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Anil Dhirubhai Ambani Group firm says it is
financially unviable
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Touted as the fastest Metro and the first one to
be commissioned under the public private partnership (PPP) model, Delhi Airport
Metro Express was supposed to be a showcase project for the Anil Dhirubhai
Ambani Group (ADAG), underscoring its ability to become a major player in the
infrastructure sector. That does not seem to have worked out according to plan
as the project has been plagued by a series of problems since inception.
For over three months now, the line has been
completely shut down after defects were detected in the structure. Earlier this
month, Delhi Airport Metro Express Private Limited (DAMEPL) — the special
purpose vehicle created by ADAG for the project — requested for it to be
financially restructured, saying it was no longer viable. It is widely believed
this is because of ridership that was lower than the break-even threshold.
However, on October 26, Delhi Metro Rail Corporation (DMRC) issued a press
release saying DAMEPL’s request had been rejected and the matter had been sent
into arbitration.
The announcement also said the reluctant
operator would soon be restarting the line. This was despite widespread
knowledge that DAMEPL was no longer willing to run the project on the
prevailing contract conditions, though officially it has refrained from openly
admitting that it wants to opt out. When asked for an official comment, the
company did not given any reason for seeking the restructuring.
Considering DAMEPL’s contract was to run for 30
years, the multiple problems that have surfaced in less than two years don’t
augur well for the project, especially if one takes into account its magnitude.
The widespread understanding is that DAMEPL is simply finding it hard to run
the Metro in a cost-effective manner and has reportedly brought down its equity
in the project to as low as Rs 1 lakh. “They bid for the project too
aggressively and then realised that they cannot run it,” says a senior DMRC
executive who does not want to be named.
In fact, the concern that the operator was
finding it hard to run the project had been expressed even when the line was
shut down for repairs on July 8 this year. Then, the ADAG firm Reliance
Infrastructure (R-Infra) refused to accept allegations of financial problems
and had, in its meetings with the government, blamed DMRC for shoddy
construction of the line. Yet, if it was construction defects that stalled the
running of the line, it is the financial mess that is causing the current
crisis.
So, what could be causing this mess? In its
response to Business Standard’s queries, R-Infra said since it was in a dispute
resolution process with DMRC that was quasi-judicial in nature, it would not
like to comment on the issue. However, it is widely believed that the problem
lies with low ridership figures. R-Infra, which created DAMEPL, along with CAF
of Spain, was awarded the 30-year contract in January 2008 on the basis of the
highest quote for annual concession fees to be paid to DMRC. All expenses of
civil works for the rail link, roughly Rs 2,915 crore, were borne by DMRC, with
DAMEPL putting in the remaining Rs 2,885-crore investment.
The private partner was to recover cost through
fare box collection, advertisements and lease revenue from commercial spaces.
Under the agreement, DAMEPL had to pay DMRC Rs 10,000 annually as licence fee
and Rs 51 crore as concession fee along with a five per cent escalation, every
year. Besides, DAMEPL also has to share one per cent of the revenue for five
years with DMRC. The revenue share was to increase by one percentage point
every five years till the 16th year of operation, when the private operator had
to start sharing five per cent annually till the end of concession period.
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END OF THE LINE?
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For this plan to be viable, the line had to have
40,000 passengers riding it every day. However, after running the service for a
year, DAMEPL realised it was difficult to even reach half that mark. The ridership
could never cross the 21,000 mark and just before the line was closed down and
service was being run on a truncated speed, it fell to 17,000 and even less.
PPP projects in the transport sector are run on
estimates of traffic. “In a situation where the best economists are unable to
predict the GDP growth for the next quarter, it is not possible to correctly
estimate traffic for 25-30 years,” says Vinayak Chatterjee, chairman, Feedback
Infrastructure. He says that the problem, to some extent, could be solved if,
while drafting the concession agreement that governs the project, various
traffic scenarios could be cast so that negotiations could be done later
without any heart burn or favourtism. Chatterjee draws a parallel with the
Delhi-Gurgaon Expressway project, where the traffic estimate has worked
inversely. There, volume has beaten estimates manifold, leading to jams and
frequent waiver of toll levy causing a loss to the operator.
Though details of the kind of financial
restructuring which DAMEPL wants are not known, it will essentially mean either
a relaxation in the payment to DMRC or some sort of a moratorium on payment.
The private operator, meanwhile, has already sent a termination notice, but
DMRC has not accepted it. “Somebody will need to run the project even if
Reliance exits,” says the DMRC executive.
For now, however, DMRC and DAMEPL are caught in
what is hopefully not a long, drawn-out arbitration. With the repair work being
executed by DMRC nearing completion and the operator getting ready to restart
operations after getting necessary safety approvals, the focus would now be on
viability. DAMEPL will obviously build pressure on making the terms of
concession agreement more suitable. Overall, for its parent R-Infra, which has
a kitty of Rs 16,000 crore worth of Metro projects — and is in the race for
another in Jaipur — achieving a degree of success here will be pivotal.
After all, completion of the first phase of the
Mumbai Metro is still to be achieved while both the second phase of the Mumbai
Metro and the Delhi airport Metro are mired in problems, leading many to
question the aggressive bidding that it did to bag the projects, causing a near
collapse of the PPP model.
http://www.business-standard.com/india/news/candelhi-airport-metro-project-get-backthe-rails/491320/
