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Centre to tighten norms for appraising metro rail projects in India

New Delhi: It will soon become tough for states to send proposal for building metro rail in its cities and get central approval.

Wary that many such metro projects, which are hugely capital intensive, may not be financially viable and can end up burning a big hole in the government exchequer, the Ministry of Urban Development (MoUD) is tightening the norms for appraising proposals sent by states.

Ministry of Urban Development is the nodal agency for sanctioning metro projects.

In the last few years, proposals to build metro rail in Tier I and Tier II cities such as Chandigarh, Patna, Kanpur, Varanasi and Kochi have landed in MoUD’s doorstep, for approval. They are yet to get the central nod.

Take for instance Delhi Metro Rail Project. It has the highest ridership in the country and making operational profits but is yet to achieve break-even. Almost all the other functional metro networks are currently running at loss including the Mumbai Metro Line-1 that suffers an estimated daily loss of Rs 1 crore, government sources said.

Government sources said the rigorous appraisal norms will ensure that metro rail gets constructed only if it is of utmost necessity and all other measures to de-congest a city such as increasing the public transport fleet has been explored.

The new norms being finalized will allow Centre to approve only those projects, which ensures a 14% return on investment. Currently, the Centre clears projects offering an 8 % financial internal rate of return (FIRR).

The ministry will not consider projects where the EIRR (Economic Internal Rate of Return) is less than 14%. “The EIRR, along with ridership will also capture long term economic gains accruing from a project such as job creation, environmental gains by reducing pollution, reducing road accident deaths, etc.,” said a government source.

Though a metro project has a life of 100 years but the current method of appraisal considers just a 30-40 year life span for assessing its net present value. “This is inadequate to capture the full economic and environmental outcomes of projects,” the source added.

MoUD secretary Rajiv Gauba has set a one month deadline for finalizing the new norms.

The ministry will also fix an appropriate ridership for considering metro projects, keeping in view the present and future traffic projections in the context of expansion of cities.

As of now, though the minimum ridership is fixed at 12000 PHPDT (Peak Hour Peak Direction Traffic), many cities do not adhere to it. For instance, Vijaywada that has sent a proposal to build metro has shown the current PHPDT of 6,000. “At this low ridership, it will take the project a long time to become financially viable,” said a finance ministry official.

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