Delhi Metro Rail Corporation: Is it a Success Story?

Group 9:

Shreyas Parvate 09P099

Ankit Nahata 09P186

Gaurav Agrawal 09P194

Rachna Sharma 09P220

Rasik Pandita 09P223

Benjamin Jothy

Joanna Polak

Andélis Grimmer

ContentsIntroduction...........................................................................................................................................2

Project details and progress..........................................................................................................2

DMRC Financials............................................................................................................................2

Economic Benefits.........................................................................................................................2

Funding and Investment........................................................................................................................2

Phase III.........................................................................................................................................2

Sources of Revenue:..........................................................................................................................2

Repayment Schedule:........................................................................................................................2

IPO Listing:.........................................................................................................................................2

The Bright Side: Happy Commuters.......................................................................................................2

The Other Side Of Success:....................................................................................................................2

Delay in completion.......................................................................................................................2

Ridership Conundrum....................................................................................................................2

Balance Sheet artificial Profits.......................................................................................................2

Property development...................................................................................................................2

Revenue Scandal............................................................................................................................2

Not for the working class...............................................................................................................2

Safety DGM Missing.......................................................................................................................2

Road Ahead for other Metro projects...................................................................................................2

References:............................................................................................................................................2

Introduction

Urban renewal is one of the flagship projects of the present government and the Metro has become the iconic face of the "world-class city". The concept of a metro rail for Delhi first emerged in 1969-70 but DMRC was set up only in 1995 and the first line of Delhi metro operationalised in 2002. The detailed project report (DPR) and feasibility study for the first phase of the project was prepared by Delhi-based Rail India Technical and Economic Services (RITES).

The implementation of the Delhi metro project is planned in four phases covering a total of 413.83 km. About 73 per cent of the line length is elevated under Phases I and II. The entire project is expected to be completed by 2021.

Phase I and Phase II cost details:

Phase CostDelhi MRTS Project Phase I 10571 crore

Delhi MRTS Project Phase II Rs.8676 crore

Extension of Delhi Metro Phase-II to Gurgaon 1600.92 crore

Extension of Delhi Metro Phase-II To NOIDA 736 crore

Central Secretariat – Badarpur 4012 crore

New Delhi Railway Station to IGI Airport 3076 crore

Details of the Delhi Metro Network (as on March 31, 2010)

PhaseNo. of lines

Length (km)Elevated length (km)

Underground section (km)

At grade length (km)

No. of stations

Phase I 3 65.10 47.43 13.17 4.50 59

Phase II 15 128.06 94.13 29.83 4.10 81

Phase III 11 112.17 NA NA NA NA

Phase IV 8 108.50 NA NA NA NA

Total 413.83

Source: Delhi Metro Rail Corporation

Delhi, the national capital with the population growing over 12 million was the city

which depended on buses for public transport. Delhi had more registered vehicle than the total

number of vehicles in Mumbai, Calcutta and Chennai put together. More than half the vehicles were

two wheelers. The result of extreme congestion on the road together with ever slowing speeds,

increasing accident rate, fuel wastage and environmental pollution has led to Delhi being the fourth

most polluted city in the world, with automobiles contributing more than two thirds of the total

atmospheric pollution. Pollution related health problems are reaching disconcerting levels. With a

view to reducing the problems of Delhi’s commuter, the launching of an Integrated Multi Mode

Mass Rapid Transport System for Delhi had long been under consideration. The first concrete step in

this direction was, however, taken when a feasibility study for developing such a multi-modal MRTS

system was commissioned by GNCTD (with support from GOI) in 1989 and completed by RITES in

1991. It is recommended a 198.5 km predominantly rail based network, with first phase to cover a

length of 55.3 km, report was completed by RITES during 1995.

