The Pros and Cons of Public-Private Partnerships The abbreviation PPP plays a key role in the metro rail projects in Indian cities. As part of the New Metro Policy, the PPP model aims to reduce the burden on the Central government in funding metro projects.
The Government of India has made Public-Private Partnership (PPP) component mandatory for states to avail central assistance of new metro projects as part of its New Metro Rail Policy and projects in 2017. Private investments and other innovative financings of metro projects have been made compulsory to meet the huge resource demand for capital-intensive, high-capacity metro projects
As per the Metro rail project Policy, “Private participation either for complete provision of metro rail or for some to wrap up the other components (like Automatic Fare Collection, Operation & Maintenance of services, etc) will form an essential requirement for all metro rail projects seeking central financial assistance.”
This development has raised the question of whether the public-private partnership model can be successful for metro rail projects in India. As part of the New Metro Policy, the PPP model aims to decrease the burden on the Central government in funding metro rail projects.
This is not the first time the public-private partnership (PPP) model has been tried in India. The first partnership model was tried on the airport line of the Delhi Metro Rail Corporation (DMRC), the Orange line of the Delhi Metro, also called the airport expressway. However, this attempt was not termed successful.
Reliance Infrastructure became the country’s first private company to join the initiative but abandoned it due to huge losses. Mumbai Metro Line-1 and Hyderabad metro rail have been taken up as PPP projects with Viability Gap Funding (VGF) from the Government of India. The Rapid Metro in Gurugram is an initiative of the Government of Haryana, with full funding from the private concessionaire..
In this article, we will read about the Pros and Cons of Public-Private partnerships (PPP). How much they benefited the metro rail projects of Indian cities through this joint venture of Private sector companies and the public sector, the Government of India.
- Here we will discuss the pros of Public-Private Partnerships (PPP). The Opportunities and Way Forward of Public-Private Partnerships (PPP).
- Some reasons favour Public-Private Partnerships ( PPP) in metro rail projects. The PPP structure will help speedy, efficient, and cost-effective delivery of projects apart from the better value of money and high-performance incentives.
- The accountability and risk are with the private sector. But the project’s success will depend on the contract agreement (PPP framework) that the owners enter into with the construction company.
- Way Forward:
- As cities are growing faster, the metro will be an important mode of the public transport mix. Metro is more capital-intensive, requiring everything from land acquisition to civil works, signalling, and rolling stock. And it will serve the city with a mass population.
- The metro rail project through this PPP model has also connected a city’s prime landmarks, giving commuters access to daily travel. The capital-intensive nature of such projects does not allow private players to get a return on their investments easily. The metro has several externalities that make it imperative for the government to subsidize it.
- From enhanced mobility to its relatively low carbon footprint, metro usage has benefits that cannot be measured through the purely commercial yardstick of profit and loss.
- So instead of the public-private partnerships model (PPP), state governments should emphasize adopting innovative financing mechanisms like Value Capture Financing tools to mobilize resources for financing metro projects by capturing a share of the increase in the asset values through the ‘Betterment Levy.’
- The government must also ensure affordable public transport and invest in it. To ensure that the least-cost mass transit mode is selected for public transport, the New Metro policy mandates Alternate Analysis, requiring evaluation of other modes of mass transit like BRTS (Bus Rapid Transit System), Light Rail Transit, Tramways, Metro Rail and Regional Rail in terms of demand, capacity, cost and ease of implementation.
- Conclusively, this joint venture between the Public sector, which is the Government, and the private sector, the private firms such as Reliance, who took up the metro rail projects in the country, saw both constraints and opportunities. Still, in the end, with their collaboration, our country’s metro rail projects have afforded many benefits to the people affordably, be it employment or ridership.
- The major issues related to the Public-Private Partnerships (PPP) in metro rail projects in India are commercial feasibility and accession to Right of Way (RoW) and land.
- Metro projects are highly capital-intensivePrivate players look for a return of around 12% to 15% per cent, respectively.
- While no metro project has yielded an investment return of more than 3% per cent, Metro projects are also long-haul projects and will take a long time to break even and complete.
- A vertical hike in their fares can only generate returns, but this prospect is problematic for various reasons. The collection of revenues is highly uncertain in most public transportation projects.
- Therefore, private investment has not succeeded in Airport Metro Express Line because of the usually unstable revenues, which have made them commercially impossible.
- A trade-off is the often presented financial rate of return below the market rate for private funds; some form of public sector support is required to make the project feasible (viability gap funding) and accessible.
- The financial rate of return may be improved by adding user charges, and then the economic rate of return may be affected negatively.
- Another issue is accessing the Right of Way (RoW) and Land. The responsibility of procuring RoW and land rests with the concerned state government. The private acquisition is overcomplicated with lengthy processes,, and social considerations must be addressed, which is a challenging assignment.
- In Mumbai Metro Line 1, Reliance Infrastructure took almost 7 years to complete the 11 km of the relatively more straightforward elevated line but due to a delay in receipt of unconstrained of the Right of Way (RoW) / land by the Government of India & the Mumbai Metropolitan Region Development Authority (MMRDA). So a delay in the inheritance of RoW and land is another obstacle for PPP projects.
- In India, it is seen that political and bureaucratic constraints, such as fragmented decision-making due to the involvement of multiple public agencies, the prevalent emphasis on administrative procedures rather than on strategies and results, and lengthy tendering processes (normally split in three or four phases, from planning to final operation) lead the problems for the implementation of PPP projects in public transportation.
Frequently Asked Questions:
A: A Public-Private Partnership (PPP) in Metro is a collaboration between a government agency and a private company to finance, design, construct, operate, and maintain a metro rail system. The partnership allows for sharing of risks and resources between the public and private sectors, resulting in efficient and effective delivery of metro services.
A: The advantages of Public-Private Partnerships in Metro include access to private sector expertise and technology, increased efficiency in project delivery, reduced financial risk for the government, and better value for money. Additionally, PPPs can encourage innovation, provide a sustainable funding for infrastructure projects, and create job opportunities.