Well before the trains started ferrying passengers down its 11-km track, the partners responsible for Mumbai’s Metro were already fighting each other in court.
The local government body, the Mumbai Metropolitan Region Development Authority, has taken its private partner, Reliance Infra, to court in a dispute over which of them has the authority to set the fares. “This is a fight between the people of Mumbai and a private company,” advocate EP Bharucha, representing the MMRDA, said in court at a recent hearing.
The MMRDA said that the original agreement allowed the maximum fare on the line to be set at Rs 13. But Reliance Infra has decided to charge Rs 40.
The Bombay High Court on Thursday reserved its order in the case until June 24.
This isn’t the first time the partnership aspect of the public-private partner model has resulted in a tug-of-war between public need and private enterprise. “I like to call it the P5 model instead of the PPP,” said Sudhir Badami, a civil engineer who advises the Maharashtra government on public transport issues. “P5 being the Pilferage of Public Property by Private Parties. That’s the scheme.”
The MMRDA could well be correct to be firm in its dealings with Reliance Infra, considering the difficult experience of the Delhi Metro in a similar set-up – and involving the same company.
Delhi's PPP Experience
Two years ago, Delhi’s snazzy Airport Express Line was abruptly shut. It was built as a PPP project between Delhi Metro Rail Corporation and Reliance Infra and purported to be the fastest way to reach the airport from the centre of the city. It re-opened a few months later, but with doubled travel time, and no reduction in fares. At Rs 8–Rs 150, it was much higher than the range of fares of the Delhi Metro, which went from Rs 8-Rs 30.
Delhi Metro Rail Corporation and the concessionaire, Reliance Infra, fought over who was responsible for causing and fixing the defects in the structure that were causing the trains to go slower. Eventually, Reliance Infra announced they were pulling out from the project, and are holding Delhi Metro liable for termination costs and all of the debt incurred, which could end up being a whopping Rs 2,800 crores.
Despite the messy split, a few months later Delhi Metro Rail Corporation was rapped on the knuckles by the oversight body, the Comptrollor and Auditor General, for a surprising reason: being too partial to Reliance Infra. The audit found that the Special Purpose Vehicle set up for the PPP project was given undue customs duty concessions, was not penalised for delays in construction, and was permitted to use its escrow account to invest only in other Reliance Group companies.
“Further, the project has been executed using a unique model of PPP wherein the concessionaire is operating a project of Rs 5,697 crore, with an insignificant equity of Rs 1 lakh,” the CAG said. “DMRC failed to ensure the payments due to it and also withdrawals from the escrow account as per agreements.”
Half of all PPP investment in developing countries in 2011 took place in India, according to the World Bank. But as these projects move from asset creation to operation they run into trouble, particularly because there is no mechanism to renegotiate deals.
Even E Sreedharan, who successfully helmed the Delhi Metro project, has asserted that the model has problems. “The PPP model in implementing Metro projects has not been a success anywhere across the world,” Sreedharan said. “We are not quite happy with the concessionaire of the airport express line. We don't think that PPP was a successful experiment.”
Who is the Metro for?
Where does that leave the Mumbai Metro? Unlike with the Delhi Metro Airport Express Line, the Mumbai Metro saw all three phases – construction, operation and maintenance – handed off to the private partner. This meant that the original estimate provided by consultant Delhi Metro to the Mumbai Metropolitan Regionl Development Authority for the first phase, around Rs 1,500 crore, ballooned to Rs 2,356 crore in the original Reliance estimate, and has now been pegged at Rs 4,321 crore.
“As a result, they’re trying to hike up the fare, knowing very well that this particular connection might be used by people in [commercial districts like] Santa Cruz Electronic Export Procession Zone and Mumbai Industrial Development Corporation, who won’t mind paying that little extra,” Badami said. “But that brings us to the question of who this line is made for. Is it for the improvement of public transport or is it for benefit of a private party, or is it for the affluent citizens of this city? In a way, that is what the High Court is listening to when it hears arguments over the fares.”