The present proposal of modified first phase of the Delhi MRTS project approved by the

Union Cabinet will cost approximately Rs. 4860 crores (at April, 1996 prices) and will comprise a

network of 11 km to underground (METRO) corridor along with 44.30 km of elevated / surface (RAIL)

corridors. It will have 45 station in all. The project will require the acquisition of about 340 ha of

land, of which about 58% is government land, 39% is private agricultural land and 3% is private

urban land. The project is been implemented through a joint venture company (viz., Delhi Metro Rail

Corporation Ltd.) set up on 50:50 partnership basis by GOI and GNCTD in May, 1995 and will be

completed within 10 years.

Project details and progress

Physical construction work on the Delhi metro started on October 1, 1998. The first line (Shahdara-

Tis Hazari) opened on December 24, 2002. The entire Phase I of the project was completed in

November 2006, on budget and almost three years ahead of schedule, making Delhi metro one of

the fastest metro constructions achieved worldwide.Works under Phase II, which started in January

2007, have been completed as on Oct 2010.

A key project currently under implementation is the 23 km airport express link, which

will connect the city with the airport and pass through six stops. This project is being jointly

developed by India-based Reliance Infrastructure (RInfra) and Spain-based Construcciones y Auxiliar

de Ferrocarriles (CAF), on a public-private partnership basis. DMRC has modified the development

model for this project. DMRC is responsible for the civil works of the project, which are almost 90

per cent complete as of April 2010. The private joint venture is responsible for financing, designing,

developing and operating the high-speed metro system. Delhi Airport Metro Express (DAME), a

Special Purpose Vehicle (SPV), was set up to develop the project. The airport line will be developed

and run by DAME for 30 years. The consortium has also invested in the procurement of rolling stock,

signalling and telecommunication equipment and other operational components. People will have

the choice of checking in their baggage at metro stations, which will double up as city airport

terminals for this line.

After the completion of Phase II, work on Phase III will be taken up. The corridor-wise plan is ready

and a financial strategy for the phase has been proposed. Upon approval of the corridors by the

state government, the detailed project reports will be prepared.

Rolling stock and technology

Delhi metro trains run on ballast-less tracks on the elevated viaduct and the underground corridor.

This has resulted in minimum need for maintenance and has reduced the running dimensions on

structures. This feature also offers minimal vibration and greater riding comfort for passengers.

World-class tunnel boring machines imported from Japan, Germany and the US are being used in

Phase II.Around 70 trains operate on the three lines of Phase I. The coaches for the first phase were

provided by Korea-based Hyundai Rotem, Japan-based Mitsubishi and India-based Bharat Earth

Movers Limited (BEML). The first 60 coaches were made in Korea and then the technology was

transferred to India. Thereafter, 180 coaches were made in BEML’s plant in Bangalore. For the Phase

II network, Delhi Metro has ordered 131 new train-sets with several new features for passenger

convenience and better level of comfort. Of these, 83 are broad gauge and 48 are standard gauge.

DMRC Financials

DMRC recorded a total income of INR7.24 billion in the financial year 2008-09, inclusive of income

from operations, real estate, consultancy, and other income. It registered an increase of 43.51 per

cent over the total income of INR5.04 billion recorded in 2007-08. The company recorded a net

profit of INR413.2 million, as against a net loss of INR482.59 million in 2007-08.The company’s total

expenditure stood at INR2.62 billion, an increase of 24.47 per cent over the year 2007-08 when it

recorded a total expenditure of INR2.11 billion.

Economic Benefits

The Delhi MRTS is essentially a "social" sector project, whose benefits will pervade wide sections of

economy. The modified first phase will generate substantial benefits to the economy by the way of:

Time saving for commuters

Reliable and safe journey

Reduction in atmospheric pollution

Reduction in accident

Reduced fuel consumption

Reduced vehicle operating costs

Increase in the average speed of road vehicles

Improvement in the quality of life

More attractive city for economic investment and growth

Economic IRR of the project works out to 21.4%, even though the financial IRR is less than 3%

Funding and Investment

The SPV, DMRC, was set up with equal equity participation from the union and the Delhi

governments. Phase I of the project was developed at a total investment of INR105.71 billion. Of

this, the Japan International Cooperation Agency (JICA) extended the maximum amount in six

tranches, with the first one in 1997. The loan carried rate of interest for this project is 1.2 per cent

per annum. The loan has a repayment period of 30 years with a moratorium period of 10 years.

