2231-3915.2015.00045.0