INFRASTRUCTURE FINANCE

Semester - IV

2011
Delhi Metro

Submitted To: Mr. Kumar Bijoy

FROM: Sundeep Jakhar

Roll No: 2339

MFC Part – II : Department of Financial Studies,

UDSC

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Table of Contents
Introduction...........................................................................................................................................3
About Metro Rail in Delhi......................................................................................................................3
Phase I of Delhi Metro Rail Project....................................................................................................4
Phase II of Delhi Metro Rail Project...................................................................................................5
Property Development......................................................................................................................6
Financial Costs of the Metro..................................................................................................................6
Social - Economic Benefits of Metro......................................................................................................8
Social - Economic Evaluation of Metro..................................................................................................9
SWOT Analysis of Delhi Metro.............................................................................................................10
Conclusion...........................................................................................................................................11

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Introduction

The growing demand for public transport in mega cities has serious effects on urban ecosystems,
especially due to the increased atmospheric pollution and changes in land use patterns. An
ecologically sustainable urban transport system could be obtained by an appropriate mix of alternative
modes of transport resulting in the use of environmentally friendly fuels and land use patterns. The
introduction of CNG in certain vehicles and switching of some portion of the transport demand to the
metro rail have resulted in a significant reduction of atmospheric pollution in Delhi. The Delhi Metro
provides multiple benefits: reduction in air pollution, time saving to passengers, reduction in
accidents, reduction in traffic congestion and fuel savings. There are incremental benefits and costs to
a number of economic agents: government, private transporters, passengers, general public and
unskilled labour.

About Metro Rail in Delhi

Delhi, the capital city of India, is one of the fastest growing cities in the world with a population of 13
million as reported in the Census of India Report for the year 2000. Until recently, it was perhaps the
only city of its size in the world depending almost entirely on roads as the sole mode of mass
transport. The total length of the road network in Delhi has increased from a mere 652 km in 1981 to
1122 km in 2001 and it is expected to grow to 1340 km in the year 2021. This increase in road length
is not at par with the phenomenal growth in the number of vehicles on these roads in Delhi. The
cumulative figure of registered private and government buses, the main means of public transport, is
41,872 in 1990 and it is expected to increase to 81,603 by the year 2011. The number of personal
motor vehicles has increased from 5.4 lakhs in 1981 to 30 lakhs in 1998 and is projected to go up to
35 lakhs by 2011. With gradual horizontal expansion of the city, the average trip length of buses has
gone up to 13 km and the increased congestion on roads has made the corresponding journey time of
about one hour. Delhi has now become the fourth most polluted city in the world, with automobiles
contributing more than two thirds of the total atmospheric pollution.

In this context, the decision of the Government of India to develop a mass transport system for Delhi
providing alternative modes of transport to the passengers was most appropriate.

The first concrete step in the launching of an Integrated Multi Mode Mass Rapid Transport System
(MRTS) for Delhi was taken when a feasibility study for developing a multi-modal MRTS system

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was commissioned by the Government of the National Capital Territory of Delhi (GNCTD) at the
instance of the Government of India in 1989 and completed by Rail India Technical and Economic
Services Limited in 1995 (RITES).

For implementation and subsequent operation of Delhi MRTS, a company under the name DELHI
METRO RAIL CORPORATION was registered on 03-05-95 under the Companies Act, 1956. DMRC
has equal equity participation from GOI and GNCTD.

Delhi Metro is a world-class metro. To ensure reliability and safety in train operations, it is equipped
with the most modern communication and train control system. It has state-of-art air-conditioned
coaches. Ticketing and passenger control are through Automatic Fare Collection System, which is
introduced in the country for the first time. Travelling in Delhi Metro is a pleasure with trains
ultimately available at three minutes frequency. Entries and exits to metro stations are controlled by
flap-doors operated by 'smart-cards' and contact less tokens. For convenience of commuters, adequate
number of escalators are installed at metro stations.

Unique feature of Delhi Metro is its integration with other modes of public transport, enabling the
commuters to conveniently interchange from one mode to another. To increase ridership of Delhi
Metro, feeder buses for metro stations are Operating. In short, Delhi Metro is a trendsetter for such
systems in other cities of the country and in the South Asian region.

The Delhi Metro (DM) planned in four phases is part of the MRTS. The work of Phase I and part of
Phase II is now complete.

Phase I of Delhi Metro Rail Project

Line Length (Kms) No. of Stations

Line No.1- Shahdara-Tri Nagar-Rithala 22.06 18

Line No.2- Vishwa Vidyalaya-Central Secretariat 10.84 10

Line No.3- Indraprastha-Barakhamba Road-Dwarka Sub City 32.10 31

Total 65.00 59

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Phase II of Delhi Metro Rail Project

Line Length (Kms) No. of Stations

Shahdara – Dilshad Garden 3.09 3

Indraprastha – Noida Sector 32 City Centre 15.07 11

Yamuna Bank – Anand Vihar ISBT 6.17 5

Vishwavidyalaya – Jahangir Puri 6.36 5

Inderlok – Kirti Nagar -Mundka 18.46 15

Central Secretariat – HUDA City Centre 27.45 19

Dwarka Sector 9 to Dwarka Sector 21 2.76 2

Airport Express Line 22.70 6

Anand Vihar – KB Vaishali 2.57 2

Central Secretariat – Badarpur 20.04 15

Total 124.63 83

In further expansion of its network, DMRC plans to add another 105 km instead of 70 km as proposed
earlier in the third phase and expected to be completed by March 2016.

