The concept of a metro rail for Delhi first emerged in 1969-70 but DMRC was formed in May 1995 with equity participation by the GOI GNCTD in the ratio of 50:50, i.e., equal participation. The national and Delhi state governments aimed to develop a rail-based transport system that would alleviate Delhi's ever growing transport congestion and vehicular pollution. The detailed project report (DPR) and feasibility study for the different phases of the project was prepared by Delhi-based Rail India Technical and Economic Services (RITES). The major funding for this project has been through a soft loan disbursed by the Japan Bank for International Cooperation (JBIC). Thus, the government of Japan has contributed more than half the cost of this project. Delhi's first metro line was operational in 2002 and today three functioning lines connect central Delhi to east, north, and southwest Delhi. The metro rail system, to be constructed in four phases covering 245 kilometers, is scheduled to be finished in 2021. DMRC is responsible not only for construction of the system but also for its operation and maintenance. It has 450 personnel in its construction department and 3,000 staff for system operation and maintenance. Supply chain partners provide critical support, including labor, machinery and components, and maintenance services.
Investment has varied meanings in economics and finance. In finance, investment is regarded as putting money into something with the expectation of a gain, usually over a longer term. Thus, it is application of funds to hold assets over a longer term in the hope to achieve gains. It usually involves diversification of assets in order to avoid unnecessary and unproductive risk. As urban MRT projects are meant to provide a safe, speedy and affordable mode of travel to the commuters, they have not generally been found to be financially viable in the most cities of the world, despite their large economic benefits. It was crucial for DMRC to develop a strong funding strategy. Investments are often made indirectly through intermediaries, such as pension funds, banks, brokers, and insurance companies. These institutions may pool money received from a large number of individuals into funds such as investment trusts, unit trusts, SICAVs etc to make large scale investments. Each individual investor then has an indirect or direct claim on the assets purchased, subject to charges levied by the intermediary, which may be large and varied. For the Delhi Metro Project, Japan Bank of International Corporation (JBIC) has extended significant support in funding the four phases of the project. Since it was observed that India has huge infra deficit. India needs to build airport, roads and highways. However, in every sector of infra, India will be catching up with past and will not be building for the future. Here lies the main difference in selecting Japan to finance the project. In Japan there is a new level of infra. While in India we are catching up with deficit, Japan on the other hand is way ahead. Delhi being national capital and international city, the GOI and GNCTD must also contribute to meet part of these costs. It has accordingly been decided that the project will be financed by way of equity contributions from the GOI / GNCTD, soft loan from the OECF (Japan), property development revenue and certain decided levies / taxes on the city dwellers. The loan will rapid partly from surpluses from the box revenue, partly through dedicated levies / taxes in the NCT. The financial plan of the project has been approved by the GNCTD and GIO on24.7.1996 and 17.9.19996 respectively. It is essential to raise appropriate funds for the successful completion of the project. Timely provision of funds enables smooth and efficient functioning. The following strategies were established in the various phases of development of the Delhi Metro:
The investment proposal for Phase-I of the Delhi MRTS Project was approved by the government on 17th September, 1996. The total estimated cost of the project was INR 10571 crore. Of this the Japan Bank for International Cooperation (JBIC) extended the maximum amount in six tranches, with the first one in 1997. The loan carried rate of interest for this project is 1.2 per cent per annum. The loan has a repayment period of 30 years with a moratorium period of 10 years. The SPV, DMRC, was set up with equal equity participation from the union and the Delhi governments. Approximately 28 per cent of the project cost was raised through equity contributions, jointly financedA by the Government of IndiaA (GoI) andA Government of Delhi. In addition to this, they provided a subordinate loan to cover the cost of land acquisition, which has a share of 5 per cent. Another 60 per cent has been raised as a subordinate debt through soft loans from JBIC. The balance 7 per cent funds were internally generated through property development.
