Delhi Airport Metro Line: Estimates go wrong

The Delhi Airport Metro Express Pvt Ltd (DAMEPL), subsidiary of Reliance Infrastructure has finally pulled the plug from the 22.7 km Delhi Airport metro line with great difficulty. DAMEPL on July 1st announced that it had exited the airport metro. It had earlier issued multiple warnings that had issued termination notice for the project.

The DMRC however said that the line will be operated in public interest.

Error in estimation of returns

Both the DAMEPL and DMRC are unwilling to operate the Rs. 5,700 metro rail saying that the returns would not be up to their expectations. Due to improper planning and lack of due diligence, both DMRC and Reliance Infrastructure had overestimated the returns.

The Delhi Airport metro line project was conceived in the run-up to the 2010 Commonwealth Games. DMRC had pushed the project with its estimation of attracting 42,000 passengers every day. However, the daily passenger numbers on the line currently stand at a much lower 13,500. The job of evaluating the technical feasibility of the line was given to RITES, a Railway’s consultancy arm. It 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.
Reliance Infrastructure’s estimates too were incorrect. In 2009, the ICRA had raised concerns on Reliance Infra’s debt. It had said that the success of the project was based on DAMEPL’s ability to develop real estate as planned. The project would be exposed to various risks such as variation in real estate lease rentals in New Delhi region as well as the traffic or market risks that usually are part of transportation projects.

Reason for PPP

DMRC was initially against taking the project on a PPP mode. However, the project was taken up when the Planning Commission was promoting PPP in infrastructure. This was the first metro project to be tested in the hybrid PPP mode. As a sweetener, rights to develop land parcels for commercial development were attached to the project. Private companies were asked to bid for developing and operating the project for 30 years. This would be based on their assessment of revenues from developing the land.

A hybrid PPP structure is not the normal way of implementing a metro project. But due to shortage of time, the DMRC was to do part of the civil work. Though the DMRC did a good project implementation, the PPP framework failed due to poor planned and poor consultation.

Ownership pattern

The way a project is run by a private owner and a Government-owned body differs. While a private owner is focused on profitability and accountability to shareholders, the Government-owned body does not have these pressures. The challenge in implementation of a metro project in different forms of ownership is smooth integration, due to different aims of the project owners involved. It is best to have a common ownership structure.

A regulator is necessary to work out a middle path for entities with different interests to sort out disputes if such a partnership is formed.

Lessons to Learn

This is a story from which many lessons can be learnt since the government is pushing for many more such projects.

Though it is not very clear on what DMRC will do in order to keep the project feasible, experts agree that the first difficulty has been averted by keeping the project up and running eliminating public inconvenience. An escrow mechanism has been worked out with the lenders. The DMRC will have to ensure in the future to coordinate properly with Delhi International Airport Ltd to ensure that the line functions as a connecting line to the airport with various facilities. In order to increase traffic on the line, there is also a necessity to connect the airport line with the Delhi Metro network at different points.

Secondly, the airport line could be extended to places like Gurgaon where a lot of commuter traffic can be brought in. DMRC will need to work with the Haryana Government to make this possible.