Delhi Airport Metro Line debacle: The way forward

Mamuni Das Updated - July 29, 2013 at 05:32 PM.

DMRC, which has taken over operations of the Delhi Airport Express Line, should coordinate with Delhi International Airport and airlines, to ensure the line functions as a proper connection to the airport, with check-in facilities.

The story of the 22.7 km Delhi airport metro line, a project which Reliance Infrastructure’s subsidiary Delhi Airport Metro Express Private Ltd (DAMEPL) washed its hands off a month ago with great difficulty, seems to be like that of an unwanted child.

Both the parents — the Delhi Metro Rail Corporation (DMRC), which built the civil structure and spent over half of the Rs 5,700-crore project cost and DAMEPL, which had brought in the rolling stock and accepted to run it for 30 years — are unwilling to operate the metro rail service as they found the returns on their investments were not up to their expectations.

It is a story that needs to be reflected upon and lessons need to be learnt, more so, because the Government is pushing for many more such projects.

Ends deal

DAMEPL, almost a year after issuing multiple warnings that it had issued a termination notice for the project, announced on July 1 that it had exited the airport metro. Reliance Infra also said that DAMEPL had terminated the concession agreement — the contract between DMRC and DAMEPL — in October, 2012.

The DMRC, which had pushed for the project in early days, was forced to listen to the Urban Development Ministry and the Delhi Government, both of which own 50 per cent each in DMRC.

On June 28, after a hurriedly-called DMRC Board meeting, Sudhir Krishna, DMRC’s Chairperson and Secretary, Urban Development Ministry, said DMRC would operate the line in ‘public interest’.

DMRC’s concerns were understandable. Its Director (Operations) Sharat Sharma told reporters on the day DMRC took over the project that while DAMEPL had not shared its entire balance-sheet, it was estimated that DAMEPL was running a loss of Rs 4 crore every month.

Over-estimated returns

Both DMRC and Reliance Infra overestimated the returns. Krishna, who stepped in when the project became operational, told Business Line , “All parties involved in the project should have done more due diligence at all levels.”

Conceived in the run-up to Commonwealth Games held in 2010, DMRC pushed the project as feasible and estimated that it would attract 42,000 passengers daily. RITES, a Railway’s consultancy arm, which was given the job to evaluate the technical feasibility of the line, had based its passenger numbers on the development of Aerocity around the Delhi airport, which was being developed by GMR on a public-private-partnership (PPP) basis, an official involved in the process said.

Aerocity has not yet materialised due to various reasons. Currently, daily passenger numbers on the line stand at about 13,500, according to a DMRC spokesperson.

While the actual ridership numbers are much lower, it was pointed out that even with a 40,000 daily ridership, such a large project could not be feasible.

“When I joined in November 2006, approval of DMRC’s proposed airport metro line was facing some problems in getting the Cabinet nod, and DMRC’s E. Sreedharan wanted it to be approved fast as the project was supposed to be ready ahead of the Commonwealth Games. I did work towards getting a Cabinet nod,” M. Ramachandran, the former Urban Development Secretary, told Business Line .

(He was DMRC Chairman when the project was approved and construction was started. Ramachandran retired in June 2010, when the project was under implementation.)

Why PPP?

But, then why undertake a project that was unlikely to be feasible on a PPP basis? Sreedharan was, anyway, against undertaking this project on PPP mode.

“Those were days of Planning Commission promoting PPP in infrastructure, and metro projects were not built under PPP till then. So, this was thought to be the first metro project, where a private investment element could be tested. In those circumstances, it was decided to undertake the project as a part/hybrid PPP project,” said Ramachandran.

Rights to develop land parcels for commercial development were attached to the project as sweeteners and bidders were asked to bid for developing and operating the project over 30 years, based on their assessment of revenues from land development.

“We have to depend on PPP for taking on future projects, it is just that more thinking needs to go in,” said Krishna.

However, Ramachandran said the country is yet to see a successful PPP metro project.

Project structure

But, even if the Government chose the PPP model, why split the project implementation right in the middle where the rail-wheel interaction is inter-dependent? Didn’t anyone anticipate that in case revenues for the concessionaire turned out to be lower, it would be easy for him to blame problems in civil structure and walk out of the project?

DMRC alluded to such a possibility last year when it said Reliance Infra had been wanting to exit due to financial reasons and not technical, reports said.

Should not the concessionaire be handed over the entire job to ensure full responsibility for project?

Incidentally, none of the other metro projects are being implemented in this ‘hybrid-PPP’ manner. “As we were racing against time, this model was thought to be the best solution. So, DMRC was to do part of the civil work (to get around clearances and right-of-way issues),” Ramachandran said.

