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Indian Institute of Management
Ahmedabad
IIMA/F&A0522
Delhi Airport Metro: PPP in Distress
In January 2008, Delhi Airport Metro Express Private Limited (DAMEPL), a Special Purpose
Vehicle (SPV), entered into a Concession Agreement with Delhi Metro Railway Corporation
(DMRC) to develop, operate, and maintain India’s first Airport Express Line in the country,
on a public-private partnership (PPP) model. DAMEPL was a consortium formed by
Reliance Infrastructure Limited (RInfra) and Construcciones y Auxiliar de Ferrocarriles, S.A.
(CAF) of Spain with 95% and 5% stake respectively. DAMEPL executed the entire project,
except the civil works for viaduct, tunnel and stations, which had been executed and paid
for by the DMRC. The project was commissioned on February 23, 2011, after having missed
its scheduled opening date of July 31, 2010, to coincide with the Commonwealth Games
2010. The Public Private Partnership (PPP) structure of the project is shown in Exhibit 1.
On July 1, 2013, DAMEPL issued a press release that it had terminated the Concession
Agreement in October 2012 and served a notice on DMRC to take over operations. The
takeover of operations by DMRC was now complete. Given the ongoing problems with the
airport express, this announcement did not surprise most observers. However, it raised
questions about the role of Public Private Partnerships in metro rail projects, and more
generally in infrastructure projects. The strategy for the Twelfth Plan encouraged private
sector participation in infrastructure directly as well as through various forms of PPPs.
During the Plan period, infrastructure investment was projected to increase to 8.2% of GDP
with 9% in the last year, 2016-17. Almost 50% of the total investment in infrastructure was
expected to be financed by private sources during the Twelfth Plan as against 36% during
the Eleventh Plan period.1 More specifically, metro rail projects in Bangalore, Chennai, and
Kolkata involving an investment of ` 31,084 crore were under implementation. Metro
projects in Hyderabad and Mumbai, involving investment of more than ` 22,000 crore, were
being developed on a PPP basis.
In this context it was important to understand the reasons for the failure of the PPP in the
case of Delhi Airport Metro Express and how future projects could avoid a similar fate.
Project background2
In November 2003, India was selected to host the 2010 Commonwealth Games in New Delhi
in October 2010. The Airport Authority of India (AAI) anticipated a steep rise in air traffic at
Delhi airport accompanying the Commonwealth Games and proposed a metro link to
connect the Indira Gandhi International Airport (IGIA) to Connaught Place.3 In July 2004,
the work of preparing a feasibility study was assigned to the Delhi Metro Rail Corporation
(DMRC) which in turn assigned the work of preparing a Detailed Project Report (DPR) to
1
Planning Commission. (2013). Twelfth Five Year Plan (2012–2017). Government of India
2
DMRC. (2007, January 2). Executive Summary, Detailed Project Report for Metro Link to Airport.
In May 2006, the management of the IGIA was transferred to Delhi International Airport Limited (DIAL), a
consortium led by the GMR Group as part of a PPP venture.
3
Prepared by Professor Sidharth Sinha, Indian Institute of Management, Ahmedabad,
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for class
discussion. They are not designed to present illustrations of either correct or incorrect handling of
administrative problems.
© 2015 by the Indian Institute of Management, Ahmedabad.
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RITES Limited. DMRC, a joint venture company of the Government of India (GOI) and
Government of National Capital Territory of Delhi (GNCTD), was in the midst of executing
the Delhi Metro project.4 The Delhi Metro, unlike metro systems in many large cities,
provided no airport connection. RITES Limited (also known as Rail India Technical and
Economic Service), an engineering consultancy company specializing in the field
of transport infrastructure, was established in 1974 by the Government of India. The
company's initial charter was to provide consultancy services in rail transport management
to operators in India and abroad. RITES had since diversified into planning and consulting
services for other infrastructure, including airports, ports, highways, and urban planning.
According to the Detailed Project Report, the objectives of the metro link were:
 To serve as many air passengers as possible, either directly or through interchanges
with other modes
 Direct and shortest possible route to reduce journey time; the journey time should
not exceed 20 to 25 minutes
 High speed with minimum stoppages to minimise journey time
 Comfortable ride as desired by air passengers
 City check-in facilities
 Luggage check-in facilities for international passengers
The Airport Express Line (AEL) project envisaged setting up of a dedicated high speed 22.69
km long express metro line from the New Delhi Railway Station to the IGIA. The line would
run from the New Delhi station to the upcoming residential hub of Dwarka5 via IGI Airport
with a total of six stations. It would pass through Rajiv Chowk, Baba Kharak Singh Marg,
Gol Dak Khana, Willingdon/Mother Teresa Crescent, SP Marg, Dhaula Kuan, NH-8, Palam,
IGI Airport, and end at Dwarka Sector 21. AEL would cover a distance of 15.081 km
underground, 0.893 km at grade, and 6.720 km elevated. The operational speed of the trains
would be 120 km/hr and they would be operational for 20 hours with a head-way (time
between two trains) of ten minutes.6 The line would help passengers travelling by air to
check-in at stations within the city and would reduce the travel time to the airport from the
city centre to about 25 minutes as against 90-120 minutes by road.7 This would offer
significant time advantage to domestic and international business travellers who would
constitute around 60% of the projected ridership.
Traffic forecast
The Detailed Project Report traffic forecast was based on hourly counts of passengers at the
airport terminals and Origin-Destination surveys of departing and arriving air passengers
who were asked where in Delhi their trip began or would end.
4
Route map of Delhi metro is provided in Exhibit 2
5
Dwarka station was not part of the original DPR. It was added later on.
This is based on Delhi Airport Metro Express Private Limited, Rating Report, October 2010, ICRA Rating
Services
6
7 The contract requirement was for carrying passenger luggage via road from the airport metro station to DIAL
premises near the airport. The Government of India did not consider this process to be safe, secure, and reliable,
so it asked DMRC to put in a tunnel. DMRC in turn asked DAMEPL to build the tunnel. DMRC did the civil
work; DAMEPL did the system installation, and ventilation, etc.
National Council of Applied Economic Research. (2011, December). Seeking Efficiency and Excellence in the
Implementation of Infrastructure Projects in India. New Delhi, India: National Council of Applied Economic
Research. Retrieved from http://www.ncaer.org/free-download.php?pID=163
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It was estimated that about 1.7 lakh trips originated/terminated at the airport on a normal
working day. Out of these, about 40,000 were by passengers, 64,000 by the staff working at
the airport complex, and about 25,000 by visitors to the airport, with the remaining trips
attributed to drivers of private cars and taxis. The survey revealed that a large number of
passengers and workers (82%) were ready to move to the proposed system. Similarly, about
90% of the staff surveyed also expressed their willingness to shift to the Metro Link. About
46% of the surveyed passengers expressed their requirement for a city check-in facility.
On the basis of the traffic surveys, a daily traffic of 1.2 lakh passengers and 0.5 lakh visitors
was expected to use the airport in the year 2010-2011. Only 30% of this traffic would fall in
the influence area of the proposed dedicated metro link. It was assumed that about 50% of
this traffic would shift to the airport metro for their travel needs. Similarly, about 35% of the
total airport staff traffic fell in the influence area of this metro link and about 50% of them
were expected to use it. The locational and mode choice characteristic of visitors’ traffic to
the airport complex was assumed to be same as that of the airport bound passengers. On
this basis, daily traffic of about 42,500 people, comprising of 18,000 passengers, 17,000 staff,
and 7,500 visitors, was expected to use the airport link in the year 2011. Assuming a 5%
growth rate p.a. over the next ten years, the daily traffic on this link was expected to reach
69,000 by the year 2021.
It was felt that in order to attract passengers from private modes of transport and contract
carriage buses, the metro link would have to provide a fast, convenient, and comfortable
linkage. With this perspective, a direct dedicated metro link to the airport was
recommended as the most suitable option. Since the airport metro link was conceived as a
‘direct dedicated metro link to the airport’ with a special fare structure, it was not expected
to attract the daily traffic in the city. For this reason, it was not integrated with the existing
metro network. The fact that the airport metro would be used exclusively by domestic and
foreign air travellers, who would be less sensitive to the tariff charged, was considered a
positive feature for the project. In fact this appeared to have led Mr. Sreedharan, the then
MD of DMRC and a strong critic of the PPP mode for metro projects, to accept the airport
metro as a PPP project.8
As per the surveys, the maximum airport traffic was between the airport and Connaught
Place and its vicinity. On the basis of this finding, a direct metro link to Delhi Airport was
proposed from Connaught Place passing through Shanti Path, Rao Tula Ram Marg, NH-8,
and then into the airport area. Check-in facility would be provided at the Connaught Place
(New Delhi railway station) terminal and at Shivaji stadium. This was expected to attract
airport users from areas falling in the influence area of Connaught Place, such as Trans
Yamuna, and North, North West, and Central Delhi.
