Delhi’s Airport Metro Express may resume operations before Diwali, but the fireworks between the two partners have already singed the country’s first metro rail project built under the public-private partnership (PPP) model. And this is irrespective of the outcome of the arbitration process initiated by Reliance Infrastructure-promoted Delhi Airport Metro Express Private Ltd (DAMEPL) and Delhi Metro Rail Corporation (DMRC).
Just why is Reliance Infra so keen to get out of the showcase 23-km project? After months of beating around the bush (faulty construction, broken parts etc), the company has finally provided the answer – that the project is financially unviable. This is ironic considering that the Anil Ambani-promoted firm was earlier so bullish on the project that it checkmated the other contender, Larsen & Toubro, by offering revenue share and annual concession fee to DMRC. L&T, on the other hand, had asked the government to give either a 25-year interest-free loan or a fixed grant.
DMRC must have been either too greedy or walked into the deal with its eyes closed or expected R-Infra to have a magic wand. Here is why.
As per R-Infra’s bid terms, DAMEPL is supposed to pay Rs 64 crore as rent to Delhi Metro every month. But total revenue collection has never exceeded Rs 52 crore. On top of that, it has sundry other expenses of around Rs 40 crore a month for salaries, maintenance expenses, power bills etc. This means it has been suffering losses of over Rs 50 crore a month – a classic case of a company hoist with its own petard.
The inflated estimates is also evident from the fact that just before it closed down operations in July, the Airport Metro Express’ average daily ridership was 20,000, which is half the initial projection.
Also, at the heart of R-Infra’s calculation was that it would get 25 per cent of its revenue from passenger fares and 75 per cent from non-fare sources (advertisements, lease of commercial spaces built along the rail infrastructure, and from vending machines and retail outlets). But that was day-dreaming, at best. Apart from the fact that R-Infra has been able to lease out only 5 per cent of the space it has already been given, nowhere in the world has any metro project managed 75 per cent of revenue from non-fare sources.
Take Hong Kong-based MTR Corporation, which runs one of the most profitable metro systems in the world. Even after so many years, the company earns just 30 per cent of its revenue from non-fare sources. MTR, of course, has acknowledged that its future profitability would depend on earnings from property development on top of train stations. Same is the case with many other metro rail companies all over the world.
The fate of the Airport Metro Express also brings all such PPP projects under a cloud. Already, a Planning Commission working group on urban transport, headed by “Metro Man” E Sreedharan, has said that it studied such projects in 113 cities and found that just 10 per cent of metro rail networks have been developed and operated under the PPP model. The track record of those who have opted for the PPP model is nothing to write home about.
For example, in Kuala Lumpur, the metro lines had to be nationalized because of low revenues and huge debts, forcing a public sector infrastructure holding company to purchase the debt. Same was the experience in Manila where the metro project (in partnership with Hong Kong Metro Rail Transit Corporation) became unviable even though the government paid $60 million in guaranteed loans to the private sector consortium.
R-Infra seems to have understood this -- even though belatedly. And it’s quite obvious that it is using the current mess as a convenient excuse to exit the project. A tell-tale evidence of this came when it transferred 65 per cent of its stake in the company that is in charge of the airport metro project to associate companies of the Anil Ambani group. The reason was to make sure that the losses in the metro project don’t get reflected in R-Infra’s books.
In any case, it’s by now a familiar territory for R-Infra. Example: it is also not going ahead with the 32-km second phase of the Mumbai metro project. Reason: inordinate delays over allotment of land and construction area (also called the right of way) and the Mumbai Metropolitan Development Authority’s failure to provide car depot land plots. Besides, the Brihanmumbai Municipal Corporation has failed to clear the commercial development rights, without which the financial viability of the project will be impacted. R-Infra was supposed to get 4,000 square metres of space on each.
It’s a clear case of once bitten, twice shy.
