Delhi Airport Metro Line- Risk profiling - A Case Study:

Background:

In 1984, the Delhi Development Authority and the Urban Arts Commission came up with a proposal for developing a multi-
modal transport system, which would consist of constructing three underground mass rapid transit corridors, as well as
augmenting the city’s existing suburban and road transport networks.

Following that, the Government of National Capital Territory of Delhi (GNCTD) commissioned Rail India Technical and
Economic Service (RITES) Limited, in 1988–89, to study the feasibility of introducing an Integrated Multi-Modal Mass Rapid
Transit System for Delhi. The study was completed by RITES in 1991, and recommended a 198.5 km predominantly rail-
based network. In July 1994, the Central Cabinet gave the go-ahead, in principle, for the MRTS for Delhi and directed the
GNCTD to take up the preparation of a Detailed Project Report (DPR).

RITES finalised (May 1995) the DPR for a 55.30 km MRTS comprising rail and metro corridors, for completion by March
2005. The Union Cabinet sanctioned the Delhi MRTS Phase I (Project) of 55.30 km in September 1996, at a total cost of
USD 971 million – at April 1996 prices.

For implementation and operation of the project, the Delhi Metro Rail Corporation Limited was registered in May 1995 as a
joint venture between the Ministry of Urban Affairs, GoI and the GNCTD. It started its operation in December 2002 with an 8
km line.

The Delhi Metro project proposes to cover the entire city of Delhi and the adjoining sub-cities (Gurgaon, Noida, Ghaziabad,
etc.) with a network of 405 km, in four phases, by 2021.

The Group of Ministers approved Phase III of the Delhi MRTS project in August 2011. The approved network has four
corridors covering a route length of 103 km and 67 stations. The approved cost of the project is USD 7 billion. In addition,
the extension of the Delhi Metro to Faridabad, covering a route length of 13.9 km and 9 stations, has been approved and will
be funded by the Government of Haryana and the Government of India (GOI) (DMRC, 2011). Phase IV of the project has
been proposed by the Delhi Metro, but has yet to be approved. This phase will consist of 108.5 km of network length. After
the completion of Phase IV of the DMRC, only 35% of the Delhi population will be within walking distance of metro rail.

Presently, DMRC is running with ~327 kms network catering to 236 stations, developed in 3 phases.

Metro Airport Line:

The 22.7 km long – 16 km underground and 7 km elevated – airport line under the Delhi Metro network is officially called
the Delhi Airport Express Line. It has been implemented using a public private partnership (PPP) model, through a special
purpose vehicle (SPV) – the Delhi Airport Metro Express Private Limited (DAMEPL).

Unique Construction Arrangement:

Delhi Airport Metro Express was proposed to be completed before the Commonwealth Games in Oct 2010. It was decided
the airport line will offer as a public partnership (PPP), in which the private concessionaire will be responsible for operating
and building it for another 35years. Already cost for building up the airport line was quite high, and the concessionaire will
not be able recover the complete operating costing and full capital of the project from fares alone. Also DMRC proposed to
take the entire civil work themselves, including the stations, the viaduct and the tunnels and the private concessionaire will
be responsible for financing mainly the operating systems primarily the signals, track, rolling stock and power distribution
system.

The civil works were carried out by the Delhi Metro Rail Corporation (DMRC), while the system installations, as well as the
rolling stock, was supplied, installed and operated by DAMEPL (SPV), which also developed, operated and maintained this
Express Link. The shareholders of DAMEPL are Reliance Infrastructure Limited (RInfra) and a Spanish company.

Initial Traffic Estimates:

It was expected that the concessionaire was facing many risks like:-

a) Patronage / Traffic risk – ridership (footfalls)

DMRC forecasted that around 46,000 passengers / patronage will be using the airport line each day on completion of
Project in 2010. In next 10yrs ridership will increase up to 86,000 per day.

