Indian cities are expanding at an unstoppable pace. Nearly 50 per cent of India’s population will live in its cities by 2050. The government thus adopted the Smart Cities mission.

One of the key highlights under this very ambitious mission of the government, is the development of urban mobility. As the move towards the liberalisation of public transport market continues, governments across the world are increasingly turning to the private sector for the provision of public transport services. The concept doesn’t restrict to construction of world class infrastructure but also delivering the best in terms of operations and maintenance.

While a lot of international companies have been bidding and entering India via PPP models or franchising in construction and management of public transport in India, especially Metros, most of these projects are undertaken by the public sector bodies. With the exception of Mumbai (Operated by RATP), Gurgaon (Operated by IL&FS) and Hyderabad (Operated by Keolis, to be operational by 2017), Delhi, Kolkata, Jaipur, Bangalore and Chennai are operated by government PSUs. Metros under construction such as Kochi and Lucknow are also likely to follow the public sector model.

Open up metro operations

There are a number of different ways in which the private sector may be involved when it comes to Operations and Management of public transport services. The scope of actions, level of risk taken and associated forms of contract range along a continuum illustrating the degree of privatisation. The term ‘privatisation’ itself encompasses a wide range of definitions from minimal outsourcing to full privatisation, involving the outright sale of assets to the private sector.
In practice, Governments and Public Transport Authorities (PTAs) frequently contract out the Operation and Maintenance of a public transport service for a set period but retain ownership of the assets and infrastructure (i.e.track, stations, and vehicles). They also generally retain significant control over fare levels (particularly setting maximum fares) and service levels (e.g. setting minimum requirements for timetables, routes and service standards.

Coordination with local bodies

Smart cities require smart urban local bodies. That was the purpose behind forming a Special Purpose Vehicle under the Smart Cities Mission, which can work with more autonomy, with sound finances and where multiple agencies can have better coordination for effectively execution of city plans. Indian cities not always require technology to solve its problem, sometimes even a practical solution like timely cleaning of drainage ahead of monsoon, maintenance of potholes and timely disposal of waste. Ensuring better parking facilities, removing encroachment and a functional traffic signal can improve the situation to a great extent.

Value addition

The Government in India is currently focusing on providing improved and strengthened public transportation system and this is leading to more and more cities developing Metro Projects. In that case scenario, International private O&M partners can help develop these projects through their worldwide expertise and support the development of the country through local employment and development of people’s skills.

In addition, outsourcing O&M to private operators who will assume the risk of operational cost for the contract period will help Metro SPVs to have a clear sight of expected cash-flows & costs for such periods. Keolis advocates that O&M outsourcing to Private Operators will bring in partnership approach, which will encourage modal shift and increase the use of public transport, bring Cost efficiencies & performance enhancements. Overall a situation where revenue will increase, citizen’s quality of life will be improved, and due to cost and efficiency, less subsidies needed to run these networks in the long term.

Introducing competition

Introducing competition at the operations stage will help to achieve the larger goal of creating world class reliable, affordable, safe and efficient metro rail transport systems. Public operators in monopoly markets tend to lack the incentives needed to make improvements in those areas. In addition private sector can provide alternative source of funding for cash strapped metro projects.

Regulatory woes

The activity of transport of passengers by metro rail has been made part of the negative list of services and thus is outside the purview of service tax. However, the activity of O&M of metro rail projects qualifies as a taxable service and attracts service tax at a peak inclusive rate of 12.36 percent. This service tax, without a corresponding output service tax becomes a significant cost for such metro rail projects. With the likelihood of introduction of the overnment of India’s initiative of Goods and Services Tax, the effective rate of tax is expected to be scaled up even furthermore.

Therefore, this additional burden of non-creditable service tax cost on the metro project, strains the financial viability of the entire project. This incremental cost goes against the stated objective of the Government of India to create a level playing field to increase foreign investment in this sector, as stated by the private players.

The Indian urban transport sector has visionary leaders and competent engineers who have achieved a lot already. However, India is facing major challenges with many large cities, rapid urbanisation and economic development. To answer these challenges and achieve the growth ambitions of the country, India needs thousands of kilometres of high quality safe and reliable urban mass transport system. These include metro and suburban rail networks around all major cities. With ample amount of projects in the pipeline, International private players with respect to O&M might be able to help develop these projects through their worldwide expertise and support the development of the country through local employment and development of people’s skills.
(As told to Naina Sood)