By Sanjay Raman Sinha
The Delhi Metro Rail Corporation (DMRC) is in dire straits. As per a 2017 arbital award order, it has to pay its Reliance subsidiary, Delhi Airport Metro Express Pvt. Ltd (DAMPEL), a whopping Rs 7,010.08 crore.
During a recent hearing at the Delhi High Court, DMRC said that it had sought Rs 3,500 crore each from the central and Delhi governments, both of which are equity partners of the Metro. In another affidavit, DMRC said that it had decided against taking any further bank loans as it was already “reeling under financial crisis” and it may lead to a “debt trap”. The High Court was hearing a petition filed by DAMPEL regarding the payment of the arbitration amount.
As of May 31, 2022, DMRC had incurred an interest liability of over Rs 300 crore due to delays in payment to the Reliance subsidiary. It is adding more than Rs 1.15 crore every day to its interest load. The debt crisis of the Delhi Metro has raised questions about the financial viability of the metro system. It has also raised uncomfortable questions about the primacy of the metro over other modes of transport.
Delhi Metro is a mass rapid transit system serving Delhi and its satellite cities—Ghaziabad, Faridabad, Gurgaon, Noida, Bahadurgarh and Ballabhgarh—in the National Capital Region. The Delhi Metro is the largest metro system in India and is considered one of the most “successful” public transport projects.
Over the years, it has seen an exponential rise in ridership. It was ranked 2nd of 18 international metro railway systems across the world in customer satisfaction. It had also reduced carbon emissions in the city and the United Nations had recognised it. With so many accolades under its belt, what went wrong?
Subodh Jain, former member of the Railway Board and an expert on Mass Rapid Transport Systems, told India Legal: “Even the best conceived PPP projects get into financial trouble. To handle the crisis, the revenue model and loan structure are remodelled. Take the example of the Konkan Railway. It was reviewed and its model restructured. In the present case, there was an ego issue between the top men of Delhi Metro and Reliance Infra. The legal battle was initiated with the intention of destroying the other party. Arbitration failed because both parties were unwilling to go outside the ambit of the contract and find a common ground.”
The Delhi Metro is as much a transit system as a mammoth infrastructure project. A major part of the project cost has been financed by loan from the Japan International Cooperation Agency (JICA). As per the annual report of DMRC, its paid up equity share capital as on March 31, 2021, was Rs 19,876.25 crore allotted to both the central and the Government of the National Capital Territory of Delhi (GNCTD). The total amount of the JICA loan as on March 31, 2021, stood at Rs 31,284.17 crore. The total revenue generated was Rs 3,289.20 crore.
Worldwide, fare collections are only a fraction of the operating revenue of metros. Profits are earned from real estate and property development, parking, kiosk, mall advertising and consultancy, among other things. But it is the reverse in India, where DMRC depends on fare box revenues for profit generation.
Jain said: “In the DMRC revenue model, non-fare box components like real estate, rentals and advertisements amount to around 8% only, while 92% is from fare box alone. In India, nowhere is there dependence on non-fare box revenue. This is where the project fumbled.”
Reliance assumed that as it was getting land spaces in Connaught Place, Dhaula Kuan and other prime locations, it would earn 60% revenue from non-fare box sources. Unfortunately, that didn’t happen. In transit-oriented projects, non-fare box revenue is generated only when there are footfalls. When people visit properties in the metro premises, such as malls as in Gurgaon, shops and parking lots, only then is non-ticket revenue generated. As there were no footfalls, there was no sale of properties. Now that Covid is over, footfalls have increased and properties are being developed and rented out. The Aerocity pact between DMRC and Reliance was a major bone of contention. Standoff on this led to mounting dues.
Aerocity was initially developed in Connaught Place. But Connaught Place is not the same booming business hub as it was earlier. Rental rates of Aerocity properties are higher now than that of Connaught Place, so there is a consequent loss for the Aerocity project. This led to real estate calculations going wrong.
Secondly, the Aerocity Metro was planned to run at 130 km per hour, which didn’t happen. Otherwise, Aerocity could have charged four times and people would have paid willingly. But due to low speed, they had to be content with double the fare. For increased speed, special track components are needed. When they were purchased as per Delhi Metro instructions, they broke down. No one was willing to take responsibility. As per the viability gap funding, 50% cost of the project was already borne by the government. Plus, property developmental rights were given. Had the footfalls been up to the standard, this situation wouldn’t have arisen.
The fact of the matter is that a capital-intensive project like the metro rail network can never be sustained by fare box revenues alone. In view of this, the verticals to generate revenues are varied. According to the annual report of DMRC, Delhi Metro has the following sources of revenue: traffic operations, real estate/property development consultancy, external projects and other sources such as grants and interests. It is the interest of the Metro to maximise operations and revenue from other verticals as well.
Delhi Metro has to service a huge foreign debt to its creditor JICA. JICA loans of Rs 38,000.3 crore are serviced at an annual interest rate of 1.8%. This hefty credit servicing can break the back of any less efficient metro.
However, it has not defaulted on the Japanese loan. The loan was taken by centre and passed to the DMRC. There is a sovereign guarantee on the loan, which means that taxpayers’ money has been on stake in the dispute. So where is the accountability for the money?
The gargantuan metro has to also fulfill social and environmental needs. Its efficacy is to be judged on these parameters as well. Creation of integrated public transport systems is the need of the hour where metro travel is aided by bus and road transport.
Secondly, politicians see the metro as a ticket to mass acceptability. In the rush for populism, metros are announced without assessing whether the city needs it or not. The revenue model needs to be strong. Otherwise, the transport system will run subsidised by taxpayers’ money.
The Delhi Metro example should act as a cautionary tale for unbridled growth without robust financials.