Concessionaire Criteria:

Concessionaire was to be selected based on two stages of competitive bid.

a) financial profile of bidding consortia and

i. The bidders must have a prior experience of operation or development and maintenance the rail based
urban transport system or already having experience in equipment supply for the rail based urban
transport system.

ii. The bidders must have a prior experience of installing systems that’s includes commissioning and
testing for rail systems, rolling the stock or signaling equipment in the last ten years.
Bid outcome:

As their highest quotation for annual concession fees needs to be paid to DMRC on that basic, DAMEPL (Delhi Airport
Metro Express Private Limited) – an SPV form signed between Reliance Infrastructure limited of India and Construcciones y
Auxillair de Ferrocarrilies, S.A (CAF) of Spain was awarded the contract in 2008. In DAMEPL 5% equity was held by the
Spanish firm and rest 95% by the Reliance Infrastructure Ltd. Debt from the leading banker Axis bank all the debt was
arranged and eight other banks. Debt-equity ratio was 70:30. As a concessionaire the commercial outcome was that DAMPL
expected to recover its investment through advertisements, fare box collection (toll revenues), vending machines, retail
outlets, leases of commercial space built along the rail infrastructure.

Concession:

DAMEPL will be operating the metro line for 30 years, under a revenue sharing mode. It must pay DMRC a fixed concession
fee of USD 10.2 million and a share of gross revenue – 1% for the first 5 years, 2% for the fifth to tenth year, 3% for the
eleventh to fifteenth year and 5% p.a. thereafter. Concession Agreement was signed off between parties on August 25,
2008

Under the agreement between the parties, if the contract to run the Airport metro line was terminated due to DAMEPL’s
fault, DMRC would have to pay 80 per cent of the debt, while if it was DMRC fault, then the PSU would have to pay 100 per
cent of the debt and 130 per cent of the equity.

Technology:

First time in India this project used ballast-less high speed track technology, because of this technology travel speed of the
train will be 135kms per hour. Compare to standard railways tracks ballast-less tracks cost were 40-50% more, but
implementation was possible quickly. Ballast-less tracks need less maintenance than standard tracks.

The construction of the project was supposed to complete within 30months with commissioning scheduled 31 July 2010
(Schedule Commercial Operation Date- SCOD), before Commonwealth Games. Reliance Infrastructure had appointed a
world renowned consultant from Hong Kong, MTR Group as the project management and engineering consultants for the
project

Funding:

The Airport Express line was commissioned on February 23, 2011 after an investment of over ₹ 2,885 crore, funded by the
DAMEPL’s promoters’ fund and debt from banks and financial institutions.

DAMEPL had borrowed from 11 banks - Axis Bank, UCO Bank, Punjab and Sind Bank, Andhra Bank, Central Bank of India,
Dena Bank, Allahabad Bank, Canara Bank, Bank of India, IIFC UK and Canara Bank London -- to carry out operations on
the line.

Project Implementation:
Delhi airport metro express construction of the project took longer than SCOD.

DMRC given one month extension to 31 August 2010 deadline for the commencement of operations. In the second week of
September 2010 the line was denied a statutory safety clearance. The inspector found that emergency staircases and exit
points, false ceiling, electrification work, ticket counters, software and signalling were incomplete.

DMRC missed the commonwealth games deadline and hence required payment of compensation of Rs.37.5lakh per day till
30 September 2010, which will get double Rs.75 lakh per day from 15 October 2010. On 23 February 2011, actual
commercial operations commenced, with four of the six stations operational. However, only four trains were in operation till
April 2011.

The Airport Express was completed in just 27 months from start of civil works, less than half the time of similar projects
elsewhere in the world, and had been running for just 16 months before the shutdown.

Actual Traffic:

Actual passenger volumes on the airport line was quite lesser then the estimated target. In the initial 18 months of
operations, the Project had an average of 11,111 passengers in a day. Patronage was also quite affected by the decision to
close the line at 11.30p.m. Delhi airport has so many flights (specifically international services) taking off and landing early
hours of the morning and late at night.
It was noticed the line was unsafe at nights and inaccessible and the connectivity from the station was poor, with the good
access only from the three airport terminals.

Technical Glitches:
DMRC noticed faults in the civil structure on 8 July 2012, and the services were suspended.

The line remained shut for six months, only about 9,000 passengers used to travel every day (against the expected ridership
of 25,000) and speed was reduced to 50km/hr from 80km/hr.

In May 2012, a new problem was detected, this time in the bearings that support the line. The flaws have been present since
construction, according to an investigation by representatives from DMRC, Reliance, Indian Railways and the Delhi Ministry
for Urban Development.

Bearings between the girders and pillars in the elevated section of the structure were found to be imperfect or faulty. Out of
2,100 bearings around 230 needs a correction, as the initial inspection revealed. Rail clips hold the track to the support
beams on the line and prevent derailment.

