Tumakuru metro: DPR pitches for private investment with 30-year concession

The proposed extension of Namma Metro from Madavara (BIEC) to Tumakuru can be implemented through a public-private partnership (PPP) model, but it is “financially viable” only when an additional 133.71 acres of land is opened for commercial development, the detailed project report (DPR) states.

The DPR - which Bangalore Metro Rail Corporation Ltd (BMRCL) submitted to the government on Saturday - has a chapter that studies various funding models to implement Karnataka’s first inter-district Metro corridor including full-funding by the government, viability gap funding (VGF) and private concessionaire-led BOT (build-operate-transfer) models.

The project, comprising 16 stations, estimates the overall cost under various models between Rs 17,785 crore and Rs 19,361 crore, depending on funding structure adopted.

According to the DPR, the PPP-VGF model with additional property development of 133.71 acres yields a private equity internal rate of return (IRR) of 16.27% and a net present value of Rs 370 crore to the public entity, making the project financially viable.

The report notes that without the additional property development component, the project may fail to attract private investment.

Under a standard VGF model which involves 20% funding support each from the Centre and state government, the private entity IRR works out to 9.7%, well below the target pre-tax equity IRR of 16%.

The DPR states that increasing government support to 31.5% each by the Centre and state would still make the project financially unviable.

To overcome this, the consultants have proposed monetising land parcels along the Metro corridor, expected to come up on service roads of the national highway, through property development.

Revenue generated from commercial exploitation of these lands has been factored into non-fare box revenue calculations to improve viability.

The report also evaluates a ‘PPP fixed fee model,’ under which the state government would pay the private operator an annual fixed fee of Rs 1,400 crore in exchange for operating and maintaining the corridor. In this model too, additional property development land has been considered essential.

Under the proposed BOT framework, the private partner would be responsible for designing, financing, constructing, operating and maintaining the metro corridor for a concession period of around 30 years, before transferring the system to the government.

The DPR, however, cautions that PPP metro projects across India have struggled due to lower-than-expected fare revenues. It cites examples of Delhi Airport Metro line, Hyderabad Metro, Mumbai Metro Line-1 and Rapid Metro Gurgaon, many of which later required government intervention.

“Government funding Metro projects (special purpose vehicle - SPV model) are the preferred model,” the report states. “The SPV model with innovative finances offers greater control and is more traditional. The PPP model, when combined with additional property development, emerges as a financially viable and investment attractive option that supports long-term urban infrastructure”.