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To
i )
ii)
No. K-1 40' l 1 1812012-M RTS (Coord)
Gover nment of I ndi a
Mi ni stry of Urban Devel oPment
http ://www. u rb a n i n d i a. n i c. i n
Ni r man Bhawan, New Del hi - 110108.
Dated the 16th APri l , 2012.
Al l Chi ef Secretari es
Al l MDs of Metro Rai l Corporati ons
Subj ect: Innovati ve fi nanci ng of Metro Rai l Proj ects.
Si r ,
As you are aware MRTS proj ects (rai l based as wel l as bus based) are
hi ghl y capi t al i nt ensi ve. Yet t hey ought t o be t aken up i n al most al l mi l l i on pl us
ci ti es on an emergent basi s not onl y to catch up wi th the backl og of urban
transi t i nfrastructure, but al so to pl an for the future. Wi thout these
proj ects,
movements i n the ci ti es have become a huge chal l enge. Poor mobi l i ty can
become a maj or dampener to the economi c
growth. The growth of Indi a has to
happen through urbani zati on and urbani zati on i s to be dri ven by effi ci ent,
effecti ve, affordabl e, qui ck, comfortabl e, rel i abl e and sustai nabl e transportati on,
wi th the MRTS proj ects provi di ng the mai n backbone.
Z. The trend i n the past has been to rel y mai nl y on the budgetary support of
Central Government and State Government as wel l as l oans from mul ti l ateral /
fi nanci al i nsti tuti ons. However, the resources through budget are hi ghl y l i mi ted
and cannot be concentrated i n few ci ti es al one. As such, there i s an urgent need
to resort to i nnovati ve fi nanci ng mechani sm for al l MRTS proj ects. In fact, i t
shoul d be possi bl e to fi nance maj or cost of the proj ect through expl oi tati on of
ci ty' s l and resources. In thi s regard, a concept Note was ci rcul ated vi de thi s
Ministry' s letter of even number dated 20th Janu ary, 2012 to all the States, Metro
Rai l Corporati ons, CEOs of the devel opment authori ti es etc. for offeri ng thei r
comments. Thi s concept
paper was al so di scussed i n three Press Conferences
and hosted on the Mi ni stry' s websi te. Maj ori ty of the response recei ved by the
Mi ni stry support the measures suggested for i nnovati ve fi nanci ng. Based on the
i nputs i ecei ved from vari ous
quarters, the note has been modi fi ed and a copy of
the same i s encl osed as Annexure-l '
Cont . . . . . . . 21-
hkt
: : 2 : :
3' State Governments,
Metro Rai l Compani es and Local Bodi es are advi sed
for urgentl y i mpl ementi ng
the measures suggested i n the attached note. l t may
be noted that i mpl ementati on
of thi s ci rcul ar woul d be one of the essenti al pre-
requi sj tes
for any Central Fi nanci al Assi stance ei ther i n the form of equi ty or
grant
for MRTS proj ect (rai l /bus
based).
4' . The progress
of i mpl ementati on
may pl ease
be advi sed to thi s Mi ni stry on
pri ori ty
basi s.
Yours fai thful l y,
Encl : As above.
\l ' i r*"{
' ' s
I L [ ' i i \
\ ' "'
( S. K. Lohi a)
i I
OSD( UT) & E. O. Joi nt Secr et ar y
Tel:23061114
FAX: 23061102
E m ai I : s k. I o h i a@n i c. i n
[email protected]
Copy t o:
Al l Pri nci pal
Secretari es(Urban
Devel opment)/Pri nci pal
Secretari es
(Fi nance)/Pri nci pal
Secretari es(Transporl )/Pri nci pal
Secretari es(pl anni ng),
Muni ci pal Commi ssi oner s of al l mi l l i on pl us
ci t i es.
Copy al so t o:
1. Secretary (Expendi ture),
Mi ni stry of Fi nance, North Bl ock, New Del hi .
2. secr et ar y, Pl anni ng commi ssi on,
yoj ana
Bhawan, New Del hi .