Consultation vs deadline

DMRC may have proved its worth in project implementation, but it should have taken time to decide on the PPP framework.

For instance, Business Line learnt the concession agreement between DMRC and concessionaire came up for Board approval at a time when the bidding process had started.

On whether the contours of the concession agreement were discussed in detail and approved by the Board, which had representation from Urban Development Ministry, Delhi Government and Railway Ministry, Ramachandran said they were “subsequently approved,” but declined to comment on the timing when the agreement came up for discussion in the Board.

Asked why the Board did not insist on being more involved, he said, “DMRC was an all-powerful Board, with almost all power delegated to E. Sreedharan, who had a proven record of performing on time. So, one did not micro-manage the DMRC matters.”

“Moreover, the time taken in getting a full concession agreement approved through Cabinet inter-ministerial discussion was known (two-three years). That would have jeopardised the deadline,” defended Ramachandran.

Should the Government devise a mechanism to rule out aggressive bids? This issue has been talked about in context of failing PPP projects across sectors, but nothing has been done.

Irrational estimates

Reliance Infra’s estimations on returns from the project were also way off the mark.

Right at the bidding stage, Reliance offered money to DMRC for operating the project. The second bidder — an L&T-GE consortium — had actually asked for an annual subsidy of Rs 346 crore or an interest-free debt of Rs 1,440 crore for a longer term.

Way back in 2009, ICRA had raised concerns on the risks, on Reliance Infra’s debt and said, “The success of the project crucially hinges on DAMEPL’s ability to execute the real estate development as planned. The real estate-related revenue would account for almost 70 per cent of total revenues in the initial years and more than 50 per cent of total revenues during the entire concession period and, hence, exposes the project to variation in real estate lease rentals in the New Delhi region. The project is also exposed to the market or traffic risks that are typical to transportation projects and to interest rate risk given that the interest on the loans would be reset at regular intervals.”

“Reliance counted on a lot of real estate upside, forgot the fundamental economics. The clarity of roles and responsibility between DMRC and consortium required more thought from day one,” said an official, who was involved in the bidding process.

Incidentally, even as Reliance wriggled out of this project, it is also seeking additional sweeteners in the Mumbai metro project, which it is implementing on PPP basis.

Ownership pattern

Genetically a private owner is bound to operate a project with an eye on profitability and accountability to shareholders, while Government-owned bodies do not have such pressures.

So, while devising a metro system for a city, it is best to have a common ownership structure, particularly in the Indian set-up where any steps taken by a Government official to make life easy for a private partner is bound to come under audit scanners such as CAG (Comptroller and Auditor General) and CVC (Central Vigilance Commission), said Ramachandran.

Ramachandran said that in Mumbai, where different metro lines are under implementation with different forms of ownership, each owner has different aims and the challenge is in ensuring a smooth integration in a manner that welfare of all project owners is maximised.

And how do you build it into the concession agreement? Unlike the Government, private firms have to depend on high cost finance.

To work out a middle path for entities with different interests, there should have been a regulator to sort out disputes at the initial stage.

“Who does one go to when there is a problem? There should have been a provision for a regulator in the sector. Frankly, the concessionaire never approached me for any kind of problem during the project implementation . So, even if they were facing problems, I think they were sorting it out with DMRC,” said Ramachandran.

The lessons

It is not clear what DMRC, which had a key role in implementing the project, aims to do in order to make the project feasible.

Now that the divorced parents are unlikely to patch up, most of the experts agree on at least a few points.

“First difficulty has been averted by keeping the project up and running, so that public is not inconvenienced. An escrow mechanism with the lenders has been worked out. As per the agreement, bankers have to also take a call on whether they want to bring in another developer,” said Krishna.

While admitting that keeping the service running is a good step, Ramachandran said that DMRC should run it. But, in future DMRC will also have to coordinate properly with Delhi International Airport Ltd and airlines, to ensure the line functions as a connecting line to airport, with check-in facilities, said Ramachandran.

Simultaneously, there is a need to connect the airport line with the Delhi Metro network at different points to increase traffic on this line.

Second, the airport metro line could be extended to places like Gurgaon, from where a lot of traffic originates. DMRC could tie up with Haryana Government for grant on this.

“With just 5-6 km extension, the airport end can meet Delhi Metro’s Gurgaon network. This would require expense of Rs 1,000-1200 crore,” said a senior official in a project management consultancy.

Meanwhile, at a financial level, whether the project’s grandparents — Delhi Government and Urban Development Ministry — will put in additional funds of about Rs 1,700 crore, as demanded by the single-parent DMRC, to keep the project running, remains to be seen.

mamuni.das@thehindu.co.in

Published on July 29, 2013 12:02