Project costs and revenues
The overall capital cost for the project, at the March 2006 price level, worked out to ` 2968
crore excluding taxes and duties, but including general charges @ 3% on all items except
land & rolling stock and 3% contingencies on all items including general charges. A
summary of the capital cost estimate is shown in Exhibit 3. With an estimated escalation
factor of 5% p.a. the project would cost ` 3294 crore on completion without taxes. This cost
8 PPP model not suitable for metro rails: DMRC's Sreedharan. (2010, October 20). Business Standard. Retrieved
from http://www.business-standard.com/article/economy-policy/ppp-model-not-suitable-for-metro-railsdmrc-s-sreedharan-110102000208_1.html
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did not include the element of interest during construction (IDC). Land cost was not
escalated since land acquisition would have to be completed in the initial two years of the
construction period and hence, would not be subject to any escalation.
For the purpose of calculating the Financial Internal Rate of Return (FIRR), the completion
cost without taxes of ` 3294 crore, and with taxes ` 3811.00 crore, was taken as the initial
investment. The cash flow of this investment was as presented in Table 1 below.
Table 1: Year wise Investment (Figures in ` crore)
Land Cost
Construction
Cost at
March-2006
Prices
Total Cost at
March-2006
Prices (Col
2+3)
Total Cost at
Escalated
Prices
without taxes
(Col 2+5)
Total Cost at
Escalated
Prices with
Tax
2006-07
19.00
205.00
224.00
224.00
256.00
2007-08
18.00
Year
733.00
751.00
788.00
910.00
2008-09
850.00
850.00
937.00
1086.00
2009-10
850.00
850.00
984.00
1140.00
2010-11
205.00
205.00
259.00
289.00
2011-12
88.00
88.00
112.00
130.00
2931.00
2968.00
3294.00
3811.00
Total
37.00
An additional investment of ` 559 crore without taxes and ` 768 crore with taxes at
completion cost was also provided for the year 2021-2022. These costs were for the
requirement of additional rolling stock and related equipment on account of the increased
traffic since the existing rolling stock would be insufficient to carry out the traffic estimated
in those years.
The total Operation & Maintenance cost of ` 79.26 crore had three components as on
completion in 2011:
(i) Staff costs – `.20.23 crore
(ii) Maintenance cost which included expenditure towards upkeep and maintenance of the
system and consumables – ` 44.89 crore
(iii) Energy costs – ` 14.14 crore
These costs were projected to increase at the rate of 5% per year.
In view of the huge investment required for the metro line and low traffic, an estimated
special fare structure of ` 100 from New Delhi Station to IGI Airport had been considered in
the financial analysis. However, for employees of the airport, the fare assumed was ` 50 for
one-way journey through monthly season tickets.
The DPR makes no mention of non fare revenues.
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Financing Options
The DPR considered three financing options. It noted that:
“Rail based systems are heavily capital intensive with long gestation periods. They are
viewed more as investments with a view to increasing the economic benefits to the
society at large rather than yielding high financial rates of return. Very few metros all
over the world are able to cover their operating costs and therefore grants and
subsidies for operations as well as additional investments are the order of the day.
However, history is full of examples where volume of traffic is not very high except in
areas like Japan and Hong Kong. Since costs of operation are more or less fixed in
nature, any increase in passenger volumes would improve the viability of the system.
There are other issues peculiar to this nature of travel. The setting up of such systems
generates externalities, which normally do not get monetised and flow back to the
system to sustain its development. In other words, the economic benefits flowing to
the society and other benefits generated by the setting up of metro system do not get
translated to monetary benefits for the system itself. Very few countries have been able
to channelise these as sources of revenue back to the system.
Since the governing objective of setting up these systems is social, the fares are set at
levels which are publicly and politically acceptable thus setting in the vicious cycle of
deficits leading to a fallback on subsidies/government support.”
The DPR did not rule out the possibility of private participation, but noted that:
“Private Sector involvement is guided by the ultimate objective of profit
maximization, which may be in direct conflict with the social objective of such a
venture. This sector would also be interested in ensuring a complete risk cover against
the estimated returns. Moreover, a single source may find it impossible to arrange
funds of the magnitude required by metro projects.”
The DPR considered three models for financing the project. The options included 100%
government financing (DMRC Phase 1 model); a Build, Operate and Transfer (BOT) model
with viability gap funding; and a hybrid PPP model. It is this hybrid model that was
recommended in the DPR keeping in mind the tight project schedule to meet the
Commonwealth Games deadline.9
DMRC Phase 1 model
As in the case of financing of DMRC Phase 1, the project would be financed with 40% equity
and 60% debt. The equity would be provided by the Government of India and the
Government of Delhi. Similarly, debt financing would be obtained by a combination of
loans from JBIC10 and domestic banks. The interest rate for the JBIC loan was assumed at
1.3%, and for the domestic loan at 10%. The tenure of JBIC loan would be 30 years including
ten years moratorium, whereas for domestic loan, the tenure would be 20 years including
five years moratorium. In case the low interest JBIC loan was not available, the government
would subsidize the interest differential. In this case, tax exemption would be available for
DMRC and hence the FIRR was worked out under this option without considering taxes.
9
CAG. (2013). CAG Report 2013. (Report No.13 of 2013). Ministry of Urban Transport
10
The Japan Bank for International Cooperation (JBIC) is the Japanese government export credit agency.
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The next two models would require entering into a concession agreement with a private
party (the Concessionaire) who would implement and operate & maintain the project
through a Special Purpose Vehicle.
BOT Model
Under this option, the SPV funding pattern was assumed as 33% equity by the
Concessionaire and the balance 67% as debt from domestic sources. The Concessionaire
would bring equity to the extent of ` 1258 crore on the completion cost including taxes. The
Concessionaire would be paid a viability gap funding of ` 1927 crore (including tax) equally
by the Government of India (GOI), GNCTD, and Airport Operator in the ratio of 40%: 40%:
20%. This would ensure a 12% pre tax return on the Concessionaire’s equity investment.
However, this option was not considered feasible as the selection of a BOT operator would
take at least 12 months and in the remaining period it would not be possible to construct and
commission the line.
PPP Model
In this case, the cost of Civil Works outside the airport, including land, alignment, stations
and utility, would be shared by the Government of India (GOI) and GNCTD equally as
equity contribution. The balance cost including rolling stock would be financed by the
Concessionaire in the ratio of 30% as equity and balance 70% as debt. The civil works within
the airport would be borne by the Airport Operator. The details are presented in Table 2
below.
Table 2: PPP Financing Proposal
Particulars
Without
Taxes
With
Taxes
3294.00
3811.00
Grant by Airport Operator towards civil jobs inside the airport
12%
12%
Equity by the Government of India (GOI) towards civil jobs outside
airport
26%
25%
Equity by GNCTD towards civil jobs outside airport
26%
25%
Equity by Concessionaire to maintain debt to equity ratio of 7:3
11%
11%
Domestic Debt @10% by Concessionaire
25%
27%
100%
100%
Completion Cost including civil jobs inside the airport (`/crore)
Total
Financial Internal Rate of Return
As shown in Table 3 below, all the three alternatives produced an FIRR of 8.13% without
taxes and 7.02% with taxes.
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Table 3: Financial Internal rate of Return
FIRR
when the
cost is
exclusive
of taxes
FIRR when
the cost is
inclusive
of taxes
Return on
Equity as per
funding pattern
(without tax)
Return on
Equity as per
funding
pattern (with
tax)
Phase-I of DMRC Model
8.13%
NA
NA
NA
BOT Model
8.13%
7.06%
12%
12%
PPP (Part-civil jobs inside the airport
by Airport Operator, Outside Airport by
GOI & GNCTD in equal ratio and
balance cost by Concessionaire in the
ratio of 3:7 as Debt to Equity)
8.13%
7.02%
17.86%
16.03%
Option
The DPR recommended the PPP alternative. This could be implemented in the following
manner:
The cost towards civil jobs inside the airport would be borne by Airport Operator by
providing the same as equity amounting to ` 440.00 crore with taxes.
Civil jobs outside the airport, including land cost, would be taken up by DMRC against the
total equity/grant of ` 1894 crore including taxes to be contributed by Government of India
(GOI) and GNCTD in the equal ratio. This amount would be released to DMRC in three
equal instalments of ` 631 crore starting from 2006-2007 in equal ratio by GOI and GNCTD.
For working out the return on equity to the Concessionaire, the equity contribution of
Airport Operator, Government of India (GOI), and GNCTD was taken as a grant. As the
return on equity worked out to be higher than 12%, the Concessionaire would have to
refund the excess grant in the proportion of equity contributed by the Airport Operator,
GOI, and GNCTD. Alternatively, the Airport Operator, Government of India (GOI), and
GNCTD could reduce their equity/grant in such a manner that the pre-tax return on equity
to the Concessionaire was ensured at 12%.
This implied that DMRC would be responsible for building all the civil works, including the
viaduct, the tunnels, and the stations, while the private Concessionaire would be responsible
for installing and financing the operating systems, primarily the track, signals, power
distribution system and rolling stock, and for paying operating expenses.
Project Implementation
The project was approved by the Empowered Committee11 in August 2006 and GOI in May
2007. The ‘Expression of Interest’ (EOI) for selection of bidders for development of the AEL
was called for in January 2007 through an international competitive bidding process. All five
consortia who responded to the EOI were pre-qualified for Request for Proposal (RFP) stage.
