Reliance Infra of the Anil Dhirubhai Ambani group, an equal partner in the country’s first public-private partnership (PPP) project, has pulled out from the Airport Express Metro Rail. This move by Anil Ambani has left Metro holding a Rs 5,800 crore baby
Sadiq Naqvi Delhi
On the busy Dhaula Kuan intersection in the capital, a giant glass structure stands out, catching the eye of those going by. It is the third station on Delhi’s showcase Airport Express Metro Rail but few commuters are seen coming out of this swanky but deserted building at any given point of time. Unlike the other stations on the Delhi Metro Rail Corporation’s (DMRC’s) network, where you may find yourself jostled, the journey on this route is surprisingly peaceful, although it makes you poorer by Rs 180 if you decide to take the entire journey from New Delhi Railway Station to Sector 21, Dwarka. With commuters dropping to just about 5,000 people every day, many wonder if this project is the new white elephant in the government’s kitty.
Reliance Infra of the Anil Dhirubhai Ambani Group (ADAG), an equal partner in the country’s first public-private partnership (PPP) project, has recently pulled out after expressing its inability to run the Metro. This move by Anil Ambani has left the DMRC holding a Rs 5,800 crore baby. It also raises strong questions on the viability of the PPP model. Moreover, with the two parties locked in arbitration proceedings, there is a big chance that DMRC may have to repay the humungous debt of more than Rs 1,500 crore that Reliance Infra has taken from Axis Bank and others. It may also have to pay a 130 per cent return on the equity invested by Ambani’s company.
According to the Concessionaire Agreement signed between DMRC and Reliance Infra, the latter was supposed to run the Rs 5,800 crore project for a period of 30 years as an ‘agent’. For the project, Reliance Infra, which claims to be the biggest infrastructure company of the country, had created a special- purpose vehicle, the Delhi Airport Metro Express Private Limited (DAMEPL), with 95 per cent equity being held by the company. “The termination clause had to be invoked by DAMEPL, as DMRC had persistently failed to cure the substantial defects in the civil structure designed and built by DMRC, within the period prescribed under the Concession Agreement, and on account of Material Breach and Event of Default by DMRC arising under the agreement as a result thereof,” the company said in a statement.
It put the blame squarely on the DMRC for it has done the civil structures which were found to be faulty. Interestingly, Lalit Jalan, the CEO of Reliance Infra, while announcing the quarterly profit results, had said in May this year that the company hoped to achieve the break-even (EBITDA) on the Airport Express line project this financial year.
Owing to the defective civil structures, the route had to be shut for six months in 2012. (The route had already been delayed after Reliance Infra failed to deliver it in time for the Commonwealth Games.) Even before the route was re-opened in October 2012, a contract termination notice from Reliance Infra was on its way. The reason given was that the DMRC failed to cure the defects in the civil work. Once the route was reopened, the company claimed compensation to the tune of a whopping Rs 700 crore from the DMRC for the damages that it had incurred on account of closure, dent in its reputation, and so on.
The problem in the civil structure was a big setback for the premium project. It was a huge dent in the DMRC’s reputation as an ‘efficient’ and ‘professional’ organization which has a record of delivering projects before time. The inquiry report by the two-member committee comprising an additional member, the Railway Board, and a senior official from the Union Ministry of Urban Development (MoUD) concluded that both the DMRC and Reliance Infra are equally to be blamed for the mess (See box).
Interestingly, a supplementary note to the report prepared by D Diptivilasa, Additional Secretary, MoUD, pinned the blame on DMRC Chief Mangu Singh who was then Director (Works) and Keshav Verma, Director (Projects). It went on to name them for poor civil work and their failure to oversee the project.
Reliance Infra bagged the project after an aggressive bid wherein it promised to pay DMRC Rs 51 crore every year as concession fee each year which would increase by five per cent on an early basis, and one to five per cent as revenue share. In lieu, it got the rights to operate the route for 30 years
The matter was also referred to the Chief Vigilance Commission (CVC) in June when Sudhir Krishna, Secretary, MoUD, wrote a letter to the CVC, asking him to suggest appropriate action. This was after questions were raised on the MoUD’s jurisdiction over the DMRC, which is equally owned by the Delhi government and the central government. “There have been ego battles with the MoUD ever since DMRC was founded. Many top officials in the MoUD don’t like DMRC’s freedom which came largely due to the clout that ‘Metro Man’ E Sreedharan wielded when he was at the helm,” says a source. “There was absolutely no need to go to the CVC for such a trifling matter. The cost of the defective material is a meagre Rs 1 crore,” says a DMRC official. Even the Delhi government is said to be unhappy over the matter being referred to the CVC. Once the decision comes, it will be binding on DMRC officials.