DMRC is a company registered under the company’s act 1956 with 50:50 equity participation from

the Government of India and GNCTD. MRT fares could not be fixed purely on the basis of commercial

principles, without drastic decrease in ridership and defeating the very object of setting up such

mass transit system. Hence, the city dwellers must necessarily supplement the contributions to be

made by the system users to meet the costs of setting up. as well as running the system. Delhi being

national capital and international city, the GOI and GNCTD must also contribute to meet part of

these costs. As urban MRT projects are mean to provide a safe, speedy and affordable mode of

travel to the commuters, they have not generally been found to be financially viable in the most

cities of the world, despite their large economic benefits. It has accordingly been decided that the

project will be financed by way of equity contributions from the GOI / GNCTD, soft loan from the

OECF (Japan), property development revenue and certain decided levies / taxes on the city dwellers.

The loan will rapid partly from surpluses from the box revenue, partly through dedicated levies /

taxes in the NCT.

The financial plan of the project has been approved by the GNCTD and GIO on 24.7.1996

and 17.9.19996 respectively.

Source of Fund Percentageof Total Cost

1. Euity contribution from GOI& GNCTD 15% each

2. OECF (Japan) Loan Approx. 56%

3. Revenue from Property Development Approx. 6%

4. Subordinate Debt towards Cost and Land Approx. 8%

The above financial plan is based on :

Debt Equity ratio 2:1

Fare: Base rate rs. 5.00 (at April, 1995 prices) per passenger trip of 7.12 km.

The union and the state governments jointly financed 28 per cent of the project cost through equity

contributions in addition to providing a subordinate loan to cover the cost of land acquisition, which

has a share of 5 per cent. The balance 7 per cent funds were internally generated through property

development.

Funding Plan of Phase I

Source: Delhi Metro Rail Corporation

Funding of the Phase I:

Financing Pattern as approved by the GoM on 16.12.2002 is:-

Government Equity(from GoI & GNCTD in equal proportion) Rs.2928 (28%)

Subordinate debt towards cost of land(from GOI & GNCTD in

equal proportion)

Rs.504 crore ( 5% )

Japanese Bank for International Cooperation (JBIC) loan Rs.6839 crore

(64%)

Proceeds from property development Rs.300 crore (3%)

Total Rs. 10571 crore

Funds released by Ministry of Urban Development

(Rs. in crore)

9th Plan 1997 to 2002 10th Plan2002 to 2007

Particulars Phase I Phase I

Equity 565.00 846.20

S. Debt* 199.00 53.00

PTA** 879.35 5477.10

Total 1643.35 6376.30

*Subordinate Debt for land acquisition.

**Pass Through Assistance against JBIC loan.

Phase II is estimated to cost INR190 billion. Of this, 36 per cent is being financed through equity

participation. The initial plan was to finance 48 per cent of the project cost by way of a loan from

JICA. However, JICA reduced its earlier commitment in January 2010 to only 30 per cent. The 18 per

cent will not fall under the union and state government’s share.

Financing Plans :

Particulars of

investment

Percentage Amount of

investment

Remarks

Equity 30 2435 To be shared equally by GoI

and GNCTD

Loan from JBIC 56 5081

Property Development 5 405

Internal resources 5 405

Sub-Ordinate Debt 4 350 To be shared equally by GoI

and GNCTD

Total 100 8676

Capital Cost :

The original completion cost of the project was estimated at Rs.8118 crore. The revised alignment

from Green Park to Ambedkar Colony will involve additional cost of Rs.558 crore. Thus revised

completion cost is estimated at Rs.8676 crore (including land cost, but excluding interest during

construction). The remaining amount is being funded from property development, internal

resources, and subordinate debt. The economic internal rate of return for this phase is estimated at

23.63 per cent and the financial internal rate of return at 8.18 per cent.

