11.25% FIRR projected for Pune Metro: Secretary/Union Urban Development Dept.

Pune:  The city’s metro dream may have not taken off yet, but it turns out that it won’t be a white elephant, with the Centre pegging the project’s Financial Internal Rate of Return at 11.25%. This not only assures good returns to investors but also improves the project’s financial viability.

Sudhir Krishna, Union Secretary, Union Urban Development Department, while speaking during the Sixth Urban Mobility India Conference that started in New Delhi on Tuesday, said that metros can contribute to generation of funds and announced that the Pune Metro plan has a projected FIRR of 11.25%. “Metro systems should no longer be looked upon as a drain on resources as metros can contribute to generation of funds,” he said.

The UDD has prepared a report on metro projects in major cities for the conference. The report concludes that it is important to have a multimodal approach to facilitate urban mobility, ranging from metro projects to BRTS, monorail, state-of-the-art buses as well as other modes of regional transportation.

The announcement has given project planners much to look forward to. “An FIRR of 11.25% clearly means that Pune metro will be a profitable project. E Sreedharan has asked the state government to ensure the project is financially viable to attract investors. Private players will be interested in the project only if FIRR is compatible. Generally, private investors look for a 15-18 % return, but in a metro, the FIRR is not more than 3 – 4 %. The Centre had earlier sanctioned metro rail projects with less than 8% FIRR, but the implementing agencies showed reluctance to take part in them,” said a senior state official.

Ketan Gokhale, Railway Expert and former Managing Director of Konkan Railway Corporation said, “We have to look into the details on how the FIRR is calculated. An FIRR of 11.25 % is quite high for metro project. This is an important index for evaluation of the project as it gives a clear picture of returns in next few years.”

Shashikant Limaye, officer on special duty for Pune metro project, was not available for comment.

A senior civic official, involved in metro planning, explained that FIRR is the money that the operating agency will get from metro railway and if this amount is low, the project will not succeed. “In the Pune model, the state and the Centre are tapping various resources. The major economic activity in this project is the Floor Space Index (FSI) of four. This is going to change the face of the city. Non-fare revenue has been increased in the plan by commercial use of space and other avenues,” he said.

The DMRC has proposed four FSI on either side of metro corridors so that greater population densification through vertical development of residential and commercial properties can be achieved. Also, the mass transport project will be economically viable by generating the all-important funds, stated the DMRC report.

The Working Group on Urban Transport (WGUT) appointed by the Planning Commission has said that public-private partnership (PPP) in metro rail projects should be permitted “if a project is found to be fit and viable for this approach on account of ridership alone”. The view is likely to allow private players to play a major role in building metro projects in cities like Pune. The WGUT, among other things, stated that the PPP “should not be linked with providing land for property development beyond what is needed for the operation of rail transit.”