Copy, for ki nd i nformati on, to:
1. PS t o UDM.
2. PS t o MoS ( UD) .
3. Sr. PPS to Secretary (UD).
4. AS/Al l JSs/EA i n MoUD.
I
, v
' ' ;
t
t' ' \
\ ' -'
( S. K. Lohi a)
'
'
OSD( UT) & E. O. Joi nt Secr et ar y
Annexur e t o t he l et t er No. K- 14011l B/ 2012- MRTS ( Coor d)
dat ed 16. 4. 2012
Subj ect: l nnovati ve Fi nanci ng of Mass Rapi d Transi t System (MRTS) Proj ects
-
(Both Rai l as wel l as Road Based).
Mass rapi d transi t
;;t
proj ects are capi tal i ntensi ve and requi re tong tenure
l endi ng at a very reasonabl e rate i n order to be sustai nabl e. The Metro Rai l Proj ects
speci al l y are hi ghl y capi tal i ntensi ve. Furthermore, bei ng soci al sector proj ects, i t i s not
possi bl e
to i ncrease the fares beyond a poi nt and accordi ngl y fare box revenue al one
cannot make these proj ects fi nanci al l y vi abl e. However, i n spi te of al l these chal l enges,
these proj ects have to be taken up on hi gh demand corri dors i n vari ous ci ti es wi th a
popul at i on of one mi l l i on pl us, wi t h r ai l based MRTS pr oj ect s i n t hr ee mi l l i on pl us i n t he
12th Fi ve Year Pl an i tsel f as recommended i n the worki ng Group Report on Urban
Transport for 12th Fi ve Year Pl an. Rai l Based MRTS proj ects are al so to be pl anned for
t wo mi l l i on pl us ci t i es wher ever vi abl e.
2. A st udy of gl obal exper i ence i n Ur ban Rai l Tr ansi t pr ovi si oni ng shows t hat Publ i c
Pri vate Paftnershi ps (PPP) i n Metro Rai l Proj ects has not been very successful . As
brought out i n the Report of the Worki ng Group on Urban Transporl for the 12th Fi ve Year
Pl an, the anal ysi s of Metro Rai l systems i n 132 ci ti es i n the worl d provi des a
comprehensi ve understandi ng of the ownershi p structure and use of PPP i n Metro Rai l
devel opment . l n 113 ci t i es havi ng Met r o Rai l s, 88% have been devel oped and ar e bei ng
operated i n Publ i c Sector mode whereas i n onl y 12% ci ti es some form of Publ i c Pri vate
Partnershi p exi sts. In fact outsi de Indi a, no ci ty anywhere i n the worl d (except the fai l ed
experi ment of STAR and PUTRA metro rai l i n Kaul al ampur i n Mal aysi a) has attempted
provi si oni ng of Metro rai l i n ful l ci ty on PPP i n l ast few decades. Even the new Metro
Rai l proj ects, whi ch are bei ng devel oped, are l argel y bei ng taken up on publ i c sector
mode rather than PPP. l t may be noted that PPP has been an i mportant fi nanci ng
mechani sm of the other modes of transport i n Indi a and el se where. Even i n road based
MRTS proj ects l i ke Bus Rapi d Transi t System, the i nfrastructure has been devel oped i n
the publ i c sector gl obal l y whereas the bus operati ons and mai ntenance as wel l as fare
col l ect i on has been done on PPP.
3. Fi nanci ng of such hi ghl y capi tal i ntensi ve proj ects onl y through Gross Budgetary
support, so that they can be taken up on publ i c sector mode rather than PPP, i s not
possi bl e consi deri ng the fi nanci al constrai nts and other pressi ng demands of both Govt.