The INR28.85 billion airport express line under this phase has been funded on a debt-equity ratio of

70:30. While RInfra holds 95 per cent equity, the Spanish partner holds the remaining. However, the

SPV had raised a debt of INR25 billion in March 2009 at an interest rate of 13 per cent, against the

requirement of INR20 billion.

Phase III

Delhi will have to wait a little before work on the third phase starts. While the railways ministry had

forwarded its comments, the state government is yet to approve the proposed blueprint for Phase III

of the project. Government officials told Business Standard that funding the 69.75 kilometers

corridor under Phase-III is a cause for concern as DMRC had exhaustively tapped into resources lent

by multilateral agencies. Japan International Co operation Agency has already given a soft loan of

INR 16,121 crore for the completion of Phase I and II of the metro projects in Delhi. JICA had given

INR 6,434 crore out of the INR 10,571 crore for constructing a 65 kilometer stretch of Phase II. Nearly

49% of the resources required for developing Phase II of the Delhi Metro at INR 9,687 crore have

also been funded by JICA. The total cost of developing Phase II is projected to be around INR 20,000

crore. According to a draft feasibility report prepared last year, Phase III would cost over INR 11,000

crore.

With DMRC exhausting the multilateral funding route, the ministry of urban

development had earlier proposed that the corporation can look at raising resources from an issue

of tax free bonds. Financing strategies like an Initial Public Offering or setting up of a Dedicated Mass

Transit Fund were also considered at the time, based on a study by project management firm

Feedback Ventures in late 2008

Sources of Revenue:In six years of operations, DMRC has earned over Rs 600 crore from realty development. In 2006-07,

DMRC generated Rs 542.78 crore in revenue. It earned Rs 222.66 crore from operations, Rs 6.6 crore

from consultancy and Rs 61.71 crore from other income. But the highest revenue came

from real estate--Rs 251.81 crore.

PROPERTY DEVELOPMENT

Commercialization of land has been aided by the declaration of the Union urban

development ministry that a 500 metre belt on either side of the Metro line is a "development

corridor". Based on this convenient change of land use, DMRC has already awarded nine properties

to concessionaires for commercial development, leased out four more for residential development,

and is further developing three more on its own. Contracts have been tendered for commercial

development and construction of hotels.

While sanctioning Delhi MRTS Phase-I project in 1996, the Union Cabinet had mandated that

approximately 7% of the initial project cost should be generated through property development on

lands transferred to DMRC for the project. In addition recurring income should be generated

through property development for paying back subordinate debts etc. in future years. Most of the

land was to be made available to DMRC on 99 years lease at nominal rent at interdepartmental

transfer rates.

For the same purpose DMRC set up a Property Development Wing in1999, for implementation of

this scheme. Planning of property development work was taken up under the different types of

arrangements noted below:

6 - 12 yr license for spaces within station buildings for commuter related vendors such as

ATMs, Kiosks for refreshments, magazines etc.

30 yr Concession for commercial developments on vacant land pockets adjacent to MRTS

stations.

Long-term lease (50-90 yrs) on land pockets, in depots, etc, not immediately needed for

operational structures.

Advertisement through agencies.

o Within station premises

o On DMRC structures between stations

CONSULTANCY: OTHER METRO PROJECTS

In addition, DMRC is engaged in revenue generation through 28 consultancies for designing similar

Metro lines in other cities all over India, but the minister is unable (or unwilling) to address the issue

of how the cumulative deficits are going to be accounted for.

However, this kind of commercialization will definitely lead to another kind of "success". DMRC has

won accolades among its users and other nations and is considered as the only profit making metro

in the world. This has earned it huge consultancy projects both within and outside the country. Delhi

Metro Rail Corporation (DMRC) has won a contract as the sole consultant for the metro rail network

to be set up in Karachi, Pakistan’s biggest city. The corporation has already provided some

consultancy to the Lahore metro project. Recently, it completed the operational consultancy report

for the Jakarta Metro, and has received similar requests from countries like Sri Lanka, Syria, Ireland

and Vietnam. Among several domestic metro projects, DMRC has agreed to construct the Kochi

Metro after receiving request from the Kerala government. This apart, it has been acting as the

consultant for the metro services planned in Hyderabad, Bangalore, Chennai and Pune, among

others.