Property Development

While sanctioning Delhi MRTS Phase-I project in 1996, the Union Cabinet had mandated that
approximately 7% of the initial project cost should be generated through property development on
lands transferred to DMRC for the project. In addition recurring income should be generated through
property development for paying back subordinate debts etc. in future years. Most of the land was to
be made available to DMRC on 99 years lease at nominal rent at interdepartmental transfer rates.

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DMRC set up a Property Development Wing in1999, for implementation of this scheme. Planning of
property development work was taken up under the different types of arrangements noted below:

 6 - 12 yr license for spaces within station buildings for commuter related vendors such as
ATMs, Kiosks for refreshments, magazines etc.

 30 yr Concession for commercial developments on vacant land pockets adjacent to MRTS

stations.

 Long-term lease (50-90 yrs) on land pockets, in depots, etc, not immediately needed for
operational structures.

 Advertisement through agencies.

 Within station premises

 On DMRC structures between stations

 Within DMRC's commuter trains

Substantial progress has been made in implementing such works on Phase I routes. Some residual
development works are still continuing on these routes. Planning has also been taken up in a similar
manner on the following routes for MRTS Phase II project, sanctioned in 2005.

Financial Costs of the Metro

The financial evaluation of a project requires the analysis of its annual cash flows of revenue and
costs considering it as a commercial organization operating with the objective of maximizing private
profits. The investment expenditures made by the project in one of the years during its life time
constitutes the purchase of capital goods, cost of acquisition of land and payments made to skilled and
unskilled labour and material inputs for project construction. The operation and maintenance cost of
the project constitutes the annual expenditure incurred on energy, material inputs for maintenance and
payments made to skilled and unskilled labour.

Table 1 provides the sources of funding investments of DM (phases I and II). More than 60 percent of
the funds required for investment are raised as debt capital. Around 30 percent of total investments of
DM are raised through equity capital with the Government of India (GOI) and GNCTD having equal
shares in it. The remaining 10 percent of the investments of DM will be covered out of the revenues it
earns.

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 Table 1: Sources of Funding

Cost Financed By Phase I Phase II

1) Equity (50% each by GOI & GNCTD) 30% 30%

2) Long Term Debt (OECF, Japan) @ 3% p.a. or less 60% 56%
(with a 10 year moratorium period and 10 year repayment period)
5%+ 5% (internal
3) Revenues From Property Development 7% resources)
4) Subordinate Debt 3% 4%
Source: RITES (1995a)

As reported in RITES , the DM had been provided with the following concessions by GOI to make
the project viable, namely

 The cost of land equivalent to Rs. 2180 million has been provided as an interest free
subordinate loan by GOI/GNCTD to be repaid by the DM within 5 years after the senior debt
is repaid fully by the twentieth year of taking the loan.
 The risk associated with the exchange rate fluctuations is borne by government in case of
foreign debt.
 The DM is exempted from payment of income tax, capital gains tax, property tax and customs
duty on imports.
 The DM is permitted to generate resources through property development over a period of 6-
20 years.
 No dividend is paid on GOI share of equity till the senior debt is repaid fully by the twentieth
year.

The capital cost of completion of has been estimated as follows :

Phase Length ( Km ) Cost ( Rs. Crores )

I 65 10,571
II 124.60 16,000
III 105 28,000

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Social - Economic Benefits of Metro

Description of economic benefits and costs of the Delhi Metro requires the identification of the
changes brought out by it in the transport sector of the economy. Most importantly, DM contributes to
the diversion of a very high proportion of current passenger traffic from road to Metro and serves part
of the growing passenger traffic demand in Delhi. As a result, there will be a reduction in the number
of buses, passenger cars and other vehicles carrying passengers on Delhi roads with the introduction
of the Metro. There will be savings in travel time for passengers still traveling on roads due to reduced
congestion and obviously also for those traveling by Metro. The Metro also brings about a reduction
in air pollution in Delhi because of the substitution of electricity for petrol and diesel and reduced
congestion on the roads. There will also be a reduction in the number of accidents on the roads.

Investment in the Metro could result in the reduction of government investments on road
developments and buses as also in the private sector investment on buses, passenger cars and other
vehicles carrying passengers. There will be reductions in motor vehicles’ operation and maintenance
charges to both the government and the private sector. There could be cost savings to passenger car
owners in terms of capital cost and operation and maintenance costs of cars if they switch over from
road to Metro for travel in Delhi. The fare box revenue collections by Metro will be at the cost of the
revenue, accruing earlier to private and the government bus operators and hence constitutes a loss in
income.

