Greater Hyderabad has a metropolitan area of 6,852 km2 and a population of approximately 13.6 million in 2021.
Hyderabad has over 5 million personal vehicles, with 500,000 new vehicles being registered each year. Road congestion and pollution is a significant problem, with only 3.2 million of the approximately 8 million daily vehicle trips being taken on public transport.
Hyderabad's growing population and road congestion resulted in the Government of Andhra Pradesh pursuing Hyderabad Metro Rail which, in its first phase, is a 72 km network covering three high-density traffic corridors.
Hyderabad was the capital of the state of Andhra Pradesh at the time of project initiation, and on 2 June 2014 became the capital of the newly-formed state of Telangana. This generated a significant change in the economic and political outlook for Hyderabad, resulting in a material impact on the viability of the project.
Infrastructure facilities in India are under strain and require improvement and development to cope with increasing urbanisation.
Metro Rail Systems in India were relatively uncommon with government facing a big resource gap in delivering and financing such projects from public funds.
The project was developed as a Design Build Finance Operate Transfer (DBFOT) public-private partnership (PPP) with a five-year construction period, 30-year operation period, and a 25-year potential extension.
As part of the project agreement, the concessionaire had the right to develop 1.7 million m2 of land such as the airspace above metro stations and terminals as Transit Oriented Developments, integrating metro stations with intermodal transport connections and office, retail, and other services. In addition, 30% of the land at its three depots was allowed to be commercially developed.
The commercial developments under the agreement are only able to be used to generate rental revenue and are not to be sold. After studying commercially viable metro models in places such as Hong Kong and Tokyo, the Hyderabad model is based on 45% of the project’s revenues being generated through these development activities, 5% from advertising and miscellaneous sources (e.g. parking), with the balance through passenger fares.
A Viability Gap Funding (VGF) scheme was provided by the national and state governments, who were allowed to provide up to 30% of the total project cost as a capital grant under their policies. The VGF was provided at 10% of the original project cost. The Government of Andhra Pradesh took a minority equity stake in the Project.
Cost of INR16,375 crore (USD2.62 billion) financed with:
Viability gap grant – INR1,458 crore (USD201.4 million)
Debt funding was sourced from a syndicate of 10 local banks led by the State Bank of India, which was the largest disbursement for a non-power infrastructure PPP project. Soft loans from overseas agencies were ruled out due to limiting the project’s procurement options and restricting the range of potential bidders.
The Concession agreement specifies the performance standards that impact the rail users and focuses on the ‘what’ rather than the ‘how’, implying an output-based specification to allow the private sector to innovate. At the same time the agreement mandates a Manual of Specifications and Standards (MSS) that ensures that the asset complies with all requirements and provides the requisite assurance around its quality, reliability, and safety. The MSS was developed through local and international input to produce a balance between local requirements and overseas best practice, and was then reviewed by Delhi Metro Rail Corporation.
Government of Andhra Pradesh
State Bank of India – Lead arranger
Larsen & Toubro – Concessionaire.
4 September 2010 – Concession agreement signed
5 April 2011 – Financial close
November 2017 – Red / Blue line operation begins
February 2020 – Green line operation begins.
Results / impact
Hyderabad Metro was judged to be the Best Urban Mass Transit Project by the Indian Government in November 2018. The Project has also won numerous global and national awards including the Global Engineering Project of the Year in 2013 at the Global Infrastructure Forum.
The Hyderabad Metro Rail carried approximately 410,000 passengers per day in 2019, increasing to 475,000 per day by February 2020.
Depot and station designs have high aesthetic value reflecting local culture, functional layouts and energy efficiency. A balanced cantilever structural system was adopted for the stations consisting of a single row of central columns in the centre median. This has allowed a streamlined station box suited to the narrow streets of the city that does not obstruct surrounding properties.
The project has faced some challenges with the final cost experiencing an overrun of approximately INR3000 crore (USD412 million) due to land acquisition issues, with inter-jurisdictional departments and agencies contributing to long approvals.
Key lessons learnt
Using non-fare revenue sources from commercial development opportunities reduces reliance on public subsidies. This allows the private sector to benefit from the rental revenue and create activity centres around these transport hubs.
Viability gap funding can play a key role in helping make a project commercially viable while still transferring risk to the private sector. This includes the transfer of risk around the financing, construction and operating of the asset, in addition to the revenue risk from a fall in patronage.
This is an example of how output-based specifications can be paired with required operational and safety standards to allow innovation from the private sector concessionaire such as the design and on-going operations and maintenance.