New Delhi: After a failed public-private partnership (PPP) model to execute metro rail projects in India, the government will spend Rs 2.5 lakh crore to implement metro rail projects in various Indian cities, said ratings agency ICRA.
The spending will be over the next five years, eventually helping not only the stressed infrastructure companies to present stronger financial results, but also companies involved in manufacturing and supply of rolling stock, it said.
The government of India has standardised specifications for rolling stock and signalling systems for metro rail so that ‘Make in India’ can be promoted.
A month ago, Prime Minister Narendra Modi, during the inauguration of Kochi Metro, had said, “A number of initiatives have been taken to enhance public transport in the cities. Foreign investment has been invited in this sector. Fifty cities in India are ready to implement metro rail projects.”
In fact, in April 2017, the Union government also issued a National Transit Oriented Development Policy to transform cities, from being transit dependent to being transit oriented.
Due to differences between the government and private players over Concession Agreement clauses, PPP metro projects have had a failed start. The problems faced by PPP metro projects have varied from project-to-project.
In India, there have been five metro projects with private equity participation, namely Delhi Airport Metro Express (which is now managed by Delhi Metro Rail Corporation), Reliance Infrastructure-led Mumbai Metro One, Hyderabad Metro with majority owned by Larsen & Toubro and two fully private Rapid Metro in Gurugram by IL&FS. This excludes a contract for another metro project in Mumbai, which was terminated even before implementation.
Meanwhile, infrastructure companies are also having a tough time in raising debt to execute infrastructure projects including PPP metro rail projects. This is resulting in companies to look forward to engineering, procurement and construction (EPC) projects instead.
“There has also been a demand by certain sections of the state government, particularly, Maharashtra to amend the Metro Railways Act to make it more relevant for PPP metro rail projects. The existing regulation was formed with a view of government-owned metro lines,” said a state official.
“Going by the developments in PPP metro projects, it is better to opt for EPC projects. Right of Way and clearances are among the major issues in executing such a project,” said an official with an infrastructure company.
Many large Indian construction companies have taken up metro rail projects. While ITD Cementation has bagged the highest number of EPC projects, Larsen & Toubro has exposure to both EPC and PPP contracts. Other companies like Afcons, NCC, IL&FS Group, Simplex Engineering, J Kumar, etc. also have sizeable metro contracts.
K Ravichandran, senior vice-president and Group-head, corporate ratings, ICRA Research and Ratings Agency said, “Roads and urban infrastructure, including metro rails, are two key segments which have witnessed robust order inflows for the construction companies. Further, with a sizeable pipeline of projects in these segments, the construction sector is expected to have sufficient order inflows, and companies with strong track record and healthy balance sheet are expected to exhibit strong growth going forward.” Therefore, this is expected to boost the order book of construction companies by Rs 75,000-90,000 crore over the next three to five years.