However, only two consortia – Reliance Energy Limited/CAF and Larsen & Toubro
Infrastructure Development Project Limited/GEIIPL participated in the RFP. The bids were
evaluated on the basis of financial and technical criteria (including prior experience in
11 Consisting of Cabinet Secretary, Secretaries of Ministry of Urban Development, Road Transport and
Highways, Railways, Civil Aviation, Home Affairs, GNCTD, Planning Commission, ASI, Revenue, Expenditure,
and MD DMRC
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developing, operating or maintaining urban transport system; minimum net worth of ` 400
crore; and average annual turnover of ` 1200 crore). M/s Reliance Energy, offering a
concession fee of ` 51 crore, was evaluated as the highest bidder. L&T, the second highest
bidder, was reported to have asked for a grant of ` 346 crore or a 25 year interest free loan of
` 1,440 crore.12
The Letter of Acceptance was issued in January 2008 to M/s Reliance Energy Ltd., which
incorporated the Special Purpose Vehicle (SPV), Delhi Airport Metro Express (Pvt) Ltd
(DAMEPL). DMRC entered into a Concession Agreement for 30 years with DAMEPL on
August 25, 2008 for Financing, Design, Procurement, Installation, Commissioning of all
systems, and Operations & Maintenance of Airport Metro Express Line under Public Private
Partnership (PPP) model. The design and construction of basic civil structure for the project
would be executed and financed by DMRC. At the end of the concession period, the line
would be transferred to DMRC.
According to Article 8 (Exhibit 4) of the Concession Agreement, DAMEPL would pay a
concession fee of ` 51 crore during the first year of operation. Thereafter, the concession fee
would be escalated by 5% p.a. DAMEPL would also share revenue with DMRC at 1% p.a.
during the first five years of operation, 2% for the next five years, 3% in the next five years,
and 5% thereafter till the end of the concession period. According to Section 8.4 of the
Concession Agreement, DMRC could take steps to verify the fare revenue realized by the
Concessionaire.
The project was completed at a cost of ` 5,697 crore, ` 2,812 crore by DMRC and ` 2,885 crore
by DAMEPL. The metro became operational on February 23, 2011, after a delay of almost
seven months from the scheduled date of July 31, 2010. DMRC levied liquidated damages, as
per the Concession Agreement, of ` 60.37 crore on DAMEPL, of which, ` 55.07 crore had
been recovered by March 2013.13
Financing14
The final project cost incurred by DAMEPL was ` 2,878 crore, marginally lower than the
estimated cost of ` 2,885 crore. The final cost included a provision for Debt Service Reserve
Account (DSRA) of ` 90 crore which was maintained with the banker. The cost was funded
in a debt-equity ratio of 70:30. R Infra and CAF contributed 95% and 5% of the total equity of
` 863 crore and the balance cost was funded by Rupee term loan (RTL) of ` 1,503 crore and
foreign currency loan (FCL) of US$106 million (` 512 crore). The interest rates for the RTL
and FCL were linked to the Base Rate for Rupee loans and the LIBOR for foreign currency
loans so that the project remained exposed to interest rate risk.
The repayment of the loans would start from April 2012 after a moratorium period of 17
months from the expected COD (Commercial Operations Date) of November 15, 2010. The
repayment of term loans was back-ended and only around 13% of the principal (` 272.4
Raja, D. J. S. & Jai, S. (2013, September 13). Fissures between Delhi Metro and Anil Ambani group pose grim
questions about PPP model. Economic Times. Retrieved from. ,
12
http://articles.economictimes.indiatimes.com/2012-09-13/news/33817199_1_dmrc-reliance-infrastructure-delhimetro-rail-corporation
13
DMRC. (2013). Annual Report 2012-13. DMRC
14
ICRA. (2010, October). Delhi Airport Metro Express Private Limited, Rating Reports. ICRA Rating Services
ICRA. (2011, Novermber). Delhi Airport Metro Express Private Limited, Rating Reports. ICRA Rating Services
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crore) would have to be repaid in the first five years post moratorium, i.e. during FY 2013FY 2017, thereby reducing the risk arising from weak cash flows during the initial years.
Reliance Infrastructure (R Infra) had provided an undertaking to bring in the funds to meet
the shortfall in debt service obligations of DAMEPL till such time that real estate agreement
in respect of development of land at Dwarka depot was finalised.
All of the company’s cash inflows were to be deposited in an Escrow account with a bank.
Disbursements from the Escrow account would be carried out by the bank according to a
cash waterfall as described in Article 23 of the Concession Agreement15 (Exhibit 5).
According to the cash waterfall, all payments to DMRC took precedence over debt servicing
payments.
As on March 31, 2012, the paid up equity capital of DAMEPL was ` 1 lakh against long term
borrowing of ` 2,752 crore. The accumulated loss of DAMEPL was ` 341.13 crore. The CAG
in its report observed that the Concessionaire brought in equity capital of only ` 1 lakh at the
time of incorporation (April 2008) and an amount of ` 611.95 crore was infused as share
application money pending allotment (` 373.90 crore in 2008-09, ` 93.05 crore in 2009-10, and
` 145 crore in 2010-11). This share application money was subsequently converted into
interest free unsecured subordinate debt in 2010-11, thus although authorized capital was `
870 crore, the paid up capital remained only ` 1 lakh, which was the minimum requirement
as stipulated for a private company.
When questioned by the CAG in November 2012 about the failure of DAMEPL to bring in
the required equity, DMRC replied that debt equity ratio was the subject matter of ‘financing
documents’ and it was in the interest of senior lenders to monitor the financial structure.
Moreover, share application money pending allotment was to be included in equity while
calculating the debt equity ratio. Finally, ‘equity’ and ‘debt due’ become relevant only at the
time of termination of the Concession Agreement when only subordinate debt disbursed by
lenders (not by promoters) would be considered part of debt due.
In April 2012, Reliance Infra changed its ownership pattern in DAMEPL, by transferring
65% from Reliance Infrastructure, a listed company, to a trust controlled by the Anil Ambani
group. According to the Annual Report 2012-13 of Reliance Infra,
“As a result of transfers consequent to which 65% of the shares of Delhi Airport Metro
Express Private Limited (DAMEPL) are held by Reliance Delhi Metro Trust for the
benefit of the Company, DAMEPL has become an ‘Associate’ and has ceased to be a
subsidiary for the purposes of AS 23 (Accounting for Investments in Associates in
Consolidated Financial Statements) and AS 21 (Consolidated Financial Statements)
respectively. However, as required by the Concession and other applicable
Agreements the Company continues to incur certain financial obligations and has
during the year ended March 31, 2013 provided further financial assistance to
DAMEPL of ` 227.77 crore. The validity of the transfers and the consequential
reclassification of DAMEPL as an Associate is confirmed by legal advice obtained by
the Company.
Considering inter alia the claims of the DAMEPL against Delhi Metro Rail Corporation
(DMRC) which are presently, the subject matter of arbitration proceedings, it is not
15 According to the CAG Audit, DMRC was not monitoring the Escrow account adequately since it failed to
notice and prevent the investment of funds in the account in Reliance mutual funds.
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considered necessary to provide for any diminution of the investment or loss in
respect of Company’s investments aggregating to ` 1,047.72 crore in equity shares and
subordinated debt of DAMEPL.”
Performance of the Airport Metro Line16
Apart from the fare revenue generated from passengers, the business model of the company
was based on earning revenues from the development of the depot area for commercial real
estate activities; retail and service outlets at the stations; and advertisement revenue,
generated from the use of rolling stock, stations, depot, rail tickets, and project corridor for
advertisement activities. According to the rating agency ICRA, during the concession
period, the share of passenger traffic revenue was only around 10-15% of the total revenues
for the project, with real estate revenues accounting for around 65-70% of the expected total
revenues. The most important source of revenues was from development of the depot at
Dwarka, which would account for approximately 50% of total revenues. Revenues from
development of retail spaces at the two stations (New Delhi and Shivaji Stadium) were
projected to account for 15-20% of total revenues.
Article 6 of the Concession Agreement (Exhibit 6) specifies the determination of fares. It
specifies a maximum one way fare of `150 between New Delhi railway station and the
airport for the first two years of operation. After completion of the initial two years of
operation, the Concessionaire would be entitled to an increase in fare which would be
limited to 90% (ninety per cent) of the variation in the Wholesale Price Index (WPI) during
the two year period. Such revisions would also be permissible at the end of every two years.
The Concessionaire was free to collect lower rates than what it would be eligible for.
Article 7 (excerpts reproduced in Exhibit 7) of the Concession Agreement specifies the terms
regarding non fare revenues. The Concessionaire was required to ensure that all transactions
were arms-length transactions. The Concessionaire would have the right and/or licence to
utilize the land over, under and around the depot and within the stations for property
development/commercial exploitation during the concession period with a view to
improving the financial viability of the project. Property developed by the Concessionaire
could only be leased or rented and not sold. Commercial leases should be for a term not
exceeding the remaining term of the concession period and would be in a form and
containing such conditions as may be prescribed by DMRC. All such development would be
handed over to DMRC on the termination date and all amounts due would be paid to
DMRC, and all commercial leases entered into by the Concessionaire would include
provisions to this effect including that of termination prior to or concurrent with the
termination of the concession.
