Mumbai metro caught in dispute even before it starts operations
Mumbai Metro One, majority owned by Reliance
Infrastructure, has told the Maharashtra government that a fare
hike was required because the construction cost has jumped 84 per cent
from the original estimates due to delays.
The demand to raise Mumbai metro fares has irked the Maharashtra government <em>Photo: Nishikant Gamre/www.indiatodayimages.com</em>
Mumbai's Ghatkopar railway station turned into a fish tank on many a rainy day this monsoon season, stopping trains from plying. While torrential rains are common in Mumbai, the station's troubles were man-made. A cascade of water would overflow from the under-construction Ghatkopar Metro station and flood the tracks on the city's busy central line rail network. Not a sight that inspires confidence in the future of Mumbai's transport infrastructure.
The confidence was shaken further in February 2012* when the company tasked with building, running and maintaining the metro sought a steep hike in fares even before it started operating the network. Mumbai Metro One Pvt Ltd (MMOPL), majority owned by Reliance Infrastructure, told the Maharashtra government last month that a fare hike was required because the construction cost has jumped 84 per cent from the original estimates due to delays.
Reliance Infrastructure, headed by industrialist Anil Ambani , owns a 69 per cent stake in MMOPL. The Mumbai Metropolitan Region Development Authority (MMRDA) controls 26 per cent while the remainder is held by French transport company Veolia.
People familiar with the development say MMOPL has asked for increasing the maximum fare to Rs 38. The company, however, says it has sought a maximum fare of Rs 33. Still, that is more than a three-fold hike from the current Rs 10.
The troubles with the Mumbai metro come barely months after Reliance Infrastructure exited New Delhi's airport metro line, citing disputes with Delhi Metro Rail Corporation.
The Mumbai project is the country's first privately built and operated metro railway. The first phase, from Versova in the west to Ghatkopar via Andheri, passes through 11.4 km of some of the most congested areas in the suburbs. Reliance Infrastructure won the bid for the project in 2007/08. Since then the project has undergone many changes in route, design and planning. It also faced delays in getting regulatory approvals. As a result, the project cost has surged to Rs 4,321 crore from Rs 2,356 crore estimated initially.
The state government isn't amused. Maharashtra Chief Minister Prithviraj Chavan has said the government might consider taking the project away from Reliance Infrastructure altogether. While that might be the last resort, there are few indications the state government will budge anytime soon.
"They have given us the revised project cost, but they still have to give us the break-up of that cost and the justification of those items," says U.P.S. Madan, Metropolitan Commissioner, MMRDA. He says the agreement between the state government and Mumbai Metro One has clear clauses that limit the scope of a fare hike. Even in the case of a proposed increase, the company will have to furnish detailed reports on why the delays happened and who is responsible. The company has not submitted any such report, says Madan.
Reliance Infrastructure, which also builds highways and power projects, refuses to take the blame. "This project was mired in extremely poor planning by government agencies," a spokesperson for MMOPL said in an email to Business Today. MMOPL estimated the construction period and cost based on a project report prepared by Delhi Metro Rail Corporation, it said. In its email, the company provided details of much of the extra work it has done. But, there was little clarity on the amount it spent for the extra work.
Not everyone is convinced by the company's arguments. A Mumbai-based analyst, who didn't want to be named, says Reliance Infrastructure failed to do proper due diligence on the project. It also ordered more rakes than it requires for starting operations, the analyst says.
Madan, the metropolitan commissioner, says the company initially estimated its rolling stock cost would be Rs 500 crore but is now expecting it to be Rs 700 crore. "They can't claim any fare revision for that. That is their miscalculation of market conditions," he says. MMOPL, however, says that, as per the contract executed in 2008, it had estimated Rs 500 cr for additional 44 coaches. "This will make metro future proof to handle increase in demand. We have not revised our estimate," it says.
Madan also says that the onus of proving the delays were the government's responsibility lies with Reliance Infrastructure. "The agreement talks about increase in operational costs. Operation has not yet started," he adds. "So, whether that increase in costs can be considered at all, that is the first legal issue."