ENVIRONMENT: CARBON CREDIT TRADING

The Delhi metro project is the first railway project in the world to be registered for

carbon credits by the United Nations, has been certified to have prevented over 90,000 tonnes of

carbon dioxide from being released into the atmosphere by reducing its power requirement by

adoption of regenerative braking system in Delhi metro trains, thus contributing to environmental

welfare. It is estimated DMRC prevented 39,000 tonnes of CO2 to be emitted in the atmosphere in

2008 and this figure will reach 100,000 tonnes once Phase II will be completed. The sale of carbon

credits in the carbon credit market will be used to offset the expenses.

Repayment Schedule:

DMRC started paying back the loan for Phase – I (1st tranche) and the interest amount in the year

2007. The total loan paid back for Phase – I is Rs 95.83 crores and the interest on the loan amount

for both Phase – I & II has been paid back to the tune of Rs 471.73 crores.The loan payback period

for both Phase – I & II is 30 years with a moratorium of 10 years. Hence, DMRC can pay back the

loan for Phase – I by 2035 and for Phase – II by 2040.

After completion of Phase – I & II, Delhi Metro will have a total network of over 190 kms covering

the Delhi and National Capital Region (NCR) regions. Phase – II is also crucial to the city of Delhi from

the point of view of the Commonwealth Games because the Metro link will be connecting 10 out of

a total of 11 Commonwealth Games venues. JICA had sanctioned a loan of Rs 6,434.06 crore for

Delhi Metro’s Phase – I project on an annual interest of 1.30%-2.30%. The loan was received by

DMRC in a total of 6 tranches. Phase – I comprised of 65 kms and was completed in 2002 with a total

completion cost of Rs 10,571 crores, out of which 60% was financed by JICA.

According to the release, the total cost for Phase – II is approximately Rs 20,000 crores and

JICA is financing 49.19% of this project. For DMRC’s Phase – II, JICA has sanctioned a loan amount of

Rs 9686.69 crores to be paid in five tranches on an annual interest of 1.20%-1.40%. Till date, four

tranches have been paid to DMRC. Phase- II comprises 124.61 kms and will be completed by

September 2010 before the Commonwealth Games that Delhi will host from October 3-14. The first

tranche for Phase – I and Phase – II was received by DMRC in 1998 and 2006, respectively. The last

tranche for Phase – I was received in 2005. The fourth tranche of Phase – II was received in 2009

while the final (5th) tranche will be received in 2010. Overall, JICA has paid over Rs 16,000 crores to

DMRC for both Phase – I and Phase – II projects.

IPO Listing:

The Delhi Metro Rail Corporation (DMRC) is aiming for a market listing, which would help it raise

funds for expansion. Managing director E Sreedharan confirmed that the corporation which created

the only profitable metro system in the world could go for an IPO in a year. DMRC has revenues

around Rs 724 crore and a profit of Rs 90 crore. However, Sreedharan said most of the operational

profit is now used to repay the loan taken from Japan International Cooperation Agency (JICA) for

building the project, leaving little for investment. Thirty percent of the total investment for Phases I

and II has been raised through equity capital with the central and state governments contributing

equal shares, while most of the debt has been sourced as from a clutch of Japanese agencies. To

broadbase its revenue stream, the DMRC is also bidding for metro projects in other Indian cities. As

of August 7, 2010, Delhi Metro has paid back Rs 567.63 crore to JICA.

The Bright Side: Happy Commuters

In the seven years since its inauguration, the metro has carried over one billion passengers. On

opening, about 35,000 passengers were using the line daily. With addition of lines, there has been a

constant upswing in ridership. Presently, about 0.85 million passengers use the metro per day.