All fare and non fare revenues would be collected and deposited in the Escrow account and
appropriated in accordance with the provisions of Article 23 (Exhibit 3).
Fare Revenues
According to the CAG report17, against a ridership of 42,500 passengers per day projected in
the DPR for the year 2011, actual average ridership during the first 17 months operation
16
ICRA. (2011, November). Delhi Airport Metro Express Private Limited, Rating Reports. ICRA Rating Services
17
CAG Report 2013
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ranged between 5,344 and 17,794 passengers per day. Similarly, the actual collection of ` 57
per rider per day for the period April-August 2011 was lower than earlier forecasts for FY12
on account of various concessional fares offered to create awareness and attract ridership for
the project. Passengers were offered a discounted fare of ` 80 against the announced fare of `
150 from New Delhi station to the airport during the initial period after commencement of
operation.
Airport traffic growth is given in Exhibit 8.
According to a CDM18 application document of the project, DAMEPL had carried out a
study to estimate the passenger ridership of the project in order to make an independent
assessment of the traffic potential. The study indicated passenger ridership far below the
projections made by DMRC. According to the document,
“Delhi Metro Rail Corporation (DPR by RITES) has projected that about 42,500 will
use the Airport Express Line daily and the same is expected to grow around 7.3% p.a.
As per the expected growth rate, the daily usage of passenger for the project would be
86,000 by 2021. The bids for selection of Concessionaire were invited based on this
data and hence, the DAMEPL (or representative entities) have submitted the bids
based on the above attractive passengers forecast presented by DMRC. However, at a
later stage, DAMEPL has appointed SGL to carry out another study to estimate the
passengers ridership of the project to have an independent assessment. The results of
the study were quite contradicting with DMRC study. The SGL study indicated only
14,126 passenger ridership expected for the year 2011 and 35,741 passenger ridership
for 2021 by metro, far below (33% & 42%) the projections made by DMRC.
As the main source of financial returns expected by DAMEPL is based on the
passenger ridership projections only. (sic) The high investment and operational and
maintenance cost, despite the serious risk of unpredictable, unreliable and volatile
passenger ridership, the project financial viability is in complete uncertainty. Though,
the CDM revenues would not help in achieving the expected ridership, but, would
assist the project in reducing and recovering the losses in such situations and
improving the opportunities to make the project viable.”
Therefore, DAMEPL was aware in as early as June 2011, about the shortfall in traffic and the
questionable viability of the project.
Non Fare Revenue
As of December 2011, DAMEPL management was looking at various alternatives for the
leasing of Dwarka Depot land so as to maximize revenue potential from this land. It had
leased approximately 30% of the 0.13 million sq.ft. available at two stations - New Delhi
(45%) and Shivaji Stadium (55%). Since the revenue from advertisements (at stations,
corridor and rolling stock) was projected to account for around 20% of total revenue,
Clean Development Mechanism (CDM) , Efficient mode of public transportation by DAMEPL, India, Version:
01, Date: 30/06/2011,
http://cdm.unfccc.int/Projects/Validation/DB/TUWLRW4PCIE6KRWFCLI6Y35CI80XHH/view.html
18
The CDM allows emission-reduction projects in developing countries to earn certified emission reduction (CER)
credits, each equivalent to one tonne of CO2. These CERs can be traded and sold, and used by industrialized
countries to a meet a part of their emission reduction targets under the Kyoto Protocol.
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DAMEPL in association with Big Street advertising was exploring innovative ways to
enhance revenues by way of leveraging the advertisement inventory.19
According to reports,20 in a letter from DAMEPL to DMRC written in April 2012, Reliance
Infrastructure had indicated that the planned retail activities along the metro corridor were
not earning substantial yields. As quoted from the letter:
“Although we have left no stone unturned, as informed to DMRC from time to time,
we have been unable to get a developer on board for Dwarka Depot property as the
available timespan is only 26 years and also due to the dampened business projections
for the location. The retail activities at New Delhi and Shivaji Stadium stations have
been progressing but retailers have been taking a significant amount of time in fit-outs
as the concept of retailing at a metro station is yet to percolate down to the big brands.
In fact, poor ridership is often cited as a reason by retailers to delay fit-outs as they say
if their shops are operational early they will have losses in the medium term.”
Dispute
As early as December 2011, Mr E. Sreedharan, the outgoing MD of DMRC, spoke of
terminating the Concession Agreement with DAMEPL. He pointed to the failures in meeting
the Commonwealth Games deadline; not achieving the speed of 120 kmph; and high noise
level inside the train. “If they (Reliance Infrastructure) don’t improve, then we will have to
think of even terminating the arrangements.”21
Around December 2011, DAMEPL discovered that clips keeping the track in place were
breaking at high speeds. According to a DMRC Press Release,22 in response to criticism that
the DMRC had required the Concessionaire to install a particular make of clip system,
“The safety of the passengers traveling by the Airport Express link, was never
compromised by DMRC or the Concessionaire running the line. The moment faults
were noticed in the clips on the railway tracks, the necessary speed restrictions were
imposed by DAMEPL and the required repair work was carried out without
hampering metro operations, during the non operational hours in the night time.
DMRC never forced or instructed the Concessionaire to adopt any particular track
system for the Airport Express corridor. Initially, the Concessionaire suggested the
‘Single Fast Clip (SFC)’ system to DMRC, which was not found suitable for a high
speed corridor. Subsequently, DMRC suggested four track systems to the
Concessionaire, which are – RHEDA 2000, VIPA, VANGAURD and Double Fast Clip.
Apart from RHEDA 2000, all the other systems were from Pandrol, which is a rival
company of the German firm Vossloh.
19
ICRA. (2011, November). Delhi Airport Metro Express Private Limited, Rating Reports. ICRA Rating Services
Dutta, S. (2012, November 17-30). End of the line? Frontline. Retrieved from
http://www.frontline.in/static/html/fl2923/stories/20121130292304500.htm
20
21 Delhi Metro chief threatens to take over Airport Express Line. (2011, December 9). Business Line. Retrieved
from http://www.thehindubusinessline.com/industry-and-economy/logistics/delhi-metro-chief-threatens-totake-over-airport-express-line/article2701596.ece
Tyagi, J. (2012, August 8). Information regarding recent media reports about defects in clips of the airport line metro
corridor [Press release]. Retrieved from
http://www.delhimetrorail.com/whatnew_details.aspx?id=1lBLUU0JA0glld
22
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In reply, the Concessionaire suggested another system, which was Delkor.Alt1 from
Vossloh, to which DMRC initially agreed and instructed the Concessionaire to get
more details about the system. The Concessionaire, however, could not get further
details of the same.
As the entire process was taking a lot of time, which could have impacted the eventual
commissioning of the line, DMRC suggested the RHEDA 2000 track system, as it was
already approved by the Research Designs and Standards Organisation (RDSO) for the
railways.
Further, so far only the clips fixed on the underground tracks have been affected while
those on the elevated section have been working properly. If the clips were all faulty
or defective, then they must have failed in the elevated sections also which face more
pressure as they are exposed to the external environment. Therefore, a thorough
investigation into the issue is necessary, in which all other ancillary factors related to
metro operations also need to be investigated.
There is no truth in the allegation that DMRC did not reply to the communications
sent to it by RDSO. When letters were sent to DMRC on this issue, they were promptly
forwarded to the Concessionaire, (DAMEPL) as they were running the system.
However, the Concessionaire could not reply on time and finally sent a part reply on
May 22nd, 2012. Following this development, DMRC conducted meetings with the
Concessionaire as well as Vossloh and sent the reply on July 5th, 2012.”
While the problem of the tension clamps was being resolved another problem of defective
bearings emerged. In June 2012, vibrations at curvature locations were noticed by trainmotormen and this was brought to the knowledge of DMRC. DMRC issued the following
Press Release on August 8, 2012,23
“As regards the issue of the civil defects noticed on the elevated section of the
corridor, it may be mentioned that as per the Concessionaire Agreement, the
Concessionaire was supposed to carry out regular inspections to monitor the civil
structures. However, timely inspections were not carried out despite repeated
reminders from DMRC. Had these defects been noticed and pointed out earlier, then
the repair work could have been carried out without hampering the Metro
operations.”
The DMRC then issued the following Press Release on October 26, 2012, in response to
DAMEPL’s request for restructuring the Concession Agreement:
“Issues raised by M/s DAMEPL regarding financial non-viability of the project and
also their request of re-structuring has been rejected by DMRC. On request of M/s
DAMEPL the dispute is now being referred to Arbitration. Similarly, the issue of
termination of the Concession Agreement has been disputed and the same has also
been referred for resolution through Arbitration proceedings. M/s DAMEPL
meanwhile maintained that they will run the Airport Line services pending resolution
of the disputes through Arbitration.”
The DMRC had issued the following Press Release on June 28, 2013, in response to the
DAMEPL ultimatum to stop operating the Metro Express:
Tyagi, J. (2012, August 8). Information regarding recent media reports about defects in clips of the airport line metro
corridor [Press release]. Retrieved from
http://www.delhimetrorail.com/whatnew_details.aspx?id=1lBLUU0JA0glld
23
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“Board of Directors of DMRC met to discuss the letter of Reliance (DAMEPL) dated
27th June, 2013, intimating that they would stop operating the airport line from the
night of 30th June, 2013. Board concluded that the above notice is in violation of the
Concession Agreement and the ongoing Arbitration proceedings. Board decided to
reject the notice and call upon them to continue the operations of the line in terms of
the Agreement. If, however, they do not do so, DMRC shall step in and operate the
line in larger public interest.”