of Indi a and State Govt. concerned. As such, the onl y way out i s to resort to i nnovati ve
fi nanci ng mechani sm usi ng l and as a resource as wel l as other dedi cated l evi es/taxes as
envi saged i n the Nati onal Urban Transport Pol i cy, 2006 and create a dedi cated Urban
transport fund at State l evel and Central Govt. l evel from such sources. The Nati onal
Urban Transporl Pol i cy furl her menti ons that the support from Govt of l ndi a woul d be
conti ngent upon the States to tap these i nnovati ve fi nanci ng mechani sms"
4. MRTS proj ects whether Rai l based or Bus based, are hi gh capaci ty mass rapi d transi t
systems and are amenabl e to
"Transi t
Ori ented Devel opment" as wel l as densi fi cati on
al ong the MRTS corri dor through addi ti onal FAR. Furthermore i t i s al so i mportant to have
as many peopl e, who are potenti al users of MRTS, to l i ve wi thi n wal ki ng di stance of
MRTS stati ons so as not onl y to reduce the overal l travel demand but al so to i mprove the
sustai nabi l i ty of MRTS proj ect. l nevi tabl y, there i s a huge spurt i n the pri ces of property
(sal e as wel l as rental ) especi al l y al ong the MRTS corri dor i n the catchment area (whi ch
may be def i ned as maxi mum 10 mi n wal ki ng di st ance f r om t he st at i on) . Pr esent l y, al l
these benefi ts go pri mari l y to the pri vate parti es even though the same i s caused onl y on
account of Government i nvestment. As such, there i s a strong case for the Government
to en-cash the i ncreased
property val ue (sal e/rental ) i n the catchment area of MRTS
corri dor as wel l as the i ncreased FAR al ong the MRTS corri dor whi ch can be used to not
onl y part fund the proj ect cost but al so for provi di ng i nterest subsi dy to make avai l abl e
the l oans, to the SPV i mpl ementi ng the proj ect, on a very concessi onal rate so as to
mai ntai n i ts debt servi ce coverage rati o (DSCR) of more than 1.15 each year. l n fact the
surpl us, i f any from the dedi cated urban transport fund, can be l everaged further for
rai si ng funds from the domesti c market for taki ng up other urban transport
proj ects.
5. Govt of l ndi a has been advocati ng these i deas si nce l ong. However i t the Government
of Karnataka whi ch has for the fi rst ti me i n the country, whi l e sancti oni ng Phase-l l of
Bangal ore Metro (72.Og5 kms at a total compl eti on cost of Rs.26,405crore),
has deci ded
the fol l owi ng i nnovati ve fi nanci ng methods for resource mobi l i sati on through cess/TDR-
"
a) Levy of Cess and Surcharge under Secti on 18A of the Karnataka Town and Country
Pl anni ng Act at 5o/o of the market val ue of l and orl and bui l di ng i n future Devel opments,
to be credi ted to Metro Infrastructure Fund and to be shared by BMRCL, BWSSB and
BDA at 650
,20oh
and 15% respecti vel y.
b) i ) To extend the benefi t of 4 FAR for al l properti es l yi ng wi thi n a di stance of 500 mtrs.
from the Metro al i gnment.
i i ) To l evy a cess of 10% i n respect of resi denti al bui l di ngs and 20% i n respect of
commer ci al bui l di ngs on t he addi t i onal FAR gr ant ed, i n r espect of Phase- 1 and Phase- 2
of t he Met r o Rai l Pr oj ect and shar e t he same among BMRCL, BBMP, BWSSB and BDA
in the ratio of 600/0, 20o/o, 10% and 10% respectively.
c) i ) To al l ow BMRCL to i ssue TDRs i n l i eu of compensati on for acqui si ti on of l and for
Metro Rai l Proj ect.
i i ) To revi ew the current TDR Scheme so as to make i t bri nq i n addi ti onal revenue and
at the same ti me, attracti ve for the TDR Acqui rer."
The yi el d through addi ti onal FAR of 4 and l evy of cess of 10oh i n resi denti al
bui l di ngs and 20o/o i n respect of commerci al bui l di ngs on the addi ti onal FAR granted i s
esti mated to be Rs.432 crore i n fi ve years. Cess of 5% of the market val ue of l and orl and
bui l di ngs i n future devel opments i s expected to yi el d Rs.1250 crore i n fi ve years
@
Rs. 250 cr or e per annum.