Citizens of Delhi are deriving various indirect benefits from the Delhi metro. A recent study

conducted to assess these indirect benefits has revealed that Delhi metro has prevented 28,800

tonnes of carbon dioxide from being emitted into the atmosphere every year. For Phase II, DMRC

has estimated that about 610 buses will be removed, resulting in a saving of INR890 million towards

capital and operating costs. Further, savings of about INR3.24 billion will take place due to a

reduction of private vehicles, INR3.66 billion due to a reduction in fuel consumption, and INR1.65

billion due to a reduction in investment in road infrastructure.

The Delhi metro is also the first railway project in the world to be registered for carbon credits by

the United Nations. It has been certified to prevent release of over 90,000 tonnes of carbon dioxide

by use of regenerative braking systems in trains. It is estimated that in 2008, release of 39,000

tonnes of carbon dioxide were prevented and this figure is expected to increase to over 100,000

tonnes per year when Phase II of the metro project is fully operational.

To improve connectivity, DMRC has introduced 120 feeder buses. It has also placed an order to

purchase 300 air-conditioned compressed natural gas buses to act as feeder buses. In addition to

feeder buses, it has also started a radio taxi service for Delhi metro commuters in association with a

taxi service agency.

DMRC has gained recognition with time. Today, it has not only triggered metro projects in other

cities but is also acting as a consultant for majority of the projects coming up in India. Whether these

projects will replicate Delhi metro’s success will only be seen with time.

The Other Side Of Success:

Is DMRC really a profit making unit?

Implicit Cost

In 2006-07, DMRC had a total loan base of Rs.6648 crores, on which the average interest rate was

1.44 per cent and equity of Rs.3702 crores, which had earned no dividend so far and looks unlikely to

ever earn one. If we assume a market interest rate of even 12 per cent and the same return for

equity (though equity returns are usually much higher), this means that DMRC is getting an annual

subsidy of more than Rs.1000 crores. Nearly 90 per cent of the loan is a concessional one from the

JBIC of Japan, but the exchange rate risk (which is significant in a project of such a long gestation) is

borne by the Government of India.

DMRC never paid any excise/customs/sales taxes on capital equipment either - assume this to be a

conservative 20 per cent and that's a one-time saving of another Rs.2000 crores, or another Rs.240

crores per year subsidy assuming the same 12 per cent interest rate. It also gets electricity at half the

commercial rate, a saving of another Rs.25 crores per year. All this, by the way, when DMRC's annual

revenues are just Rs.543 crores, of which Rs.252 crores is from real estate transactions. Delhi Metro

itself got a huge amount of land - the 2006-07 annual report talks of 960 acres of land in just one

place. Delhi Metro's also transferring the leases of chunks of land for as many as 90 years - this is

tantamount to selling government land.

Delay in completion

Phase I of the Metro with three lines was initiated in 1995-1996, to be completed in 10 years. When

Phase I was completed in November 2006, DMRC claimed that it was "three years ahead of

schedule" (based on a presumed starting date of 1998), although the recent audit by the

Comptroller and Auditor General (CAG) of India indicates that there was a delay of 6, 15, and 14

months respectively for Lines 1, 2, and 3.

Ridership Conundrum

In the original 'Project Report' for the Metro of 1995, the number of passenger trips per day was

stipulated as 31.85 lakh. This was scaled down arbitrarily to 22.6 lakh in 2003. Now the CAG reveals

that it has never increased beyond 6.62 lakh, that too in 2007 - one year after completion of Phase I.

Unfortunately, the general public has no way of checking out the official assertions because the page

of the DMRC website relating to ridership figures has been "under construction" for the past two

years.

Balance Sheet artificial ProfitsThis "successful" performance at the level of 29 per cent of target has been reflected in the balance

sheets of DMRC. In 2002-2003, DMRC incurred a loss of Rs 8.3 crore. The next year this climbed to Rs

32.4 crore, and in 2004-2005, the loss was Rs 76.3 crore. After that DMRC has been claiming that it

makes "operational profits" but, not surprisingly, the balance sheets have disappeared from the

public domain. DMRC acknowledges that "we have not built enough feeder channels so that more

people could travel in the Metro". DMRC has in an effort to 'persuade' commuters to abandon the

cheaper bus system for the swanky Metro, 15 routes of the DTC with 58 buses plying along the

Metro corridor, and three routes of the STA with 106 buses, had been curtailed or diverted by 2006..

