News / Bangalore metro. Will the Phase 2 be a PPP project?

Bangalore metro. Will the Phase 2 be a PPP project?

🕔 July 14, 2010

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My goal with this post is to bring you a very interesting discussion taken place in Bangalore with regard to the metro project - phase II.On one hand Bangalore Metro Rail Corporation (BMRC) has been championing cause of the non-ppp route for metro delivery of phase I and othe other hand we have such situations of cash-crunch, cost escalations for metros in other cities.Shortage of funds coupled with escalating costs of the Bangalore Metro Rail project, has forced the government to look in for an alternative options to fund the Phase 2 of Metro Rail project, the date for which has yet not been fixed.Sources in the infrastructure department say that the government does not have money to fund the Rs 16,000-crore ($3,420 million) Phase 2 of the project and it will have to be implemented in public-private partnership model.BMRC managing director N. Sivasailam said the detailed project report for Phase 2 of Metro Rail is under preparation. The funding pattern for the Phase 2 will be decided by the share holders.How to implement a PPP project in metro projects?This is exactly the sort of project that will give PPP a bad name unless it is handled very carefully. If you try to get private sector financing for a public project the main two questions that need to be thought through and answered confidently are:1. What risks/obligations are going to be passed to the private sector in return for the higher financing costs?2. How, given those obligations, is the private sector going to get his return on his investment?With regard to Phase 2 of the metro project lessons need to be learnt from the UK where there have been some good equivalent projects, and some frankly abysmal ones. Even if the public sector body is able to get its mind round the obligations question, how is the private sector partner going to get his return? Wholly from the fare box? An amount per passenger carried? Will there need to be viability gap funding? How will all this be guaranteed - on performance? If so, who can write the output specifications and performance regime in such a way that the public interest is protected whilst allowing the private to benefit from its risk management and performance?Normally fare box alone wont be sufficient for most of the metro projects(in indian context). Even in the case of Delhi metro one can see as to how associated real estate components help in financing of metro projects.So it will be very interesting to see how this PPP project is structured...I'll keep you updated with all the information available out there.

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