6. Even whi l e sanct i oni ng a Phase- l l l of Del hi Met r o, t he Gover nment of I ndi a has
deci ded as fol l ows:
"
The GNCTD woul d set up a dedi cated Urban Transport Fund (UTF) at State l evel i n
consul tati on wi th Mi ni stry of Urban Devel opment, Government of l ndi a through l evy of
dedi cated taxes/l evi es etc., capturi ng the i ncreased l and and property val ue from sal e
proceeds/rental (as wel l as i ncreased FAR) al l al ong the metro corri dors i n Del hi as
envi saged i n Nati onal Urban Transport Pol i cy, 2006 to create pool of resources for
repl acement of assets, i nterest subsi dy and provi di ng operati onal subsi di es, i f any, not
onl y for thi s proj ect but other Urban Transport proj ects as wel l . 75oh of the amount
real i zed from the i ncreased l and and properl y val ue capture from sal e/rental proceeds
woul d be credi ted to Dedi cated Urban Transport Fund at Central Government l evel ".
7. However for achi evi ng the hi gher FAR i t woul d be desi rabl e to al l ow for amal gamati on
of pl ots as wel l through appropri ate amendments i n the bye l aws. Though amal gamati on
i s desi rabl e but i t need not be a pre-requi si te. Densi fi cati on shoul d be al l owed i n al l pl ot
si zes subj ect to the new devel opment/redevel opment proj ect compl yi ng to the Stati on
Area Devel opment Pl an for the i nfl uence zone. In order that the densi fi cati on happens
qui ckl y and the i ntended revenue starts fl owi ng to dedi cated urban transport fund, i t wi l l
al so be i mportant to provi de for some i ncenti ves for earl y uti l i zati on of the hi gher FAR say
wi thi n three to four years. l t shoul d al so be kept i n mi nd that hi gher FAR woul d not
automati cal l y resul t i n densi fi cati on as we can have penthouses uti l i zi ng the hi gher FAR
thereby defeati ng the very purpose of densi fi cati on. As such i t i s i mportant to coupl e the
FAR threshol d wi th a mi ni mum densi ty requi rement. Furthermore, i t i s al so desi rabl e not
to al l ow underuti l i zati on of FAR bel ow a certai n threshol d (commensurate to the capaci ty
of MRTS system) wi thi n ToD zones for any neMredevel opment proj ects.
8. I ncl usi onar y housi ng pol i ci es wi t hi n hi gher FAR st at i on ar eas, measur es t o
encour age a bal anced mi x of
j obs
and housi ng al ong MRTS cor r i dor s and caps on
parki ng suppl y shoul d be adopted to support rapi d densi fi cati on, housi ng affordabi l i ty and
i mprove the effi ci ency and equi ty of the resul ti ng devel opments.
9. In addi ti on to what has been captured by Government of Karnataka, there i s al so room
for encashi ng the i ncreased market val ue of l and and bui l di ngs at the ti me of sal e/rental .
Thi s can be done by l evyi ng a sui t abl e cess on t he sal e of l and or bui l di ng i n t he
i nfl uence zone of MRTS and by addi ti onal property tax on the exi sti ng bui l di ngs (whether
sel f occupi ed or rented but wi th di fferenti al treatment for both). The yi el d from thi s shoul d
al so fl ow i nto a Dedi cated Urban Transport Fund.
10. There i s al so a case for enhancement of property tax i n the i nfl uence zone of MRTS
proj ects (where hi gher FAR has been al l owed) as al l those l i vi ng i n the i nfl uence zone
are benefi ted by the MRTS proj ect. Whi chever ci ty are aspi ri ng for MRTS system shoul d
al so resort to 100% property tax col l ecti on before the proposed compl eti on date of the
proj ect. As such i n addi ti on achi evi ng 10Oo/o property tax col l ecti on woul d al so be made
one of the condi ti ons of sancti on. The funds of addi ti onal revenue on account of both can
al so be pool ed i nto the Dedi cated Urban Transport Fund.
