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The Mumbai Project: Get your wallets out

Plans are afoot for better roads, faster rails and more water for the multi-billion-dollar makeover of a city poised to become the world’s largest urban area by 2031. Ketaki Ghoge reports. Talk to us...Check out the special on The Mumbai Project

india Updated: Dec 14, 2007 20:27 IST
Ketaki Ghoge

"It’s very normal to promote the role of the private sector since it can mobilise resources faster. It is more efficient at [managing] financial risk, but it cannot cover the whole gamut, and it should not, particularly in urban transport" - Hubert Nove Josserand, Senior urban transport specialist at the World Bank. He is supervising the Mumbai Urban Transport Project, partly funded by a loan from the international organisation.

In a staid office in the city’s software export zone in Andheri, five young professionals are finalising the code for a device that will help vehicle owners breeze through toll booths likely to become standard fixtures in our city over the next few years. State planners will first try out the technology — being developed by software firm Mastek — at the Mulund checkpost on the city’s eastern edge, one of five entry points to Mumbai.

Those who fit their cars with the device and fill it up with credit can go through special booths with sensors designed to deduct the toll in an instant. But very soon, state planners will bring this technology into the city. This means that Mumbaikars, who are not used to paying upfront for infrastructure but only indirectly through taxes, will daily have to reach into their wallets for using improved public facilities and services.

Many of the new infrastructure projects under the state government’s Rs 43,000 crore makeover plan — like the Bandra-Worli sealink — as well as existing facilities like the J.J. flyover are likely to have tolls. A lot of the new investment assumes the city’s economy will boom, and its more than 14 million residents will be able to contribute to the ambitious makeover.

“If you use better infrastructure, you will have to pay money,” said Sanjay Ubale, the state government’s secretary for special projects. “It’s a trend the world over. It’s better than charging an indirect levy or a tax [on the entire city].” Or in the words of Chief Minister Vilasrao Deshmukh: “Get used to the toll culture.”

A similar recovery model will be the backbone of another, even more ambitious infrastructure plan for the Mumbai Metropolitan Region (MMR), expected to cost $60 billion (Rs. 2.4 lakh crore). MMR includes Mumbai, Thane, Navi Mumbai, Kalyan-Dombivli, Ulhasnagar, Bhayandar, Bhiwandi and 13 small towns.

Car owners, for instance, are likely to partly finance this grand makeover, which will follow the public-private partnership or P-P-P model. These are projects in which the government teams up with one or more private companies to fund and operate a service. If the state government accepts the recommendations of Canada’s Lea Consultants, those who live in Mumbai’s environs, from Thane to Panvel, will have to pay a one-time cess on purchase of a new car or two-wheeler.

“Heavy investment in elevated roads and highways will never be enough,” Enrique Peñalosa, former mayor of the Columbian capital Bogotá, told HT. “There is a need to subsidise public transport and improve it by charging motorists. It’s not popular, but that’s the only long-term solution.”

Other cities in the world also get car owners to subsidise public infrastructure. London, for instance, has a congestion charge of £8 (Rs 640) for those who wish to drive into the city, a fee that its civic body uses not only to encourage the use of public transport, but also to subsidise enhancements in infrastructure. New York and Amsterdam are thinking of introducing a similar charge.

Model of the future

Infrastructure projects in the city are likely to increasingly follow the P-P-P model, so in a decade Mumbai’s residents will have to pay private companies for basic services from power to water supply as well as for public transport like the Metro.

In this model, a private company builds the facility and recovers its costs through user fees or tickets and by commercially exploiting the real estate on which the infrastructure project sits or through advertisements.

The state is relying on such private investments to fund over 40 per cent of the grand $60 billion (Rs. 2.4 lakh crore) plan for building the infrastructure in the city’s 4,355 sq km outback, the Mumbai Metropolitan Region.

“P-P-P is proving to be the easiest route to building infrastructure,” said Milind Mhaiskar, joint commissioner of the Mumbai Metropolitan Region Development Authority, the planning body for MMR.

All over the world, governments have realised they need to harness private capital for mega-projects. Since the late 1990s, private developers have financed and built infrastructure projects such as Bangkok’s skybus and Shanghai’s 30 km Maglev line — a high-speed railway service.
The private sector provided much of the investment for Hong Kong’s US $77 billion (Rs 3.08 lakh crore) infrastructure plan to build roads, railways and housing, begun in 2001.

In Mumbai, private and global firms have already thrown their hats in the ring. From the redevelopment of Dharavi to the construction of the metro and sealinks, we have serious bidders. It is likely to be the same for this $60 billion project.

Failed P-P-P projects

Yet experts strike a note of caution about relying solely on private investors. “It’s quite normal to promote the role of the private sector since it can mobilise resources faster,” said Hubert Nove Josserand, senior urban transport specialist with the World Bank, who is supervising the bank-aided Mumbai Urban Transport Project. “It is more efficient at [managing] financial risk, but it cannot cover the whole gamut and it should not, particularly in urban transport. There has been a track record of failed P-P-P projects.”

In Kuala Lumpur, the government had to bail out a mass rapid transit system because private operators could not recover their costs, resulting in a burden of $1.6 billion (Rs 6,400 crore) on taxpayers.

London’s Metronet Rail, a private consortium that had signed a 30-year contract to upgrade two-thirds of the city’s 144-year-old railroad, ran up extra costs to the tune of £2 billion (Rs 16,000 crore) after which banks stopped their loan payouts. In this case, the public-private partnership agreement transferred the project’s financial risk to the city-owned Transport for London, a move that can transfer the burden on taxpayers.