On July 1, 2013, DAMEPL issued the following Press Release24:
“Delhi Airport Metro Express Private Limited (DAMEPL), a Special Purpose Vehicle
of Reliance Infrastructure Ltd. (RInfra), had terminated the Concession Agreement
with the Delhi Metro Railway Corporation (DMRC) for the Delhi Airport Metro Line
nearly 9 months back, vide its notice dated 8th October, 2012.
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.
Despite the lapse of 9 months and repeated requests by DAMEPL, DMRC failed to
make alternate arrangements for taking over the operations of the metro line, even
after the termination of the Concession Agreement in October 2012. As a result,
DAMEPL was compelled to serve a final notice on DMRC once again to take over the
operations with effect from 1st July, 2013, as it was not possible for DAMEPL to
continue the same indefinitely in the above situation.
This takeover of operations has now been completed.
As per the terms of the Concession Agreement, DMRC is now liable to pay DAMEPL a
Termination Payment equal to 130% of the Adjusted Equity and 100% of the Debt Due
for the project, as the termination has arisen owing to DMRC’s Event of Default. The
matter has been referred to arbitration, in accordance with the dispute resolution
mechanism specified in the Agreement.
As legally advised, DAMEPL’s claims for the Termination Payment are fully justified
and enforceable, and RInfra is confident of recovering its entire investment in
DAMEPL.”
DMRC noted the following in its Annual Report for 2012-13,25
“DAMEPL suspended the train services w.e.f. 8th July, 2012, pointing out defects in
DMRC works (bearings). This has been contested as DMRC’s view is that DAMEPL
was responsible for inspection and maintenance of civil structures once these were
handed over to them and that the number of bearings having problems were limited
in number and could have been repaired while the operations were on. However,
DMRC carried out the repairs/rectifications of the defects pointed out by DAMEPL
within the cure period and informed the same to DAMEPL on 5th Oct., 2012.
24 Reliance Infrastructure Limited. (2013, July 1). RInfra’s SPV DAMEPL Exits Delhi Airport Metro Operation [media
release]. Retrieved from
http://www.rinfra.com/pdf/pressreleases/Media_Release_RInfras_SPV_DAMEPL_Exits_Delhi_metro.pdf
25
DMRC. (2013). Annual report 2012-13. DMRC
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Since the train operations had already been stopped by DAMEPL as a precautionary
measure, based on the meetings held in the Ministry of Urban Development which
were attended by DMRC and DAMEPL, it was decided that the rectification for all the
bearings would be undertaken. It was further decided that the work of
repairs/rectifications by DMRC would be without assumption of any
liability/responsibility. As on 31st March, 2013, the company has incurred an
expenditure of ` 1398.26 lakh on this account and recovery thereof is under
consideration. The Company has also encashed bank guarantee amounting to ` 580.08
lakh furnished by the General Consultants (GC) who were responsible for supervision
of construction of the airport line.
Despite the action taken by DMRC, DAMEPL issued a Termination Notice on 8th
October, 2012. According to DMRC, this notice is illegal and invalid in law as also
against the provisions of the Concession Agreement.
The above issues are under Arbitration in terms of the Concession Agreement.
DAMEPL resumed the train services w.e.f. 22nd January 2013, though under protest.
The Concessionaire served a notice on the company on 27th June, 2013, conveying
inter-alia that they intend to stop the services on airport line and hand over the project
assets to the company w.e.f 1st July, 2013. The Board in their meeting held on 28th June,
2013, examined the various available options and after detailed discussions and
deliberations concluded that the notice given by the Concessionaire is in violation of
the Concession Agreement and the ongoing Arbitration proceedings. The
Concessionaire was called upon to continue the operations on the line in terms of the
agreement. On failure of the Concessionaire to operate the line, the company has
decided to take over complete operation and maintenance of airport line in the larger
public interest. Further, the company also decided to invoke the performance bank
guarantee of ` 5500 lakh which has since been encashed.”
The CAG in its Audit report also discussed the dispute:
“As per Article 19.1 (a), (e), and (g) of the CA, the Concessionaire was to provide
suitably trained personnel for O&M activities at all times, undertake routine
maintenance including prompt repairs of any wear or damage found and undertake
major maintenance work such as track replacement, repair to structures etc. Further,
Section 4.1 of the Operation and Maintenance manual mandates monthly inspection.
Article 20 of the CA enjoins DMRC to inspect the project at least monthly and send its
O&M inspection report to the Concessionaire. The Concessionaire was required to
remedy the defects and deficiencies set forth within 30 days of its receipt and submit a
compliance report.
Audit observed that DMRC wrote to DAMEPL that the Concessionaire failed to carry
out (till May 2012) any inspections (Routine, Principal and Special inspection) of
viaduct and bearings as per the provisions of the O&M manual. Moreover, the
Concessionaire was not equipped with the inspection infrastructure required to carry
out the inspection as per the manual. Although the Concessionaire did not comply
with CA clauses they appointed a consultant viz. M/s Shirish Patel & Associates
Consultants Pvt. Ltd. (SPA) with the approval of DMRC to investigate defects in the
DMRC works and on the basis of defects as brought out in the report (June 2012) of
SPA, suspended the train services from 8 July 2012. In a meeting held on 4 July 2012
under the Chairmanship of the Secretary, Ministry of Urban Development, a Joint
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Inspection Committee (JIC) was constituted for inspection of the bearings and
structure of the line. JIC’s report (July 2012) identified certain defects such as (a)
bearings provided at improper locations, (b) defects in cross levels (c) bearing material
damaged, etc., and concluded that poor execution of bearing seating work and poor
workmanship during construction were the reasons for problems in bearing area.
Further, it also opined that secondary reason for the present state of affairs was
absence of proper inspection of the girders, especially in the bearing area, both before
commissioning and during initial stage of train operations.
Audit further observed that though DMRC carried out monthly inspection, it failed to
detect any major defects in civil construction. DMRC in its monthly inspection carried
out in March 2012 had pointed out certain defects during inspection of viaduct, which
were not taken to any logical conclusion because they were stated to be as per the
design of viaduct. The defects were later confirmed by JIC.
The line came to halt in July 2012, within 16 months of commissioning. DMRC had
carried out the repair work valuing ` 15 crore at the risk and cost of the civil contractor
and operations resumed w.e.f. 22 January 2013. As the civil structure was built by
DMRC and balance works as well as O&M were the responsibility of the
Concessionaire, each party was holding the other responsible for the defects in the
civil structure and for improper maintenance. The Concessionaire invoked Arbitration
(October 2012) under clause 36.2 of Concession Agreement on the grounds including
sustainability/financial viability of the project. DMRC had not taken any action,
except issuing notices to civil contractor for poor workmanship, and consultant for
poor quality of inspection during construction period of the project. The final report of
the enquiry committee appointed by the Ministry of Urban Development was pending
(February 2013).”
Termination clause
According to the Concession Agreement, upon termination of the Agreement, the
Concessionaire was required to deliver actual or constructive possession of the Airport
Metro Express Line free and clear of all encumbrances. Upon termination by DMRC on
account of a Concessionaire’s Event of Default during the operation period, DMRC would
pay to the Concessionaire an amount equal to 80 per cent of the debt due. In case of
termination by the Concessionaire on account of DMRC’s Event of Default, DMRC would
pay to the Concessionaire an amount equal to debt due, 130 per cent of the adjusted equity
and depreciated value of the project assets, if any, acquired and installed on the project after
the 10th anniversary of the COD.
Some extracts of the Termination clause from the Concession Agreement are given in
(Exhibit 9)
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Hyderabad Metro PPP Model26
The exit of Reliance Infra from the project was considered by some observers as a failure of
the PPP Model for metro rail projects. In fact the Twelfth Five Year Plan (2012-17)
recommended the use of PPP for metro rail projects only if they were commercially viable.27
“Global experiences suggest that metro rail transit systems have largely been
developed by the public sector (an analysis of 132 cities worldwide shows that 113
cities (88 per cent) have metros which are developed and operated in public sector
mode). As MRTS alignment usually results in a significant rise in value of the real
estate along its zone of influence, Government entities promoting metro rail have used
this resource to fund other urban infrastructure. The efficiency gains through PPP
have been brought in at the O&M stage. However, given the huge requirement of
capital and willingness as well as capability of the private capital to undertake such
projects, in high-density corridors, projects which are viable on their own (with
admissible Viability Gap Funding and commercial utilisation of land ordinarily
required for the project) may be encouraged under PPP mode.
However, projects which are financially unviable without providing additional realestate development rights and so on, should primarily be funded by Government. The
Central Government may suitably contribute in funding such projects preferably by
way of making grants. Appropriate arrangements however need to be placed for
densification across such corridors and use of the enhanced value of the real estate for
funding other infrastructure projects. Wherever projects are to be developed under
public sector, apart from grants, long-tenured debt financing should be facilitated
through Government guarantee.”