The financial performance of DMRC actually disguises a couple of interesting features of its

functioning - contracting out and commercialization of property. Thus, during Phase I, the CAG

report reveals that 100 contracts for Rs 8,900 crore were given out, while in the first six months of

2009 (with Phase II in full swing over twice the distance) DMRC has already announced tenders for

110 contracts. These cover a range of activities from construction to structural work, maintenance,

servicing, electrical and mechanical installation and repair, architectural finishing, fire-fighting, cash

collection, road surfacing, and signage.

Property development

Property prices along the Metro are already beginning to boom as witnessed, for instance, in Dwarka

near the international airport in Delhi. Further densification is taking place as more high rises come

up on this valuable real estate, such as in Civil Lines, South Delhi, and the flood plain of the Yamuna.

This upward growth also increases the demand for services such as energy, water, sanitation and

amenities of health and education - all at significantly higher prices as most of these are privatised.

In other words, the geographical space next to the Metro lines is taking on a more exclusive

character as now only the affluent can afford to live and work there.

Revenue Scandal

DMRC can raise 6% of the estimated project cost, over and above the equity and debt finance,

through property development, like leasing of shops and restaurants within station buildings and by

letting out land for residential and commercial uses to private developers. But the CAG in its audit

found that although the company acquired 32.38 lakh square metres (sqm) of land for phase I of the

metro project, but it failed to keep an account of land used for the project and property

development. More importantly, the CAG noted, “In nine locations, it was observed that total land

acquired was 6.42 lakh sqm, which was in excess of the project requirement by 14% to 354%.”

Under its financing plan, the metro rail corporation can retain Rs 300 crore of the revenue generated

from property development, but it had to transfer any surplus amount to the Consolidated Fund of

India or reduce it from the budgetary support approved as equity of the project. The CAG in its

report noted, “As the company has realised revenue of Rs 631.71 crore up to March 31 2008 from

property development for Phase I, the surplus revenue should flow back to the Consolidated Fund of

India.”

Not for the working class

What is not commonly known in this context is that Metro alignments in Phase I have been changed

from the originally proposed ones. Line 1, planned from Delhi University to Central Secretariat

through Civil Lines, is the only one to retain its original route. Line 2 was supposed to go from

Shahdara to Subzi Mandi and then bifurcate into two lines to Holambi Kalan and Nangloi, all

essentially working class areas. But the former now abruptly terminates at Rithala, while the latter

has been abandoned completely. Instead, a totally unplanned Line 3 has come up in the upper

middle class region from Indraprastha to Dwarka, while almost 700 poor families have been evicted

to make way for the gleaming trains.

Safety DGM MissingThe CAG report notes that DMRC violates standard procedures of quality control by scaling down of

testing requirements, non-witnessing of tests by the company's representatives, non-preservation of

test reports, non-submission of testing procedure plans by contractors, and testing in non-credited

laboratories. But what the Auditor General does not record is the supervisory structure of DMRC.

Thus, it was only in December 2008 that DMRC advertised for three posts of 'DGM, Safety'. Since

data is not publicly available of how many workers DMRC employs or how many safety supervisors

are there, it is only pertinent to note that this works out to only one DMRC safety manager for about

60 km of track.

 

 

Road Ahead for other Metro projectsPPP Vs EPC

Although the public-private partnership (PPP) model is slowly making an appearance, the

engineering-procurement-construction (EPC) contract route is currently most preferred for

implementing metro rail projects.

Delhi Metro: DMRC project was executed purely through EPC contracts with the entire financing

shared by the state and Central governments. The Delhi Metro rail project that has predominantly

used EPC contracts is considering using the PPP mode for the fully-underground link between New

Delhi station and the Indira Gandhi International Airport, with an onward link to Dwarka (Sector 21).