Government claimed that services will resume in two months, after necessary repairs. Patronage has raised to around
14,000 to 17,000 passengers per day, before the suspension of services.

At the time, Reliance Infrastructure claimed the suspension of services was purely linked to safety and also admitted that the
line was not making profits and they will continue to run the line once the problems were resolved.

It was reported within less than two weeks that the defects were serious than earlier thought. As per the joint inspection
team consisting of representatives of both parties, some girders were been found cracked, not only 25% of the bearing
needs to be repaired. Lots of track clips were also found to be broken, on which the rails rest. And unlike the bearing and
girders (which was formed by DMRC’s civil works), and the tracks clips has been installed by DAMEPL as a role in
constructing the operating systems.

On 23 January 2013 the line re-opened. Initially trains were restricted to travelling at 50KMPH. And later on gradually speed
was raised to 70kmph. The patronage was around 10,000 passengers per day. In August 2012 change in Ownership of the
SPV, Reliance Infrastructure transferred 65% of its stake in DAMEPL to associate companies of the Anil Dhirubhai Ambani
Group.

It was also reported that DMRC officials feared Reliance Infrastructure was trying to reduce its liability or exit the partnership.
Afterwards DMRC officials issued notices to DAMEPL demanding an explanation that before diluting its stake why Reliance
Infrastructure didn’t consult them. DMRC considered this as a violation of the concession agreement.

As per the concession, after two years of the commencement of the agreement the concessionaire can restructure equity.
Reliance Infrastructure maintained that it doesn’t violate the agreement as the PPP was signed in March 2008. As per
Concession Agreement, in fact, equity stake dilution could be considered with permission of Authority after 2 years of COD.

As per the PPP contract, if DAMEPL find any issue or problem within the first 12months, so they should inform DMRC. And
also DAMEPL didn’t reach out DMRC in the first year of operation.

In return, DAMEPL claimed continued raising of concerns over passengers safely but DMRC said that metro can run on the
slow speed. DMRC claimed that DAMEPL started talking about the defects in the civil structure whereas DMRC refused to
defer payments of the concession fees. DAMEPL had conveyed to DMRC that they needed support from the public sector
partner because cash flow was badly affected at that time. Also DAMEPL demanded compensation from DMRC for the lost
earning due to non-operations of Delhi airport metro express line during the Commonwealth Games.

In October 2012, DAMEPL sent a termination notice, and it was completely rejected by DMRC. Then the matter went to
arbitration. Reliance Infrastructure also claimed that DMRC was liable to pay DAMEPL a termination payment equal to 100%
of the project debt and 130% of the project equity, and as the termination had arisen owing to a default by DMRC.

Then DMRC had proposed that the debt be repaid by the both Delhi Government and the Government of India. And after
arguing that the contract was between DMRC and DAMPEL, the urban development ministry rejected the proposal. The
responsibility lay with DMRC, as its projections of patronage has been inaccurate, reported by a ministry official. Later on
DMRC took the operations of the airport line with effect from 1 July 2013.

Arbitration:

The three-member arbitration committee craved out of a DMRC panel, began hearing the case in September 2013 and gave
its verdict after three-and-a-half years. The verdict held the agreement termination by DAMEPL as valid and awarded the
amount to SPV for INR 2950 crs.

Present Status:
DMRC took up operations of Project from Oct 2012 and several changes were introduced to attract more riders. These
included the rationalization of train timings, improved frequency, faster trains, and interportability of smart cards with the rest
of the Delhi Metro network. Finally, DMRC also introduced lower fares to boost ridership.

These changes seem to have worked. Between July 2013 and April 2016, daily ridership rose from around 10,000 to
35,800. Traffic demand grew at a faster pace than the fall in fares. Despite the lower fares, traffic earnings grew by 82%.
Presently, ridership has increased to 69,000 per day.

SPV had Rs 1,618 crore of loans extended by 11 banks. Reliance Infra moved court to expedite the payment as four banks
have already declared the loan account as NPAs and Allahabad Bank recalled entire loan to it.

In Jan 2019, Arbitration Award was overturned by higher courts and allowed parties to appeal against the order, if feel
aggrieved.

Exercise:
a. Create a risk profile of the Project.
b. Discuss the risks faced during various stages of Project and whether risk allocation was appropriate?
c. May you suggest concrete steps for improve the outcome for such PPP project?

-----------------