Around the same time as the problems with the Airport Metro Express, the Hyderabad
Metro Rail project was being executed as the largest PPP Metro Rail project.
Government of Andhra Pradesh (GoAP) approved the development of the Hyderabad
Metro Rail project in three high density traffic corridors of the city spanning across 72 km in
phase-I. Detailed Project Reports (DPRs), Traffic Survey Reports, and other related reports
were prepared by Delhi Metro Rail Corporation (DMRC) for the project. The project, which
was initially bagged by Maytas Infra of Mr. B. Ramlinga Raju, the disgraced former
chairman of Satyam Computers, ran into problems after Mr. Raju admitted to multi-crore
fraud in Satyam Computers.
As Maytas failed to achieve financial closure after the Satyam scandal broke out, the
government invited fresh bids in July 2009 and Larsen and Toubro Limited (L&T) was
awarded the Hyderabad Metro Rail Project. L&T incorporated a Special Purpose Vehicle L&T Metro Rail (Hyderabad) Limited (L&TMRHL) to implement the project on Design,
Build, Finance, Operate, and Transfer (DBFOT) basis. L&TMRHL signed the Concession
26 Reddy, NVS. (2013, February). Hyderabad Metro Rail in PPP Mode, Presentation to the 6th Global Infrastructure
Leadership Forum [powerpoint slides]. Retrieved from http://www.cgla.com/documents/GILF6/presentations/2.28.13IndiaHyderabad.pdf; and
Hyderabad Metro Project on Track Ensuring Economies. (n.d.). NBM Media. Retrieved from
http://www.nbmcw.com/interviews/30907-hyderabad-metro-project-on-track-ensuring-economies.html
27
Planning Commission. (2013). Twelfth Five Year Plan (2012–2017). Government of India
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Agreement with Government of Andhra Pradesh on September 4, 2010, and completed the
financial closure for the project on March 1, 2011.
The 'appointed date' for the project was declared as July 05, 2012, jointly by Government of
Andhra Pradesh and the Concessionaire, L&TMRHL. The concession period of 35 years,
including five years of construction period, would be counted from this date. The
construction phase was scheduled to be completed by July 05, 2017. The first stretch of 8 km
(Stage-I) would be opened for passenger traffic by March 2015. The system was expected to
carry about 17 lakh passengers per day by 2017 and 22 lakh by 2024. The concession period
was extendable by another 25 years, if the Concessionaire fulfilled all the conditions of the
Concession Agreement. The Concession Agreement provided for pre-fixed tariff, predefined price escalation formula and strict penalties for both the government and the
Concessionaire if their respective obligations were not fulfilled.
GoAP set up a Special Task Force headed by the Chief Secretary for regular monitoring of
the progress of the project. Hyderabad Metro Rail Ltd. (HMR), a fully owned government
PSU, would act as the single window agency to coordinate with all government departments
and agencies and play a proactive role to facilitate speedy execution of the project. HMR
initiated several measures for acquisition of the required lands, identification of obstacles,
Relief and Rehabilitation (R&R) and obtaining right of way for the three corridors. The
heads of utilities in the city, such as Hyderabad Metro Water Supply & Sewerage Board and
the Central Power Distribution Company of Andhra Pradesh Ltd, and other connected
senior officers of the government were on the Board of Directors of HMR. HMR appointed
Louis Berger as Independent Engineer, apart from having a panel of nine well experienced
retired Chief Engineers from the Railways for technical guidance. The Government of
Andhra Pradesh provided around 100% of Right of Way (ROW) and land required for
construction of rail tracks; issued fare notification; and procured approval of all railway
crossings.
To enhance the financial viability and bankability of the project, the Concessionaire was
allowed to undertake real estate development through commercial exploitation of air space
over the land provided for creation of project facilities such as depots and parking and
circulation areas at select stations. GoAP provided 57 acres of land for parking & circulation
areas as per Concession Agreement and also made available 212 acres of land for three
depots for three corridors. The real estate development could be undertaken by the
Concessionaire above the ground floor at the three depots at Miyapur (99 acres), Nagole (96
acres), and Falaknuma (17 acres) and above the parking and circulation areas at 25 select
stations (57 acres at Category I, Category II, and Category III Stations).
This land
requirement had been identified by DMRC which prepared DPRs for the project, which was
originally envisaged as a government project.
The cumulative built up area to be utilized for real estate development was 18.5 million sq.ft.
(about 12.5 million sq.ft. over the three depots and six million sq.ft. at the 25 select stations).
The ownership of the land would always remain with GoAP. The built up area could only
be used for rentals during the concession period and it would have to be handed over to
GoAP at the end of the concession period.
The Hyderabad Metro would be the world's largest metro rail project being executed in PPP
mode. The project cost was ` 14,132 crore, out of which ` 1,458 crore would be given by
Government of India as one time capital grant under the Viability Gap Funding (VGF)
scheme. The remaining ` 12,674 crore would be financed with 20% equity (` 2,768 crore) and
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70% of debt (` 9,906 crore). This ` 12,674 crore would be entirely raised by the
Concessionaire M/s. L&T Metro Rail (Hyderabad) Ltd. L&TMRHL would also spend an
additional ` 2,243 crore for development of 6 million sq.ft. of property in the first phase,
whose lease rentals would cross subsidize the losses from passenger operations.
Government of Andhra Pradesh was spending an additional ` 1,980 crore (which would not
form part of project cost as per VGF guidelines) for land acquisition, R&R, utility shifting,
etc.
Almost 55% of the revenues would come from passenger fares while 40% would be from
property development at metro stations and depots and 5% from advertisements, parking
charges, etc.
The project IRR was 13.89% and the equity IRR 17.5%.
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Exhibit 1: PPP Structure
Source: Planning Commission, Steering committee on Urban Development & Management (October 2011).
Report of the Working Group on Financing Urban Infrastructure. Retrieved from
http://planningcommission.gov.in/aboutus/committee/wrkgrp12/hud/wg_Financing_rep.pdf
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Exhibit 2: Current Delhi Metro Route map
Source: DMRC. (n.d.). Current Delhi Metro Route Map. Retrieved from
http://www.delhimetrorail.com/OtherDocuments/Route_Map.pdf
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Exhibit 3: Abstract of Cost (Rupees crore at March 2006 Price Level)
Amount
(` in cr.)
S. No.
Item
1.0
Land
2.0
Alignment and Formation
3.0
Station Buildings
4.0
Depot Augmentation
5.0
P-Way
116.41
6.0
Traction and Power Supply
159.10
7.0
Signalling and Telecom.
242.06
8.0
Utility diversions, Misc. incl. Roads, Sewer works, environmental protection
56.33
9.0
R&R
20.00
10.0
Rolling Stock
11.0
Total of all items except Land
12.0
General Charges incl. design @ 3 % on all items except land
13.0
Total of all items including G. Charges
14.0
Contingencies @ 3 %
15.0
Gross Total*
36.79
1247.79
476.03
60.00
384.00
2761.70
82.85
2881.34
86.44
2967.78
Source: DMRC. (2007, January 2). Executive Summary, Detailed Project Report for Metro Link to Airport, page
39
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Exhibit 4: Concession Agreement
ARTICLE 8
CONCESSION FEE AND OTHER PAYMENTS BY THE CONCESSIONAIRE
8.1
Licence Fee
In consideration of the grant of site and right of way under this Agreement, the Licence Fee
payable by the Concessionaire to the DMRC shall be ` 10000.00 (Rupees Ten Thousand)
per year during the term of this Agreement.
8.2
Concession Fee (as per Bid):
The Concessionaire agrees to provide to DMRC cash payment as concession fee equal to
the sum set forth in the Bid of the Bidder and accepted by DMRC namely, ` 510,000,000
million (Rupees Five hundred and Ten Million) in accordance with the provisions of this Article
8.2 in the first year from COD. Further the above concession fee shall be increased by 5%
(cumulative) every year thereafter and be paid annually till Termination.
The concession fee shall be paid in advance within 90 (ninety) days of the commencement of
the year for which it is due and payable.
Additional retail space at Concourse level of New Delhi Station and Shivaji Stadium
Station
In case the additional retail space is available to the Concessionaire at concourse due to
increase in the size of the station, the Concessionaire shall pay additional concession fee to
DMRC on this account. The rate for this additional concession fee shall be on pro-rata basis
as stated by the Concessionaire in Appendix-12B condition No. 2 (` 30 million for 960 sq.m
i.e. ` 31250/- per sq.m). This additional concession fee shall be added to the concession fee
of ` 510 million.
The enhancement applicable to the concession fee during subsequent years as per this
clause, shall be on total concession fee including this additional concession fee.
Cost of operation and maintenance of clearing house to be shared: The cost of operation
and maintenance of the clearing house will be shared by DMRC and Concessionaire.
8.3
Percentage Revenue Sharing:
Starting from COD, the Concessionaire further agrees to apportion its Gross Revenue to
DMRC as follows:
a) One per cent of Gross Revenue from first to fifth year
b) Two per cent of Gross Revenue from sixth to tenth year
c) Three per cent of Gross Revenue from eleventh to fifteenth year
d) Five per cent of Gross Revenue from sixth year onwards till the Termination Date.
