India's first metro rail public-private partnership (PPP), the Mumbai Metro One Private Ltd (MMOPL), was supposed to be the precursor for all such projects. Its failure not only led the Maharashtra state government to tender all subsequent metro projects on an engineering, procurement and construction (EPC) basis but also turned administrators elsewhere in the country wary of the model. So, what is the way forward for one of the world's largest markets for urban rail transit? When it was finally ready, Mumbai's Urban Development Authority and private partner Reliance Infrastructure Ltd had a lot riding on the city's first metro project. That Reliance Infrastructure wants to now exit the project and has written to the state government to allow it to do so is an indication that the partnership hasn't worked out as planned.
The troubles began even before the metro started operations due to hindrances in securing the right of way that led to costs more than doubling to Rs 40.26billion. The project, awarded in 2007, finally began operations in 2014 after numerous delays. Subsequently, Reliance sought to hike fares more than what was fixed by a fare fixation committee to recover the extra expenditure it incurred but was blocked by its public sector partner Mumbai Metropolitan Region Development Authority (MMRDA).
Since then, MMRDA and Reliance Infrastructure have been locked in litigation. To compound the problem, the 11.4km metro line running from Versova in the western suburbs to Ghatkopar in the central suburbs has not achieved the ridership that was initially estimated.
India's first PPP metro rail line saw an erosion of its net worth with the project's current liabilities exceeding assets, Reliance said in its annual report on May 31 this year. "These events or conditions, along with other matter, indicate that a material uncertainty exists that may cast significant doubt on Mumbai Metro One Private Limited's (MMOPL) ability to continue as a going concern," the document stated.
It added that though passenger traffic had grown every year the revenue was sufficient to cover only the operating costs. The metro line carried 131.53 million passengers in the year through March 2020, down from 134.04 million in the previous year. The dip was on account of the COVID-19 outbreak that affected travel from the beginning of March, the firm said.
The company is now restructuring its loans for which it has received approval from the lead lender to the project. Approvals from other lenders in the consortium are awaited, Reliance said in the report, without mentioning details.
Reliance will continue to provide financial support to the metro company to help the project to continue to operate as a going concern, it also said in the statement.
Issues With the Model
Research and rating agency ICRA, in December 2015, changed its outlook on Mumbai Metro One from stable to negative on its triple B plus rating and later suspended the same on the company. At that time, ICRA noted that the rating remained constrained by the lower-than-estimated actual daily passenger volume.
As a result, ICRA noted that due to lower-than-expected revenues the company ôhas been able to cover the operating cost and only a portion of interest expense, and thus, the promoters have been providing funding support to MMOPL for meeting its debt obligations."
Reliance has also not been able to hike fares to the extent it wanted. From an introductory price range of Rs 10 to Rs 20, MMOPL was allowed by the Bombay High Court in January 2015 to increase fares up to Rs 40.
MMRDA is now receiving bids from consultants as it intends to conduct a feasibility study and assessment of the metro line before it decides to take over the project, a senior MMRDA official told INFRASTRUCTURE TODAY on condition of anonymity.
The experience with its first public-private partnership (PPP) metro project immediately led to the MMRDA changing track. The urban development authority subsequently awarded half a dozen metro lines based on the traditional engineering, procurement and construction (EPC) model, spending Rs 129 billion between 2016 and 2019, according to Maharashtra state's economic survey report for 2018-19.
It was not only MMRDA but also urban authorities across India, which were looking to Mumbai for the first signs of success, also changed track. As a result, of the 18 towns and cities across India where metro lines are operational, only four, including Mumbai, have been through the PPP route. The other cities are Hyderabad Metro, Delhi Airport Line and Gurgaon Rapid Metro.
All three PPP metro lines have also run into issues. The Delhi Airport Metro Express project took off in 2011 but soon slipped into litigation that went on for about three years between Reliance Infrastructure and the Delhi Metro Rail Corporation (DMRC) before Reliance was awarded compensation. Reliance, which brought in the rolling stock and was supposed to run it for 30 years, suspended services in 2012 as it complained of construction defects on the metro line, built by DMRC, and finally pulled out of the project in 2013. The Delhi High Court awarded Reliance Rs 35 billion...