Analysts say the issue will likely go into lengthy arbitration, and there are few indications how it will pan out. Meanwhile, project cost continues to escalate. Both parties say they are keen to start the Versova-Andheri-Ghatkopar line, probably by December. But while they battle it out, Mumbaikars will be hoping it won't take until next year's monsoons to end.
(*A Reliance Infrastructure spokesman has clarified that the first letter in this regard to Mumbai Metropolitan Region Development Authority was written in February 2012 and not August this year as mentioned in the print version of this copy. We regret the error.)
The confidence was shaken further in February 2012* when the company tasked with building, running and maintaining the metro sought a steep hike in fares even before it started operating the network. Mumbai Metro One Pvt Ltd (MMOPL), majority owned by Reliance Infrastructure, told the Maharashtra government last month that a fare hike was required because the construction cost has jumped 84 per cent from the original estimates due to delays.
Reliance Infrastructure, headed by industrialist Anil Ambani , owns a 69 per cent stake in MMOPL. The Mumbai Metropolitan Region Development Authority (MMRDA) controls 26 per cent while the remainder is held by French transport company Veolia.
People familiar with the development say MMOPL has asked for increasing the maximum fare to Rs 38. The company, however, says it has sought a maximum fare of Rs 33. Still, that is more than a three-fold hike from the current Rs 10.
The troubles with the Mumbai metro come barely months after Reliance Infrastructure exited New Delhi's airport metro line, citing disputes with Delhi Metro Rail Corporation.
The Mumbai project is the country's first privately built and operated metro railway. The first phase, from Versova in the west to Ghatkopar via Andheri, passes through 11.4 km of some of the most congested areas in the suburbs. Reliance Infrastructure won the bid for the project in 2007/08. Since then the project has undergone many changes in route, design and planning. It also faced delays in getting regulatory approvals. As a result, the project cost has surged to Rs 4,321 crore from Rs 2,356 crore estimated initially.
The state government isn't amused. Maharashtra Chief Minister Prithviraj Chavan has said the government might consider taking the project away from Reliance Infrastructure altogether. While that might be the last resort, there are few indications the state government will budge anytime soon.
Reliance Infrastructure, which also builds highways and power projects, refuses to take the blame. "This project was mired in extremely poor planning by government agencies," a spokesperson for MMOPL said in an email to Business Today. MMOPL estimated the construction period and cost based on a project report prepared by Delhi Metro Rail Corporation, it said. In its email, the company provided details of much of the extra work it has done. But, there was little clarity on the amount it spent for the extra work.
They have given us the revised project cost, but they still have to give us the break-up of that cost and the justification of those items: U.P.S. Madan, Metropolitan Commissioner, MMRDA
Madan, the metropolitan commissioner, says the company initially estimated its rolling stock cost would be Rs 500 crore but is now expecting it to be Rs 700 crore. "They can't claim any fare revision for that. That is their miscalculation of market conditions," he says. MMOPL, however, says that, as per the contract executed in 2008, it had estimated Rs 500 cr for additional 44 coaches. "This will make metro future proof to handle increase in demand. We have not revised our estimate," it says.
Madan also says that the onus of proving the delays were the government's responsibility lies with Reliance Infrastructure. "The agreement talks about increase in operational costs. Operation has not yet started," he adds. "So, whether that increase in costs can be considered at all, that is the first legal issue."
Analysts say the issue will likely go into lengthy arbitration, and there are few indications how it will pan out. Meanwhile, project cost continues to escalate. Both parties say they are keen to start the Versova-Andheri-Ghatkopar line, probably by December. But while they battle it out, Mumbaikars will be hoping it won't take until next year's monsoons to end.
(*A Reliance Infrastructure spokesman has clarified that the first letter in this regard to Mumbai Metropolitan Region Development Authority was written in February 2012 and not August this year as mentioned in the print version of this copy. We regret the error.)