The Concessionaire shall remit the applicable share of Gross Revenue to DMRC on a
quarterly basis within 10 days of the end of each calendar quarter.
8.4
DMRC at any time during the concession period, at its sole discretion can verify the Fare
realized by the Concessionaire. DMRC for purpose of determining the true picture may
undertake a traffic sampling for a continuous period of seven days or such other action as
deemed fit. The numbers arrived at and duly verified by DMRC appointed consultant and
auditors for the purpose shall be considered final and binding on the Concessionaire.
Similarly DMRC may verify the collection of non fare revenue also.
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Exhibit 5: Concession Agreement
ARTICLE 23
ESCROW ACCOUNT
23.1
Opening of Escrow Account and Deposits into Escrow Account
On Financial Close, (in any case not later than 30 days of financial close) the Concessionaire
shall open and establish the Escrow Account with a bank (the “Escrow Bank”) and all funds
constituting the Financing Package for meeting the Concessionaire’s capital costs shall be
credited to such Escrow Account. During Operations Period all Fare and Non-Fare Revenues
collected by the Concessionaire shall be exclusively deposited therein. In addition, any Fares
collected by DMRC in exercise of its rights under this agreement during the concession period
and all disbursements or payments by DMRC to the Concessionaire pursuant hereto shall
also, subject to the rights of deductions and appropriations therefrom of DMRC under this
agreement, be deposited by DMRC in the Escrow Account.
23.2
Disbursement from Escrow Account
23.2.1
The Concessionaire shall give, at the time of the opening of the Escrow Account, irrevocable
instructions by way of an Escrow Agreement substantially in form set forth in Schedule ‘Q’
(the ‘Escrow Agreement’) to the Escrow Bank instructing, inter alia, that the deposits into the
Escrow Account shall, subject to Sub-Article 23.2.3, be appropriated in the following order
every month and if not due in a month then appropriated proportionately in such month and
retained in the Escrow Account and paid out therefrom in the month when due unless
otherwise expressly provided in the instruction letter.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
All taxes due and payable by the Concessionaire;
All expenses in connection with and relevant to the Concessionaire’s works by way of
payment to the EPC Contractor and such other persons as may be specified in the
Financing Documents;
O&M Expenses subject to the ceiling, if any set forth in the Financial Documents;
All Licence Fee, Concession Fee and Revenue Share due to DMRC from the
Concessionaire under this Agreement;
Any payments and damages due and payable by the Concessionaire to DMRC
pursuant to this Agreement; and
The whole or part of the expense on repair work including Fees collection expenses
incurred by DMRC on account of exercise of any of its rights under this Agreement
provided DMC certifies to the Escrow Bank that DMRC had incurred such expenses
in accordance with the provisions of this Agreement;
Monthly proportionate provision of Debt Service Payments due in an Accounting Year
and payment of Debt Service Payments in the month when due;
Debt service in respect of Subordinate Debt;
Any reserve requirements required to be settled in terms of Financial Documents;
Balance in accordance with the instructions of the Concessionaire.
23.2.2 The Concessionaire shall not in any manner modify the order of payment specified in SubArticle 23.2.1 except with the prior written approval of DMRC.
23.3.
Notwithstanding anything to the contrary contained in the Escrow Agreement and subject to
the provisions contained in Sub-Articles 30.5 and Article 32, upon Termination of this
Agreement, all amounts standing to the credit of the Project Escrow Account shall be
appropriated and dealt with in the following order:
(a)
(b)
(c)
(d)
all Taxes due and payable by the Concessionaire;
all concession fees due and payable to DMRC under this agreement;
all accrued Debt Service Payment;
any payments and damages due and payable by the Concessionaire to DMRC pursuant
to this Agreement, including Termination claims;
(e) all accrued O&M Expenses;
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(f) any other payments required to be made under this Agreement; and
(g) balance, if any, on the instructions of the Concessionaire.
23.4
The instructions contained in the Escrow Agreement shall remain in full force and effect until
the obligations set forth in Sub-Article 23.3 have been discharged.
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Exhibit 6: Concession Agreement
ARTICLE 6
FARES
6.1
During the Operation Period the Concessionaire shall be entitled to demand, collect and
appropriate Fare from the users in accordance with this Agreement and the Fare Notification as
set forth in below and in Sub Article 6.3.
It is agreed that the maximum one way fare and monthly fare between the pairs of stations as
prescribed below shall be the initial fares valid for first two years of operation. The
Concessionaire expressly agrees that initial fare shall be as provided in this Agreement and as
revised from time to time based on the annual Fare Revision Formula as provided in this
agreement, provided further that the Concessionaire may determine and collect fare at such
lower rates as it may, by public notice to the users, specify in respect of all or any category of
users.
(a)
Maximum One Way Fare
Between New Delhi Railway Station and IGI Airport : ` 150 (Rupees One Hundred and
fifty )
(ii) Between Dwarka Sector 21 and IGI Airport : ` 30 (Rupees Thirty)
(i)
(b)
(i)
(ii)
Maximum Monthly Fare (valid for a maximum of 60 single journeys in a month)
Between New Delhi Railway Station and IGI Airport : ` 2,000 (Rupees Two Thousand)
Between Dwarka Sector 21 and IGI Airport : ` 600 (Rupees Six Hundred)
No additional charges shall be levied for the handling and transportation of luggage of the users.
6.2 Fare Revision Formula
The Concessionaire and DMRC agree that after completion of the initial two years of operation,
the Concessionaire shall be entitled for an increase in fare which shall be limited to 90% (ninety
per cent) of the valuation in the WPI occurring between COD and two years after COD. Such
revisions will also be permissible at the end of every two years thereafter till Termination.
Provided that for ease of payment and collection at the time of subsequent revisions such Fare
shall be rounded off to the nearest five rupees in respect of pair of stations between Dwarka
Sector 21 and IGI Airport and 10 (Ten) rupees in respect of other station pairs.
6.3 The Concessionaire hereby acknowledges and agrees that upon payment of fare, any user shall
be entitled to use the project for travel and the Concessionaire shall not place or cause to be
placed any restriction on such use except to the extent specified in any Applicable Law,
Applicable Permit or the Provisions of this Agreement.
6.4 The Concessionaire thus acknowledges that the Fare Notification, inter alia, provides for revision
in the fare in accordance with the formula provided in Article 6.2 above and hereby confirms that
save and except as provided in this Agreement and the Fare Notification, the Concessionaire is
not entitled to and shall not seek any relief whatsoever from DMRC, GOI or GNCTD on account
of increase or otherwise in WPI or on any other account except in accordance with the express
provisions of this Agreement.
6.5 The fares collected by the Concessionaire or DMRC or DMRC’s nominee pursuant hereto shall
be deposited in the Escrow Account and appropriated in accordance with the provisions of
Article 23.
6.6 The value of fares deducted from use of common DMRC/AMEL stored Value Tickets, as
apportioned to the Concessionaire by DMRC Central Clearing House, shall be accounted in the
Escrow Account, in accordance with the provisions of Article 23.
6.7 The Concessionaire may delegate its right to collect fares to the O&M Contractor or to any other
person, provided however that notwithstanding such delegation, the Concessionaire shall be and
remain solely liable and responsible for the collection of fare in accordance with this Agreement
and its deposit into the Escrow Account.
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Exhibit 7: Concession Agreement
ARTICLE 7
NON-FARE REVENUES
7.1
In addition to the right to charge and collect fares as set forth in Article 6, the Concessionaire
shall be entitled to participate in Commercial Leases and other activities which may yield
additional revenues to the Concessionaire, subject to the provisions of this Article 7. All such
Non Fare Revenue collected by the Concessionaire pursuant hereto shall be deposited in the
Escrow Account and appropriated in accordance with the provisions of Article 23. Such activities
may include, inter alia, the following:
7.1.1 Advertisements
The Concessionaire shall be entitled, subject to all laws and regulations and to obtaining all
necessary consents, to display visual advertisements inside the rolling stock, the stations, or
along the route. Without derogating from the aforesaid, should the Concessionaire wish to
display advertisements, including stations, elevated alignment sections and/or tunnels, the
Concessionaire shall bear full and sole responsibility for reaching all necessary agreements and
obtaining all necessary consents in relation thereto, including the consent of the Municipalities
and any other relevant authority. However, display of advertisement within the Airport boundary
(either inside the stations or on other structures) is not permitted. Notwithstanding the
provisions of Sub-Article 7.1.1 and without derogating from the provisions of Sub-Article 7.3,
DMRC may instruct the Concessionaire to remove advertisements which it considers to be
abusive or offensive or contrasting the public interest.
7.1.2 Vending Machines
The Concessionaire shall be entitled to install and operate vending machines in the un-paid
area of the concourse level of New Delhi, Shivaji Stadium, and Dhuala Kaun Stations, subject
to the laws and regulations and the provisions of this agreement.
7.1.3 Communications
In addition to providing for its own communications needs, the Concessionaire shall be entitled
to provide LCX cables and equipment in stations and tunnels for the operation of passenger
mobile telephones, and provide a route for cables of commercial communications operators,
subject to the provisions of all laws and regulations. The Concessionaire shall bear full and
sole responsibility for obtaining all necessary consents for such use, including any necessary
licences from any applicable government agency.