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The local government body, the Mumbai Metropolitan Region Development Authority, has taken its private partner, Reliance Infra, to court in a dispute over which of them has the authority to set the fares. “This is a fight between the people of Mumbai and a private company,” advocate EP Bharucha, representing the MMRDA, said in court at a recent hearing.
The MMRDA said that the original agreement allowed the maximum fare on the line to be set at Rs 13. But Reliance Infra has decided to charge Rs 40.
The Bombay High Court on Thursday reserved its order in the case until June 24.
This isn’t the first time the partnership aspect of the public-private partner model has resulted in a tug-of-war between public need and private enterprise. “I like to call it the P5 model instead of the PPP,” said Sudhir Badami, a civil engineer who advises the Maharashtra government on public transport issues. “P5 being the Pilferage of Public Property by Private Parties. That’s the scheme.”
The MMRDA could well be correct to be firm in its dealings with Reliance Infra, considering the difficult experience of the Delhi Metro in a similar set-up – and involving the same company.
Delhi's PPP Experience
Two years ago, Delhi’s snazzy Airport Express Line was abruptly shut. It was built as a PPP project between Delhi Metro Rail Corporation and Reliance Infra and purported to be the fastest way to reach the airport from the centre of the city. It re-opened a few months later, but with doubled travel time, and no reduction in fares. At Rs 8–Rs 150, it was much higher than the range of fares of the Delhi Metro, which went from Rs 8-Rs 30.
Delhi Metro Rail Corporation and the concessionaire, Reliance Infra, fought over who was responsible for causing and fixing the defects in the structure that were causing the trains to go slower. Eventually, Reliance Infra announced they were pulling out from the project, and are holding Delhi Metro liable for termination costs and all of the debt incurred, which could end up being a whopping Rs 2,800 crores.
Despite the messy split, a few months later Delhi Metro Rail Corporation was rapped on the knuckles by the oversight body, the Comptrollor and Auditor General, for a surprising reason: being too partial to Reliance Infra. The audit found that the Special Purpose Vehicle set up for the PPP project was given undue customs duty concessions, was not penalised for delays in construction, and was permitted to use its escrow account to invest only in other Reliance Group companies.
“Further, the project has been executed using a unique model of PPP wherein the concessionaire is operating a project of Rs 5,697 crore, with an insignificant equity of Rs 1 lakh,” the CAG said. “DMRC failed to ensure the payments due to it and also withdrawals from the escrow account as per agreements.”
Half of all PPP investment in developing countries in 2011 took place in India, according to the World Bank. But as these projects move from asset creation to operation they run into trouble, particularly because there is no mechanism to renegotiate deals.
Even E Sreedharan, who successfully helmed the Delhi Metro project, has asserted that the model has problems. “The PPP model in implementing Metro projects has not been a success anywhere across the world,” Sreedharan said. “We are not quite happy with the concessionaire of the airport express line. We don't think that PPP was a successful experiment.”
Who is the Metro for?
Where does that leave the Mumbai Metro? Unlike with the Delhi Metro Airport Express Line, the Mumbai Metro saw all three phases – construction, operation and maintenance – handed off to the private partner. This meant that the original estimate provided by consultant Delhi Metro to the Mumbai Metropolitan Regionl Development Authority for the first phase, around Rs 1,500 crore, ballooned to Rs 2,356 crore in the original Reliance estimate, and has now been pegged at Rs 4,321 crore.
“As a result, they’re trying to hike up the fare, knowing very well that this particular connection might be used by people in [commercial districts like] Santa Cruz Electronic Export Procession Zone and Mumbai Industrial Development Corporation, who won’t mind paying that little extra,” Badami said. “But that brings us to the question of who this line is made for. Is it for the improvement of public transport or is it for benefit of a private party, or is it for the affluent citizens of this city? In a way, that is what the High Court is listening to when it hears arguments over the fares.”