This line is part of the under-construction phase-II which is being executed through the EPC route

like phase-I. Even here, the EPC mode will be used for construction of the tunnel (of around 22 km)

but private sector participation will be sought only for running the metro train service on this route.

Private sector involvement would not have been viable given the high construction cost associated

with the underground tunnel construction.

Hyderabad Metro: As far as HMRL is concerned, the Andhra Pradesh government opted for the PPP

model. It awarded the project to Nava Bharat Consortium last month. As a sweetener, it also gave

the concessionaire rights to develop a part of the 269-acre land used to operate the metro rail. The

71-km Hyderabad metro is estimated to cost Rs 12,132 crore. None of the four consortia that

eventually submitted financial bids wanted viability gap funding as they felt real estate development

would be a sufficient revenue stream. The Nava Bharat Consortium—comprising of Nava Bharat

Ventures Ltd, Maytas Infrastructure Ltd, Italian-Thai Development Plc and Infrastructure Leasing

& Financial Services Ltd (IL&FS)—will undertake the project on design-build-finance-operate-transfer

basis. The consortium has actually offered to pay the state Rs 30,311 crore during the 35-year

concession period

Mumbai Metro rail project (phase-I) is India's first metro rail project under PPP mode to have taken

off. Phase-I has three lines out of which Line 1 (Versova-Andheri-Ghatkopar) has been already

awarded to a private consortium led by Reliance Energy. For Line 2 (Charkop-Bandra-Mankhurd),

private developers will be finalised by March 2008. Both these lines are elevated and therefore

private sector participation was seen forthcoming. However for Line 3 (Colaba-Bandra), which is fully

underground, the project nodal agency, Mumbai Metropolitan Region Development Authority, has

almost finalised the EPC route as opposed to the PPP mode. Reason: The construction cost

estimated at Rs 9,000 crore is too prohibitive to entice private equity capital. MMRDA already has

the in-principle approval of Japan Bank for International Cooperation which has agreed to part-

finance Line 3.

Why PPP is difficult?

Metro rail projects have high construction costs and this is the main reason why the EPC contract

route is adopted. Expecting private sector equity participation becomes difficult as the internal rate

of return (IRR), the principal determinant for a PPP project to be viable, is very unattractive. For

metro rail projects, construction cost varies significantly depending on whether the route is

underground or elevated. For a frame of reference, the capital cost for an elevated metro rail is

estimated at Rs 200 crore per km, but that for an underground route, could be thrice as much,

around Rs 650 crore per km. Assuming all else is equal, the selection of EPC or PPP mode is therefore

determined by the extent of underground coverage in the given metro rail project.

What is also interesting to note is that implementing agencies are now even looking at hybrid modes

of implementation where a mix of EPC and PPP modes are being considered. Metro projects are not

financially viable and so realty development helps cross-subsidise losses to the private bidder

The differences centre on whether or not private players roped in for metro projects should be

allowed to develop real estate along metro lines to help pay for the overall project and keep

passenger costs low. Though all concerned, including the finance ministry, agree that the ultimate

decision lies in the hands of the respective state governments, the urban development ministry

seems to favour a Centre-state partnership as that would ensure better service quality. It also feels

that lack of resources should not be the only consideration.

While Delhi, Bangalore and Kolkata are being taken up on a joint-ownership pattern with the Centre

and concerned state as project promoters, the metro projects in Mumbai and Hyderabad have been

taken up on a PPP basis. Chennai is also hoping to go the DMRC way. But the Planning Commission is

pushing to award the project to a private bidder and is making a similar case for Kochi.

Planning Commission’s View:

The Centre and states should not get into the running of metro rail projects because they will not be

able to handle the liabilities. However, the metro being an urban amenity, the Centre should extend

some funds through the viability gap funding route

References:

1. http://www.urbanindia.nic.in/programme/ut/Delhi_MRTS.pdf 2. Comptroller and Auditor General of India 3. DMRC website4. http://www.projectsmonitor.com/detailnews.asp?newsid=14944