7.1.4 Additional Entrances from Adjacent Property
(i)
The Concessionaire shall be entitled to design and construct, or to allow the design and
construction of additional entrances to the stations from adjacent properties, provided
however that the Agreement executed for this purpose between the Concessionaire and
any third party which holds the appropriate legal rights in the adjacent property shall be
subject to the requirements and restrictions on Commercial Leases in Sub-Article 7.1.6.
(ii)
The Concessionaire shall bear full and sole responsibility for the compliance of any
additional entrances from adjacent property with all laws and regulations, standards and
codes and with the requirements of the applicable planning authority and for obtaining
all necessary consents in connection therewith. For the removal of doubt, where the
execution of any such additional entrance requires an amendment to the
Concessionaire’s design the provisions of Sub-Article 10.1 (d) shall apply.
7.1.5 Retail and Service Outlets
(i)
The Concessionaire shall be entitled to design and construct or to allow the design and
construction of, shops kiosks and the like within public areas of New Delhi, Shivaji
Station and Dhaula Kun Stations, provided however that the agreement executed for
this purpose between the Concessionaire and any third party for any legal rights in such
areas shall be subject to the requirements and restrictions on Commercial Leases in
Sub-Article 7.1.6.
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The Concessionaire shall bear full and sole responsibility for the continuous compliance
of any shops, kiosks and the like within public areas of stations with all laws and
regulations, standards and codes, including with the requirements of NFPA 130 and/or
any local codes applicable for the emergency evacuation of public areas, and with the
requirements of applicable planning authority and for obtaining all necessary consents
in connection therewith. For the removal of doubt, where the execution of any such
additional entrance requires an amendment to the Concessionaire’s design the
provisions of Sub-Article 10.1(d) shall apply.
7.1.6 Property Development and Development Rights
7.1.7
(i)
Subject to the limitations of the Site stated in Schedule ‘A’ and/or shown in the layout
drawings in Schedule ‘I’, DMRC will allow the Concessionaire right and/or licence to
utilize the land over, under and around of the depot and within the stations for property
development/commercial exploitation during the concession period with a view to
improving the financial viability of the Project. The Concessionaire may construct, or
cause or permit to have constructed, at his own cost, buildings and/or built-up areas in
addition to the Required Buildings at the specified locations, after first obtaining the
approval of DMRC in writing. All such buildings and/or built-up areas shall follow
relevant building rules and regulations, Airport Authority of India (AAI) and fire safety
regulations and all other applicable municipal approvals, statutory laws and regulations.
Such development shall be subject to a Commercial Lease for a term not exceeding the
remaining term of the Concession Period and shall be in a form and containing such
conditions as may be prescribed by DMRC.
(ii)
No property developed by the Concessionaire in accordance with this Sub-Article 7.1.6
shall be sold but shall only be let out for rental purpose during the Concession period.
Such buildings and/or built up area, with all the attendant facilities, developed by or on
behalf of Concessionaire shall be handed over to DMRC at the Termination of the
Concession free of encumbrances, and all moneys due or previously paid for the rights
to such property beyond the Termination of the Concession Period shall be paid to
DMRC, and all Commercial Leases entered into by the Concessionaire shall include
provisions to this effect including that of termination prior to or concurrent with the
Termination of the Concession.
Additional Commercial Activities
In addition to the activities contained in Sub-Article 7.1.1 (Advertisements), 7.1.2 (Vending
Machines), 7.1.3 (Communications), 7.1.4 (Additional Entrances from Adjacent Property),
7.1.5 (Rental and Service Outlets), and 7.1.6 (Property Development and Development
Rights), the Concessionaire shall be entitled to perform any other Non-Fare Revenue activity
(each one an “Additional Commercial Activity”) subject to the prior approval of DMRC. With
respect to any such Additional Commercial Activity, the following provisions shall apply.
7.2
Nothing contained in the Article 7 or any other provision of this Agreement shall be construed
as derogating from the Concessionaire’s full and sole responsibility for the feasibility and the
exercise of the Non-Fare Revenue activities. The Concessionaire shall bear all costs deriving
from the exercise of such activities. Without derogating from the generality of the forgoing,
should the performance of any Non-Fare Revenue activity necessitate obtaining or
amendment of any Consent, the Concessionaire shall bear full and sole responsibility for
obtaining all necessary Consents in relation to such activity.
7.4
The Concessionaire shall ensure that all transactions are arms-length transactions and
include binding provisions, giving effect to the DMRC’s rights under this Article 7 and the
provisions of Article 30 for Divestment, are incorporated in all the relevant agreements
procured by the Concessionaire and/or any Subsidiary thereof with respect to any Non-Fare
Revenue activity, including provisions to allow for any changes to such agreements as may
be necessitated by the exercise of DMRC’s rights hereunder.
7.5
It is clarified that nothing contained in this Article 7 shall be deemed as imposing any
obligation on DMRC or any Government Agency to grant any Consent required by the
Concessionaire for the purpose of generating any Non-Fare Revenue. This is merely an
enabling provision and any proposal of Concessionaire may be refused without ascribing any
reason for the same.
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Exhibit 8: Concession Agreement
Passengers (millions) at Delhi airport
Domestic
Year
million
International
growth
million
growth
3.38
Total
million
growth
1999-2000
4.56
7.95
2000-2001
4.98
9%
3.60
7%
8.58
8%
2001-2002
4.78
-4%
3.46
-4%
8.24
-4%
2002-2003
5.25
10%
3.59
4%
8.84
7%
2003-2004
6.07
16%
4.10
14%
10.17
15%
2004-2005
7.84
29%
4.69
14%
12.54
23%
2005-2006
10.47
34%
5.53
18%
16.00
28%
2006-2007
13.79
32%
6.40
16%
20.19
26%
2007-2008
16.63
21%
7.09
11%
23.72
17%
2008-2009
15.07
-9%
7.59
7%
22.67
-4%
2009-2010
17.81
18%
8.31
9%
26.12
15%
2010-2011
20.66
16%
9.28
12%
29.94
15%
2011-2012
25.13
22%
10.75
16%
35.88
20%
2012-2013
22.80
-9%
11.57
8%
34.37
-4%
Source: Association of Private Airport Operators. (June 30, 2011). Clean Development Mechanism, Efficient
mode of public transportation by DAMEPL, India, Version: 01 (page 31). Retrieved from
http://www.apaoindia.com/?page_id=872
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Exhibit 9: Delhi Airport Metro Express Private Limited (DAMEPL)
Concession Agreement
Termination clauses
29.1.2 Save and except as otherwise provided in Sub-Article 29.2, and without prejudice to any other
right or remedy which DMRC may have in respect thereof under this Agreement, upon the
occurrence of any breach or default by the Concessionaire under this Agreement including
any Concessionaire Event of Default, DMRC shall be entitled to terminate this Agreement by
a communication in writing (the ”Termination Notice”) to the Concessionaire if the
Concessionaire has failed to cure such breach or default within the period provided for the
same in this Agreement provided that before issuing the Termination Notice, DMRC shall by a
notice in writing inform the Concessionaire of its intention to issue the Termination Notice (the
“Preliminary Notice”) and grant 15 (fifteen) days time to the Concessionaire to make its
representation, if any, against such intended Termination Notice and shall after the expiry of
said 15 (fifteen) day period whether or not it is in receipt of such representation, in its sole
discretion issue the Termination Notice.
29.4
Upon Termination by DMRC on account of a Concessionaire’s Event of Default during the
Operations Period, DMRC shall pay to the Concessionaire by way of Termination Payment an
amount equal to 80% (eighty per cent) of the Debt Due. For the avoidance of doubt, the
Concessionaire hereby acknowledges that no Termination Payment shall be due or payable
on account of a concessionaire’s default occurring prior to COD.
29.5
Termination for DMRC Event of Default
29.5.1 The Concessionaire may after giving 90 (ninety) days notice in writing to DMRC terminate this
Agreement upon the occurrence and continuation of any of the following events (each a
“DMRC Event of Default”), unless any such DMRC Event of Default has occurred as a result
of Concessionaire Event of Default or due to a Force Majeure Event.
(i) DMRC is in breach of this Agreement and such breach has a Material Adverse Effect on
the Concessionaire and DMRC has failed to cure such breach or take effective steps for
curing such breach within 90 (ninety) days of receipt of notice in this behalf from the
Concessionaire;
(ii) DMRC repudiates this Agreement or otherwise evidences an irrevocable intention not to
be bound by this Agreement;
(iii) GOI or GNCTD or any Governmental Agency have by an act of commission or omission
created circumstances that have a Material Adverse Effect on the performance of its
obligations by the Concessionaire and have failed to cure the same within 90 (ninety) days
of receipt of notice by DMNRC in this behalf from the Concessionaire;
(iv) DMRC has delayed any payment that has fallen due under this Agreement if such delay
exceeds 90 (ninety) days.
29.5.2 Upon Termination by the Concessionaire on account of DMRC Event of Default, DMRC shall
pay to the Concessionaire, by way of Termination Payment, an amount equal to
a) Debt Due;
b) 130% of the Adjusted Equity; and
c) Depreciated Value of the project Assets, if any, acquired and installed on the Project after
the 10th anniversary of the COD.
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