Urban Transportation and Sustainable GrowthTo quote Mark Walport, “Industrialisation, Mass Transit, and the Internet are technological revolutions that have reshaped lives, nations, and the planet.”
The Indian economy is poised to grow at over 7% in the coming years, placing it amongst the world’s fastest growing economies – and with the concomitant demand for constant improvement in infrastructure - connectivity as well as capacity development. At the same time, a balance needs to be maintained for inclusive and environmentally sustainable growth to ensure a better livelihood and right to life, which is one of the fundamentals right enshrined in the Constitution of India
Development of transport infrastructure is sine-qua-non for every economy in its transition for development, as it functions as a catalyst of growth for other sectors and furthers the socio-economic development of a nation. Indeed, transportation has long (and correctly) been viewed as a means of energising and sustaining economic growth, generating employment, and fostering holistic development. Unlike other sectors, the demand-supply gap cannot be bridged by increasing imports, but only through capacity-building. It is this unique feature which makes transportation the backbone of a nation’s development and improved quality of life. However, with the ever-increasing population and growing urbanization, the stress on transportation is increasing, which is adversely affecting the environment, seamless travel of people, and asset life deterioration.
The Ministry of Urban Development (MoUD) issued the National Urban Transport Policy (NUTP) in 2006, followed by NUTP in 2014, to bring about comprehensive improvements in urban transport services and infrastructure. Special emphasis was laid on to mass rapid transit (MRT), both rail and road based, including bus system as these are the only modes that carry high numbers of people using least space. Since its introduction in India, the Rapid Transportation System (RTS) has come up in a big way and is considered imperative for inclusive and environmentally sustainable growth.
RTS boosts economic growth of a region by not only providing seamless connectivity within the cities but also providing periphery regional connectivity, thereby, increasing the influence zone. Though, congestion due to sectoral urbanization is an issue which the Government has been trying to address, with the Regional Rapid Transit System (RRTS) being implemented, there will be some respite for city travellers and the overburdened infrastructure.
However, the Mass Rapid Transit System (MRTS) has faced various issues over the years with slow rolling out of projects, delay in relation to ROW, and financing issues, which delay asset availability to the public and lead to huge economic and social costs to the country. With the development of new technology initiatives in the MRT/RRT systems, it is the opportune time for the industry to revive investment confidence and develop new models inclined towards PPP and less dependent on budgetary support.
Existing Technology and Metamorphosing of New Technology in Rapid TransitAt present, the MRTS can broadly be divided into the following:
- Rail based MRTS - Metro Rail, Light Rail Transit, Regional Rail, Tramways
- Road based MRTS – Bus Rapid Transit Systems (BRTS)
Investment scenarios in Mass Rapid Transit - Metro RailThe present investment in the Metro Rail is mainly driven by the government funding (state and central government) where the executing agency is a Special Purpose Vehicle with equal equity partnerships by the central and concerned State Governments, as followed by the Delhi Metro Rail Corporation (DMRC), Chennai Metro Rail Corporation (CMRC), Bangalore Metro Rail Corporation (BMRC) Nagpur Metro, Lucknow Metro, Kochi Metro and Ahmedabad Metro. The Public Private Partnership (PPP) model was only considered for Mumbai Metro Line- 1, Hyderabad Metro and Pune Metro Lime-III, which are being developed with Viability Gap Funding (VGF) from the Government of India.
However, due to the sheer size of the projects and the capital requirements, the benefits are not reflected in financial returns of the developer. Over and above the capital requirements, these projects are highly regulated. Though with the introduction of the Metro Rail Policy 2017, the non-fare box revenue is also provided to the private developers as part of the concession, but the ridership risk is still to be assumed by the private developers. Further, the VGF support being limited to 40% (20% by state government and 20% by central government) is also seen as a deterrent by the private developers. Nevertheless, the Government has to consider these as public utility services as well and guided by economic rate of return, rather than financial rate of return as it has a multiplying effect on overall development.
Reintroduction of Public-Private Partnerships in Rapid TransportationIn its 2015 report on ‘Revisiting and Revitalising Public Private Partnership Model of Infrastructure’, the Vijay Kelkar Committee observed that PPPs “have the potential to execute infrastructure projects faster and better … There is immense urgency in raising the quality and quantum of PPPs in India’s infrastructure portfolio as part of its overall efforts to reduce its infrastructure deficit.”
However, for PPPs to be successful in MRTS, it is imperative that the government defines a vision for driving the transportation sector forward in a manner that adequately balances the interests of the investors, government, consumers and developers. Added to this is the need to develop a shelf of bankable projects that can be rolled out – experience has shown that investors are wary of wading into projects that appear financially unviable, for example, certain BRTS projects. Additionally, based on experience from the past decade of PPPs, the following are also important to ensure success of a PPP:
- Ensuring timely grant of approvals and clearances to avoid unnecessary and costly delays in implementation. In this regard, it may be considered to ensure that right of way is given upfront as such access is often a prerequisite for obtaining approval – many projects, public and private alike, continue to face challenges owing to delays in land availability.
- Permit participation of diverse bidding entities to include foreign funds and investment fund to provide the required investments.
- Allowing for smooth and timely divestment by investors (i.e., by removing onerous lock-in restrictions, especially post-commissioning), more so when the nature of private investors is also diversifying.
- Allocating risks over the project lifecycle to the party best equipped to handle the same (rather than unduly burdening any one party with the risks).
- Building adequate safeguards and mechanisms for renegotiating costs/tariffs owing to unforeseen events.
- Commercial exploitation of property to minimise the viability gap and relooking at the VGF limits.
- Facilitating timely and efficacious resolution of disputes, with in-built timeframes for various stages in the proceedings.
The Rail Ahead
It is a known fact that MRTS/RRTS are one of the ways by which the sustainable economic development can take place wherein the requirement of urban mobility and environmental concerns can be addressed together. However, for MRTS/RRTS to be successfully rolled out to the public, their feasibility should be kept in mind, which, amongst others, is dependent upon the full corridor being made available for development from the start with availability of land. DRP should be made available and binding on the project proponent, realistic forecast of ridership should be provided, and KPI’s should be established, based on which the project should be evaluated at regular intervals.
While the existing MRTS/RRTS technology is being further developed, the next decade will in most likelihood, witness the reality of what is being called the Next-Gen Transportation – PRTS, Hyperloop, Skytrans and ET3, which will reinvent passenger, fright and cargo mobility.
Vishnu Sudarsan & Ashish Suman, Partners, J Sagar Associates