Metro rail projects provide mass transportation at affordable fares, as well as decongesting vehicular traffic. As with other infrastructure plans, metro rail projects are capital intensive and involve risks such as political, regulatory and conflict over land acquisition. The legal framework of metro rail projects is governed mainly by the Metro Railways (Construction of Works) Act, 1978 (Construction Act) and the Metro Railways (Operation and Maintenance) Act, 2002 (O&M Act).
The government initiated the development of a model concession agreement (MCA) through the Planning Commission of India to promote public private partnerships (PPP) in metro railway construction and lessen its financial burden. The MCA requires the bidder to undertake construction and operation and maintenance (O&M) of the project with a right to collect user fares, which are disclosed at the bid stage. A bidder can project the revenue by means of the pre-determined and regulated user fare and is also entitled to viability gap funding (VGF), as an up-front capital grant to make the project viable.
Contracts for the Mumbai (Line 1) and Hyderabad metro rail projects were awarded by the respective state governments by way of PPP in 2007 and 2010 respectively, under the authority of the Indian Tramways Act, 1886 and the Andhra Pradesh Municipal Tramways (Construction, Operation and Maintenance) Act, 2008. The concession agreements for both projects provide for VGF and a predetermined user fee, a suitable escalation mechanism, technical specifications including testing methodologies and detailed rights and obligations of the parties.
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Akshay Malhotra is an associate partner and Ishita Gupta is an associate at HSA Advocates. HSA is a full-service firm with offices in New Delhi, Mumbai, Bengaluru and Kolkata.
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