Funding Plan of Phase I A feature1_may_2010_400 Source: Delhi Metro Rail Corporation A Cumulative expenditure incurred upto 31.3.2007 is Rs.10349.59 crore. Cumulative physical progress is 100%. As grant-in-aid, the Metro has received 1,914.3 crore from various agencies. The Delhi Metro has also paid back an amount of 567.63 crore which includes loan amount for Phase I and interest amounts for Phases I and II, to the Japan International Cooperation Agency (JICA).
The total estimated cost for the project that had been approved by the Government was INR 190 billion. Of this total investment, initially JBIC was to finance 48 per cent through equity participation. But JBIC contributed only 30 per cent. However the 18 per cent will not fall under the union and state government's share. Approximately 36 per cent is being financed through government.A The remaining amount is being funded from property development, internal resources, and subordinate debt. The economic internal rate of return for this phase is estimated at 23.63 per cent and the financial internal rate of return at 8.18 per cent.A The INR2885 crore airport express line under this phase has been funded on a debt-equity ratio of 70:30. While RInfra holds 95 per cent equity, the Spanish partner holds the remaining. However, the SPV had raised a debt of INR25 billion in March 2009 at an interest rate of 13 per cent, against the requirement of INR20 billion.
Japan being hit by a disaster was not entirely sure to fund the phase III of the project. However after due diligence, the impasse over the sanctioning of the soft loan was finally over. Japan agreed to release the first installment of the 105km project in December 2011. Japan Bank of International Corporation was all set to finance the INR 32000 crore projects. The project will be financed in a debt equity ratio of 60:40 under which the Centre and the Delhi governments will contribute 30% each and the rest will be raised by soft loans from JBIC In this phase the loan will be sanctioned at 1.40% rate of interest to be repaid in 30 years with a grace period of 10 years. Earlier, JBIC had given a soft loan to Delhi Metro at different rates of interest varying between1.2% to 2.3% in Phases I and II. Appreciating the sustainability of the relationship between India and Japan for Metro projects, the only viable reason for reducing the commitment is decrease in demand for monetary support by the Delhi Metro. This is evident as in the first phase, JBIC had given Delhi Metro 60% of the INR10571 crore project cost, while in the second phase the metro had received 55% of INR19600 crore from JBIC. In phase III, DMRC has asked for only 40% of about INR32000 crore. The Phase III project has already got clearances from the state and the Centre and both the governments have made budgetary provisions to meet the initial cost. TheA Delhi Metro Rail Corporation (DMRC)A projects have been allocated INR.2216 crore in the budget for 2012-13. TheA money will be spent on construction and extension of the Metro network in the national capital.
Japanese funding agencies which have extended financial support for the previous three phases of the Delhi Metro has shown enthusiasm to fund in the future plans as well. The Phase IV of the Delhi Metro project has 440 km of area of coverage. With the completion of the fourth phase, the largest metro in the world will be produced.
DMRC recorded a total income of INR7.24 billion in the financial year 2008-09, inclusive of income from operations, real estate, consultancy, and other income. It registered an increase of 43.51 per cent over the total income of INR5.04 billion recorded in 2007-08. The company recorded a net profit of INR413.2 million, as against a net loss of INR482.59 million in 2007-08.
