The Rs 16,375-crore Hyderabad metro rail project will be a test case for a metro project implemented under the public-private-partnership (PPP) model.
There are more than 200 metro projects operating in the world and not one is completely self-supporting. All of them require some sort of Government support.
The work on the Hyderabad project, which seeks to create an elevated metro rail network along 72 km across three dense corridors, has commenced.
The concessionaire L&T has recently finalised supply of rail coaches by awarding a Rs 1,800-crore contract to a consortium of Hyundai Rotem. The project will have loan component of Rs 11,478 crore, equity of Rs 3,439 crore and a viability gap fund of Rs 1,458 crore.
There has been considerable debate about the viability of metro projects in the PPP mode. The country’s most respected engineer, and one who is considered as the metro man for the wonderful work he has done in executing Konkan Railways and Delhi Metro, E. Sreedharan, feels that most of the metros globally are State-funded and require concessions to make the project viable.
Private vs State debate
However, the country’s largest construction company, L&T, too has done its math. It has bagged the project amidst stiff competition seeking least viability gap funding of Rs 1,458 crore. One of the important aspects of the Hyderabad metro project is the concurrent development of land and its use for commercial purposes.
During a recent interaction at the Centre for Organisational Development, Sreedharan said most metros do not make money as a lot of public interest is involved in running them. However, in the case of Hyderabad you have a reputed developer. That is a big plus point. However, the project will need to make use of the land parcel to add to the revenues.
According to V.B.Gadgil, Chief Executive Officer (CEO) and Managing Director (MD) of Hyderabad Metro Rail, the project, besides attracting private capital in a public infrastructure project of large dimension, would help in improving the public transport in one of the fastest growing cities of the country.
The L&T management describes the project as transformational. It is transformational not just because it will change the way a big chunk of city commuters will travel every day, but it has potential to realign the city life along the metro corridors. The project seeks to decongest three dense corridors.
Thus far L&T has inducted consultants for the project, which is likely to see overall investments of about Rs 20,000 crore or close to $4 billion.
French connection
French firm Keolis has been chosen as the operations and maintenance company. It has been engaged in the project well ahead in time to work closely with the developers. Aecom-Feedback Ventures consortium has been chosen as concessionaire’s engineer, Parsons Brinkerhoff as programme manager, L&T Ramboll as traffic consultant and Halcrow as independent safety assessor.
The detailed station depot architecture is being worked out through partners, with L&T Construction serving as a general contractor. It is engaged in execution of several metros in the country now. But this is the first project as a concessionaire.
Normally most large contracts awarded get into some sort of litigation. But when L&T was chosen, everyone welcomed it.
Picking up speed
The Hyderabad metro project implementation has been delayed as the first contract awarded to the Maytas Infra consortium in 2008 was cancelled. In the fresh bidding process, L&T bagged the deal.
While the backend work is underway from the past more than a year, the work on the project site both for pillar construction and casting yards has gathered pace in the last few months.
While it is indicated that the project will be completed within five years, given the track record of L&T and its execution capabilities and the right of way provided by the State, it is likely that the project will be completed ahead of schedule.
Sreedharan had an interesting advice for metro rail developers. He believes that for every day saved, metro project cost will be lowered by about Rs 2 crore. And for every day’s delay, Rs 2 crore is lost. Therefore, developers are incentivised to close projects ahead of schedule.
The Hyderabad project achieved financial closure in record six months despite a tough business environment. A consortium of 10 banks, led by the State Bank of India, sanctioned the entire debt requirement for the project. The equity component of the project will be infused by the L&T group. The project has a viability gap fund support from the Centre and the State.
The State Government has provided 269 acres of land, which includes space for two major terminal points and depots. It has also decided to pitch in with about Rs 2,000 crore for related infrastructure.
As per plans, the metro project will include around 18.5 million sq ft of transit-oriented development. As per projections, the project is expected to trigger robust economic activity.
The L&T management pumped in more than Rs 500 crore from its own resources and cash accruals without accessing bank loans. Earlier during the quarter, the company declared the appointed date. That is when the clock ticks for the project in accessing loans.
Major hurdles
The metro project still has to cross some hurdles with regard to acquisition of commercial properties along some of the bottlenecks.
While the State Government has earmarked financial compensation, some traders are opposing the move. Negotiations are still underway and the matter is being looked into by the State High Court.
According to N.V.S. Reddy, Managing Director of Hyderabad metro rail project, the process of negotiations is underway. “We hope to settle the issue with owners amicably by awarding them adequate compensation. We are also developing complexes in some select locations to help them relocate,” he recently told Business Line .
In the course of development, scores of trees were chopped and few hundreds of them translocated by engaging experts. Now it has also taken up massive tree plantation drive by engaging colleges and students.
For a rapidly growing city, such as Hyderabad, a metro project will have a major bearing on the way people commute.
If the Delhi metro is anything to go by, it also saves anywhere between 30 minutes to one hour for commuters.
The metro developer is seeking to create interconnectivity between various modes of transportation. It is also proposed to create pathways for bicycles near stations.