'State to bear cost escalation of Metro'

'State to bear cost escalation of Metro'
Deccan Herald

The PIB has even called for a more detailed examination of various alternatives with regard to available and proven technologies.

In what could lead to further delay in the Bangalore Metro project and increased financial burden on the Karnataka government, the Public Investment Board (PIB) wants the state to bear the cost escalation and cash loss of the project and take a fresh look at the alignment. It has also described the estimated ridership as an “overestimate”.

Presenting a not-so-rosy picture of the needs of the Bangalore Metro, the PIB is understood to have even called for a “more detailed examination of various alternatives/options with regard to available and proven technologies” (in place of Metro). However, Deccan Herald has learnt, that the Union urban development ministry (UDM), the nodal ministry for the project, favours the Metro as the mode of transit.

Wrapping up its recommendations, the PIB is said to have told the UDM that the state should bear the cost escalation of Rs 1,113 crore which is in addition to the Rs 832-crore state equity. The state government may have to shell out this amount before availing of external debt. Besides the matching Rs 832 crore, the Centre will spend only five per cent of subordinate debt of Rs 278 crore.

The PIB, headed by the secretary (expenditure) in the finance ministry, wants the cost estimates to be reworked on a “current cost basis”. It said that the Bangalore Metro managing director had told the PIB that the project cost now ranged between Rs 6,296 crore and Rs 7,431 crore.

The PIB, said: “The cost overruns, if any, may be shared by the Centre only to the extent of escalation in equipment cost within the approved project parameters and time cycle. All other escalation in costs would be borne by the state... the total liability of the Government of India (including equity support) shall not be more than 20 per cent of the project cost.”

It noted: “Cash losses, if any, during initial years would be fully borne by the state government since the Centre would have no control over what can become an open-ended operational cash subsidy on continuous basis.”

‘No-profit-no-loss’

The board wants the state government to bear the entire electricity demand of the Metro on a no-profit-no-loss basis besides the cost of land.

The board, which has rejected the state demand for waiver of taxes (Rs 492 crore), however, has asked the UDM to present two scenarios to the CCEA (Cabinet Committee on Economic Affairs) — with waiver and without waiver.

The PIB cautioned that the financial rate of return of the project was around six per cent which was less than the desirable 12 per cent required for infrastructure projects. It, however, added that the economic internal rate of return of the project was more than 20 per cent “which may possibly justify the investment”.

On the issue of ridership, the PIB expressed grave doubts about the projected 8.2 lakh trips per day as reflected in the detailed project report, and said the Delhi Metro projections too have gone “quite off the mark”. It remarked: “unrealistic projections cannot be the basis for a reliable revenue model as it may lead to open-ended operational subsidy for the project...A sluggish and delayed build-up or substantial shortfalls in it (ridership) are bound to create a perennial drain on the state exchequer.”

Doubts

On the alignment of the project, which is planned to run on elevated structure in most places, the PIB observed that doubts have been raised regarding the desirability of the alignment passing through sections covering M G Road and Cubbon Park. It wanted the state government to take a fresh look at the proposed alignment.

While the Bangalore Metro is likely to run on standard gauge, the railway ministry wants broad gauge as was done in the case of the Delhi Metro (despite opposition from Delhi Metro bosses).

The UDM is likely to recommend standard gauge. The UDM is expected to move the Bangalore Metro file to the CCEA by September-end.