The company's total expenditure stood at INR2.62 billion, an increase of 24.47 per cent over the year 2007-08 when it recorded a total expenditure of INR2.11 billion. Funding Strategy: Delhi Metro Rail Corporation (DMRC) v/s Bangalore Metro Rail Corporation Limited (BMRCL) Bangalore Metro Rail Corporation Limited BMRCL is a public sector company jointly owned (50:50) by the central and state governments. It is responsible for the implementation of Bangalore Metro Rail Project (Namma Metro), aimed at providing a rapid transit rail system for Bangalore. The project was prepared by DMRC and submitted to BMRCL in May 2003. The proposed gauge was a standard gauge unlike the broad gauge of the Delhi Metro Network. The rationale for the metro includes reduced journey times, cutting fuel use, accident reduction and lower pollution. GOI approved on 11th May 2006 followed by MOU between GOI-GOK-BMRCL dated on 24th December 2010. The Government sanctioned completion cost of INR11609 crore. Particulars GOI GOK TOTAL Equity 15% 15% 30% Sub-Debt 10% 17% 27% Senior Term Debt 43% Grand Total 100% While Delhi metro is fully funded by government equity and JICA sovereign- guaranteed debt, GOK, BMRCL decided to create a new financing model for the project which would be a mix of a. government equity, (30%) b. government subordinated debt,(27%) c. and Pass Through Assistance form JICA, (25%) and leverage these sources to raise the balance of 18 % as commercial debt from financial institutions. The strategy adopted by BMRCL to fund the Namma Metro Project faced many challenges and legal issues. The Challenge: a. Structuring a non-sovereign long-term MDB loans with interest below market rates. b. With no legal hurdles for MDB to lend directly to an entity wholly owned by the Government c. To structure a credit enhancement mechanism between respective Government entities and borrower (BMRCL) for payment mechanism d. Support of GOI and GOK in the construction of the repayment arrangements. A Legality: The threshold issue Can a foreign entity directly lend to a Company (BMRCL) fully owned by the government? The Constitution of India - Article 293(Borrowing by States) bars lending by a foreign entity directly to State Governments. However, BMRCL is a company created under the Indian Companies Act 1956 and should be regarded as different entity from the state government like any other State run companies SecurityArrangements: All security would be equally shared on pari passu among the lenders in the payment waterfall under the TRA into which all Project revenues will flow.Hypothecation and mortgage of assets of BMRCL will be with the Security Trustee created for the purpose. Inter creditor Agreement between the lenders is being finalized on which basis a Security Account to be opened at an acceptable Bank in Bangalore under a Security Trustee Agreement. ADB Facility Agreement contains terms and conditions that are customary in project financing transactions. As per the MOU, if BMRCL was not able to maintain the debt service ratio, then GOK to step in with additional sub-debt. While this condition would satisfy domestic lenders, appreciating that foreign loans would require a different comfort mechanism, GOKBMRCL working closely with ADB designed additional security/guarantee in the form of Concession Support Agreement.
In the seven years since its inauguration, the metro has carried over one billion passengers. On opening, about 35,000 passengers were using the line daily. With addition of lines, there has been a constant upswing in ridership. Presently, 0.85 million passengers use the metro per day.
Citizens of Delhi are deriving various indirect benefits from the Delhi metro. A recent study conducted to assess these indirect benefits has revealed that Delhi metro has prevented 28,800 tonnes of carbon dioxide from being emitted into the atmosphere every year. For Phase II, DMRC has estimated that about 610 buses will be removed, resulting in a saving of INR890 million towards capital and operating costs. Further, savings of about INR3.24 billion will take place due to a reduction of private vehicles, INR3.66 billion due to a reduction in fuel consumption, and INR1.65 billion due to a reduction in investment in road infrastructure.
The Delhi metro is also the first railway project in the world to be registered for carbon credits by the United Nations. It has been certified to prevent release of over 90,000 tonnes of carbon dioxide by use of regenerative braking systems in trains. It is estimated that in 2008, release of 39,000 tonnes of carbon dioxide were prevented and this figure is expected to increase to over 100,000 tonnes per year when Phase II of the metro project is fully operational.
To improve connectivity, DMRC has introduced 120 feeder buses. It has also placed an order to purchase 300 air-conditioned compressed natural gas buses to act as feeder buses. In addition to feeder buses, it has also started a radio taxi service for Delhi metro commuters in association with a taxi service agency.
DMRC has gained recognition with time. Today, it has not only triggered metro projects in other cities but is also acting as a consultant for majority of the projects coming up in India. Whether these projects will replicate Delhi metro's success will only be seen with time.
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