In Hyderabad, the High Court has Larsen &Toubro, the developer and operator of the metro project, to explain why it has priced the tickets higher than what was allowed. In another PPP metro project in Gurgaon, the authorities terminated the concession after the concessionaire IL&FS was superseded by the Central Government after it failed to repay loans triggering a payments crisis in the Indian financial markets. IL&FS also differed over fares with the procuring authority - HaryanaUrban Development Authority (HUDA) - with the matter ultimately settled but not before IL&FS agreed to pay back over 35 years, along with a percentage of advertising and property development revenue.
Mumbai Metro Litigation
"Being India's first PPP metro project, there was an over-eagerness to complete the project," said a former senior executive of Reliance Infrastructure who was involved with the project at that time.
An impractical offer by MMRDA to Reliance Infrastructure to secure right of way (RoW) in six months through some of the densest urban settlements was also inexplicably accepted by the company without question.
"The fellows who committed such things, to give us RoW and to get the underground utilities along the route removed in six months, didn't have a clue how this was to be done,ö he added. This proved to be a problem as the teams discovered improper records concerning underground utilities that rendered progress difficult and resulted in a change in the metro line's route, with more time taken for the appropriate approvals.
Reliance Infrastructure did not respond to requests for comment for this story.
PPP in Metro Projects
PPP, as per Metro Policy 2017, is mandatory, and state governments need to include some aspect of it to avail Central Government funding assistance.
The Rs 5.6 trillion to be spent on 50 mass rapid transit systems (MRTS) is a promising opportunity for investors, according to the National Infrastructure Pipeline (NIP) document unveiled a few months ago. "In line with the policy, it is observed that all the metro rail projects which are currently being implemented in the country are coming up with some or the other form of PPP procurement," says Elias George, partner and national head of infrastructure, government and healthcare at KPMG in India.
Besides private investments in the area of ticketing, operations, maintenance and transit-oriented development (TOD), it is expected that rolling stock procurement will see private sector investments in upcoming metro projects, points out George, who expects that some projects may also be structured on full concessions.
He pointed to NITI Aayog, India's highest planning body that has recently come up with the draft guidelines for a wet lease model in railway operations. "A similar model is likely to be followed for some of the metro rail projects in the future where financing, delivery, testing and commissioning, operation and maintenance risk lies with the private sector," he said.
The risks to commercial viability from implementing full-fledged metro systems in a PPP are very real, as demonstrated by the handful of PPP metro projects so far. However, risks can be lowered, saysáRamakrishna Reddy, Managing Director of Andhra Pradesh Metro Rail Corporation (AMRC).
"The decision to implement the appropriate metro rail system û light, medium or heavy - depending on the population the project is meant to cater to, is the most important factor,ö says Reddy, who is a former bureaucrat and PPP expert. He has been tasked by the Central and state governments to structure various PPP transportation projects at different times over the last decade. Reddy cited a benchmark of over 5 million population for heavy metro rail systems, pointing out that towns and cities with much lower population had taken up such metros. "The concrete structures have to carry more weight, you need to have options to extend the number of coaches, and everything needs to be designed for maximum capacity, and it becomes a heavy-duty construction project," he explains.
In Visakhapatnam, Reddy has opted for the light rapid transit (LRT). The city has a population of less than 3 million. Part of the metro route will be a tram line. The decision has lowered the cost of the project from an earlier estimate of Rs 250 crore per km to Rs 200 crore per km, says Reddy. Before he got involved, the project was proposed as a heavy metro rail.
Once operational, Visakhapatnam's LRT will be India's first light metro project. The procuring authority is aiming to call for bids soon and get a concessionaire in place by March next year. "We hope to spend as less as possible as part of the government and we can do this by providing concessions and land to the developer," Reddy says. AMRC is working on the possibility of providing subsidies and real estate for development that can help generate revenue in addition to the farebox collections.
AMRC is mulling possibilities for subsidies and interest-free loans as well as adding real estate development into the mix for the concessionaire.
If the project does not run into trouble like the previous PPP metro projects, the experience can clear the route for more such LRT systems in India's smaller town and cities.
- NEEYOR B SHARMA