11. In addi ti on to the above, the State Governments may consi der any other sources
of dedi cated l evi es l i ke vacant l and charges, betterment l evy, speci al devel opment
charges, cess on fuel , parki ng taxes, congesti on charges, aucti on based motor vehi cl e
regi strati on quota systems, etc. to augment the resources for taki ng up the MRTS
proj ects. A vacant l and tax, not onl y on l and but al so on unuti l i zed FSl , i s to ensure ti me
bound densi fi cati on al ong wi th MRTS corri dor where the hi gher FAR i s permi tted. Vacant
l and tax must be very stri ctl y l evi ed and shoul d be
qui te steep. l t i s absol utel y
i nappropri ate to al l ow l and banki ng i n TOD zones. Vacant l and tax or Under-uti l i zati on of
FAR Tax shoul d al so appl y as a penal ty to al l devel opers as wel l as Govt. bodi es, to
prevent i neffi ci ent use of val uabl e l and. Al l the addi ti onal revenue comi ng out of the l and
moneti zati on as menti oned above can al so fl ow i nto a Dedi cated Urban Transport Fund.
12. As the revenue i n thi s Dedi cated Urban Transporl Fund woul d be fl owi ng i n from
the Urban Local bodi es as wel l as the State Governments, i t woul d be desi rabl e to have
fool proof ESCROW mechani sm to use these funds onl y for the i ntended
purposes. Thi s
may be achi eved by maki ng the above fund to be operated as a trust fund under a wel l -
structured trust deed dul y outl i ni ng i n the order of pri ori ty, the
purposes for thi s fund can
be used. A publ i c sector bank may be sel ected for managi ng the Trust Fund. Thi s
ESCROW mechani sm of generati ng addi ti onal revenue from l and moneti zati on and
addi ti onal
property tax etc. so as to not onl y
part fund the
proj ect but al so provi de i nterest
subventi on and/or credi t enhancement, can open up a huge pool of l ong term funds wi th
provi dent
Fund and i nsurance sector for i nvesti ng i n MRTS
proj ects, mul ti modal
integration
projects, related infrastructure and services, etc. This would greatly reduce
the over dependence on mul ti l ateral fundi ng for taki ng up MRTS
proj ects as i s the case
today. Thi s wi l l enabl e
parti ci pati on of Urban Local Bodi es i n devel opment of MRTS
systems for the ci ty and al so devel opment of i nfrastructure etc for i ntermodal i ntegrati on
and effecti ve transport system moni tori ng and management.
13. In addi ti on to the above, reference i s al so i nvi ted to thi s Mi ni stry' s D.O. l etter No.K-
1401114812008-UT dated 12th January, 2009 vi de whi ch suggested possi bl e sources of
Dedi cated Urban Transport Fund at State/ci ty l evel were advi sed. At the State l evel ,
addi ti onal sal es tax on petrol , addi ti onal regi strati on fee on four-wheel ers and two-
wheel er s, hi gh r egi st r at i on f ee f or per sonal vehi cl es r unni ng on di esel , annual r enewal
fee on dri vi ng l i cense and vehi cl e regi strati on, congesti on tax, green tax etc. may be used
to draw sources for the Dedi cated Urban Transport Fund at the State l evel . The i nel asti c
demand of petrol wi th respect to pri ce i n a short run woul d ensure suffi ci ent accrual s to
t he f undi ng and whi ch woul d, i n t he l ong r un, i ncent i vi se such peopl e t o shi f t t o t he publ i c
transport system. The funds so generated by the States can be used for new proj ects i n
urban transport, compensate towards exempti on of tax on urban buses
,
mass transi t
systems and repl acement of assets of publ i c transport compani es and, towards meeti ng
the cost of vari ous other concessi ons extended to encourage
publ i c transport by the
State Government.
14. The ci ti es, i n addi ti on to the above sources, can al so
generate funds out of
rati onal i zati on of parki ng-fee, adverti sement revenue on transi t corri dors, empl oyment tax
(as done i n France) etc. Thi s fund at the ci ty l evel can be used for establ i shi ng a fare
conti ngency fund to meet the di fference between the
' publ i c
fare' (pai d by the commuters)
and the' techni cal fare' (payabl e to the pri vate operators) to sustai n the operati ons and; to
provi de ULBs' share for fundi ng the urban transport
proj ects.