Infrastructure

“Innovative Funding” Model Proposed For Bengaluru’s ORR Metro: Does It Mean Further Delays? 

Namma Metro (Jagdeesh MV/Hindustan Times via Getty Images)

Looking to build the Outer Ring Road (ORR) line of Bengaluru’s Namma Metro project, the Bengaluru Metro Rail Corporation Limited (BMRCL) has decided to go in for what it terms as “innovative funding” by asking private information technology (IT) firms along the road to foot the cost of the construction. Of the total projected cost of Rs 4,202 crore, the BMRCL will have to raise at least Rs 1,000 crore in order to start construction, a condition put forth by the Government of Karnataka. This 17-km line, called as Phase 2A, will originate at K.R Puram and will have 13 stations terminating at Central Silk Board thus covering vast swathes of IT corridor and residential areas on the eastern side of the city. It is expected to carry between 3 lakh and 5 lakh passengers a day.

The “innovative financing” method that the state’s cabinet approved means that Metro must demonstrate proof that it has mobilised 450 crore as resources from land leasing and corporate development. In return for helping build stations, IT firms along the corridor get naming rights, advertising rights and the retail space within the station for a period of thirty years.

Last month, the BMRCL signed a Memorandum of Understanding (MoU) with Intel, one of the largest employers along ORR to build a station. It also signed an MoU with the Embassy Group, one of the city’s largest real estate majors, for the same. The Embassy group is linked to State Home Minister K J George and was the only company that bid for the pod taxi system in the city last month.

ORR is among the densest corridors in the IT capital of India . It is dotted with major IT Parks that houses major companies such as Intel, AOL, Cisco and more present. According to a report by international property consultants Cushman & Wakefield, the ORR submarket alone accounted for a whopping 54 per cent of the 12.7 million square feet net absorption of office space during the year 2017, distantly followed by the peripheral east submarket comprising of Whitefield.

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In addition to the preponderance of tech giants , major residential complexes and apartments have also sprung up. This consequently makes it the city’s most congested road. ORR also acts as a link road connecting traffic between the Kempegowda International Airport (KIA) and the major IT hubs at Electronics City and Whitefield.

Back in 2015, due to major traffic snarls, IT major Capegemini was considering relocating its campuses either in North Bengaluru or even moving out to Hyderabad, Pune or Chennai. It was reported that traffic snarls along the ORR and in Whitefield cost the industry a whopping Rs 22,000 crore in productivity losses per annum.

The question that comes to mind is, is the BMRCL justified asking private firms to fund the Metro? It has also asked the Centre to finance 10 per cent of the line as well as the upcoming line connecting to the Airport.

As per the new Metro Rail Policy of the union government formulated last August, public-private partnership (PPP) component is mandatory for availing central assistance for new metro projects. “Private participation either for complete provisioning of Metro rail or for some unbundled components (like automatic fare collection, operation and maintenance of services, etc) will form an essential requirement for all Metro rail projects seeking Central financial assistance,” the new policy said.

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While this decision surely ushers in huge opportunity for private investments across the country, the decision also has its critics.

Among the critics is ‘Metro Man’ E Sreedharan. He has said that no private company will come forward for construction of Metro rail projects as it is not a profitable investment.

It will never work. Nobody will come forward for construction of Metro rail as it has never been a profitable investment. Private players will look at least 12-15% return while no Metro project has ever yielded an investment return of over 2-3%. It’s the most disastrous and retrograde urban transport policy. The JV model, with funding from the Centre and states, has worked very well so far.
E Sreedharan

He has also criticised that the "policy seems to have been framed by someone sitting in the NITI Aayog with absolutely no experience of how Metro rail is built and operated. As it is, in India, all 12 such projects put together, only 20-25 km of new Metro rail is opened every year. China is galloping way ahead at 300 km being opened every year. We are already at a snail’s pace; now with this policy, everything will come to a standstill”.

So it remains to be seen if the "innovative funding" model will succeed.

However, public-private participation (PPP) in the Metro Rail sector has been in operation in India since 2011. The Delhi Airport Metro Express was a PPP between the Delhi Metro Rail Corporation and Reliance Infrastructure. Similarly, the RapidMetro Gurgaon is entirely owned and operated by Infrastructure Leasing & Financial Services (IL&FS). The first line of the Mumbai Metro and the Hyderabad Metro are owned and operated by a consortium led by Reliance Infrastructure and L&T respectively with the respective state governments having a minority stake.

The question of profitability of these projects is a valid one, but it is too early to say since they have been operational for less than a decade.

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