Already reeling under a debt of over Rs 1.34 lakh crore, our state government can hardly bear such losses. But right now, optimism rules. “In Mumbai, the ridership on the metro will be higher than say in Kuala Lumpur or Bangkok,” said Vishwas Udgirkar, executive director of Pricewaterhouse Coopers, who is on a central panel that advises state governments on P-P-P projects. “The project is unlikely to fail if there is transparent procurement of a private developer and a good project report.”

But state finance secretary Vidyadhar Kanade points to perhaps the most pertinent issue for Mumbai: “It’s not about the money. The city is getting funds from the Centre, investors and the World Bank. It’s about how fast the projects can be implemented.”

Alas, as HT’sMumbai Project series has shown, that’s where our policymakers have a lot of catching up to do.

Is this enough?

Problem 1: Can infrastructure match population growth?
Huge investments in infrastructure and public transport will serve no purpose if the city’s population continues to increase at the current rate. The billions spent in improving the city’s infrastructure will seem paltry. Improvements in transport and infrastructure should attempt to decongest the city and shift the density to the northern areas outside. For instance, enhancements in the transport system should make it easy for someone who lives in Kalyan, on the outskirts of Mumbai, to commute to the Bandra-Kurla Complex or even Nariman Point.

Problem 2: Lack of focus on rehabilitation and housing
The Mumbai makeover largely focuses on financing road and rail infrastructure. While visible improvements in the suburban rail system will win city planners brownie points, they also need to pay attention to increasing the housing stock and improving the power and water supply. Many of these projects can falter if the government does not have a swift and fair rehabilitation plan for those whom these projects will displace, including a large number of slumdwellers.

Problem 3: Deadline delays
Time is money. No amount of funding will help if the projects are not executed on time. For instance, delays have added a whopping Rs 656 crore to the cost of building the Bandra-Worli sealink.

Problem 4: All funds cannot be from the private sector
Private developers cannot finance everything. The state also needs to set aside money for infrastructure development. It can, for instance, plough money it raises through projects like increasing the floor space index in the Bandra-Kurla Complex, back into city infrastructure projects.

The buck stops here

Vilasrao Deshmukh, Chief Minister, Maharashtra

Why should citizens pay endlessly for infrastructure when they pay taxes? Aren’t you looking at other options to finance Mumbai’s global aspirations?
We are looking at another model of funding infrastructure — through infrastructure Transferred Development Rights. It means that a developer will be given development rights, like in housing projects, in exchange for building a bridge or a road. This will not burden citizens.

But citizens are already complaining about tolls for roads, highways and even bridges.
If a project is done on a build-operate-transfer basis, then there will be a toll. People have to accept the toll culture today. So far, there is no toll within the city. At the city entry points, there will be toll because that is how the 55 flyovers in the city were financed.

Do you think private investment in public infrastructure in Mumbai will be successful?
Such projects in countries like Malaysia and Thailand have failed financially. The number of commuters on Mumbai’s Metro will be very high unlike in these countries. I don’t think projects like the Metro will fail here. Our idea is to give as many options as possible to Mumbaikars. Let there be as many private players in infrastructure and public transport as in telecom.

Is the government seriously thinking of a congestion charge?
It’s an idea that we are considering. But we will have to go slow, since it is difficult to digest for many people. We will conduct a feasibility study, then seek public opinion before we go ahead.

Financing infrastructure: How to do it

Loans

This is the traditional way. The government takes loans from institutions like the World Bank or raises money through the financial market. Loans are more expensive because the state government has to pay them back in dollars through the central government. Money is recovered from citizens through a levy or cess, like the surcharge on fuel in Mumbai, which goes towards financing 55 flyovers. Citizens are also likely to pay toll charges at the city’s five entry points for this, till 2027.

Public-private partnership

Get private developers to finance, build and operate highways, the Metro, the airport. The developer will recover the investment by levying tolls and fees, exploiting the real estate at Metro stations or airports and through advertisements. The government pays a portion of the capital cost to make the project commercially viable. This is called viability gap funding. This model will be used for a large part of the city’s Rs 19,525 crore Metro project.

Leverage real estate

The state can finance an infrastructure project, like a new Metro line, by giving building rights at railway stations and along its route. Similarly, it can create a ‘land bank’ that it can later exploit along a new proposed highway, like Hong Kong did. It financed its Mass Rapid Transit System by giving long-term lease to developers, who were allowed to build shops and houses near the proposed stations.

Road-pricing

Charge motorists and overhaul infrastructure. Levy a premium fee for parking, increase the vehicle tax and annual fee, or charge during peak hours — both to decongest the city and to create an infrastructure fund. In Manchester, UK’s fast-growing services hub, local authorities hope to finance infrastructure to the tune of £3 billion (about Rs 24,000 crore) by charging motorists for driving on busy roads during peak hours. However, the authorities will first overhaul the public transport through a Transport Innovation Fund and then introduce the charge.

Development charges

Here, the government levies a one-time charge on property owners who will benefit from the new infrastructure. In Australia, civic bodies levy such charges to fund up to 70 per cent of capital costs on civic and transport projects.

Money Talk

* Rs 43,000 crore/US $ 10.75 billion is the investment in Mumbai’s ongoing infrastructure projects
* Rs 2.4 lakh crore/US $60 billion is the proposed plan for transformation of the Mumbai Metropolitan Region

Of this:

* Rs 2.02 lakh crore/US $49.99 billion will be used to improve transport
* Rs 40,000 crore/US $10 billion will be used to improve civic and business infrastructure

How it will change your life?

You will soon have to pay upfront for using new and upgraded infrastructure such as roads and bridges as well as for basic services like water supply, as the government ropes in the private sector to help it fund and build these mammoth projects. You are likely to see public services improving, but citizens must constantly pressure the state to monitor the performance of private operators.