The Delhi public will gain substantially with the introduction of the Metro service. It saves travel time
due to a reduction of congestion on the roads and lower travel time of the Metro. There will be health
and other environmental benefits to the public due to reduced pollution from the transport sector of
Delhi. Land and house property owners gain from the increased valuation of house property prices
due to the Metro. The Metro has the effect of increasing the income of the regional economy of Delhi
vis a vis the rest of the Indian economy. Given that the per capita income of Delhi is far higher than
the national per capita income, the redistribution of income in favour of Delhi may not be desirable
from the point of view of income distribution in the Indian economy. The Metro provides
employment benefits to the unskilled labour especially during itsconstruction period. This labour
is otherwise unemployed or under employed in the Indian economy.

The economic benefits from the reduced number of vehicles on Delhi roads due to the Metro could be
identified as the following:

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  Reduction in the number of vehicles on road
 Savings in the cost of Road Infrastructure
 Savings in fuel consumption
 Reduction in air pollution
 Savings due to fewer accidents
 Savings in passenger time
 Savings in vehicular operating costs due to the decongestion effect
 Savings in Capital and Operating Cost of Diverted vehicles

Social - Economic Evaluation of Metro

The economic agents affected by having the Metro operational in Delhi could be identified as
government, passengers, general public, private transporters and unskilled labour.

The Government gets fare box revenues, revenues from property development and advertisements
and tax revenue on the goods and services bought for the investments and operation and maintenance
of the Metro while it suffers revenue losses due to the displaced public buses. It incurs the investment
and operation and maintenance cost of the Metro while it saves the cost on road infrastructure and the
capital and operating cost of displaced public buses.

The Passengers gain to the extent of the difference between the fares paid to buses in the absence of
the Metro and the fares charged by the Metro. There are also benefits due to a reduction in accidents
to the passengers due to the functioning of the Metro.

The Private transporters lose the revenue from displaced private buses but at the same time save on
their capital and operating costs.

The Unskilled labour employed on the construction and maintenance of Metro gain to the extent of
the difference between the project wage rate and the wage rate in an alternative employment in India.

The General public representing the Indian society receives the benefits of social premium on
investment and foreign exchange and the environmental benefits of reduced pollution due to the
Metro. There are foreign exchange costs and foreign exchange benefits from the Metro. Foreign
exchange cost accounts for 60 percent of the investment cost of the Metro. There are foreign exchange
benefits to the extent of reduced fossil fuel consumption due to a change in the mode of transport.

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SWOT Analysis of Delhi Metro

Strengths

 Cost-effective mode of transport for the general public of Delhi.

 Reduce congestion on roads making movement easier.
 Reduce atmospheric pollution to a great level making the environment healthy.
 Ultra-modern technology and visually striking design, dynamic and modern, competitive
and World Class.
 Reduce travel time: One hundred per cent punctual operations.
 Safer Mode of transport for Women.
 The voluntary International Standardization Organization (ISO) 14,000 certification.

Weakness

 Metro considerably more expensive than the bus.

 Less ridership than estimated.
 High development cost.
 Displaced many economic backward people.
 Difficulties in acquiring land.

Opportunity

 Revenue from property development and advertisements.

 Potential to achieve higher ridership.
 The success of the Delhi Metro has encouraged other Indian cities to seriously attempt to
introduce Metro systems.
 The next Metro line in the city will be 10-15 per cent cheaper than the previous phases.
 based on the learning curve theory.

Threats

 A struggle on the part of those being displaced, and protests, petitions, hunger strikes,
 negotiations and legal action have all been initiated.
 Security threat.
 Risk of cost overruns and ridership shortfalls.
 Increase in cost of the parts

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Conclusion

The Delhi Metro planned in four phases is part of an Integrated Multi Mode Mass Rapid Transport
System (MRTS) planned for dealing with the fast growing passenger traffic demand in Delhi. It
provides an alternative safe and comfortable mode of transport by rail to a large fraction of passengers
using the road transport in Delhi. It reduces the travel time of people using the road and Metro,
number of accidents on roads and the atmospheric pollution.

The social cost-benefit analysis of the Metro requires the identification of benefits and the economic
agents affected by it. The incremental changes in the incomes of various economic agents: passengers,
transporters, public and government and unskilled labour due to the Metro could be estimated by
considering the Delhi economy with and without the Metro. It is found that there are income gains to
the government, public, passengers and unskilled labour while there are substantial income losses to
the transporters because of the Metro.

Funding of such a huge project and operating it by charging passengers a reasonable fare without
government subsidies were DMRC's two biggest challenges. While 80 per cent of DMRC's earnings
come from passenger services, it earns 20 per cent via advertising, property development and
consultancy. Project implementation and financial viability of its operation, in turn, have been its two
greatest achievements. The efficient planning and timely execution of projects by DMRC have set a
benchmark for other companies, not just in building metro networks but also in other infrastructure
ventures. DMRC has shown how mega projects can be completed within the stipulated
timeframe and predefined budget despite hurdles.

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