Q&A: Lalit Jalan, Director & CEO, Reliance-Infrastructure
The biggest launch from the Anil Ambani group in 2010-11 was the 22.7-km metro express rail link to the Delhi airport on February 24 With this, group company Reliance Infrastructure.
- (1888PressRelease) June 17, 2011 - The biggest launch from the Anil Ambani group in 2010-11 was the 22.7-km metro express rail link to the Delhi airport on February 24. With this, group company Reliance Infrastructure (R-Infra) became the first private operator in the country to run a metro system, through its 100 per cent subsidiary, Delhi Airport Metro Express Pvt Ltd. In an interview with Jyoti Mukul & Sudheer Pal Singh, its director and chief executive officer, Lalit Jalan, makes a case for privately-run metro systems. Edited excerpts:
Metro systems being capital-intensive and sensitive to high fares, there is an opinion that these are not suited for a public-private partnership (PPP) model. Do you agree?
With the low fares on the revenue side and high capital cost, clearly a metro will not be viable anywhere in the world. But, when we look at the Mumbai and Hyderabad metros, the revenue side includes retail, advertising and other sources of income, and the capital side includes viability gap funding (VGF) for the project. Even if the government runs the metro system, these will run into huge losses.
Government does not have free money. If you are willing to give (state agencies) equity and debt at zero per cent and you give the same terms to the private sector, then you can compare.
There was no VGF when you bid for the airport express line in Delhi. Why?
In Delhi, we did not bid for VGF, though we were allowed to. We bid a marginal premium. In our two other projects in Mumbai, we have bid for VGF; Larsen & Toubro has bid for VGF in the Hyderabad project. In each of these metros, real estate development is allowed.
When we looked at the entire economics - capital cost, passenger and advertising revenue and retail revenue - at that time, we thought we could bid without a VGF but it is not true that there is no VGF. Half the cost of the Delhi airport express line, in the form of civil works, has been borne by the government. So, in the Delhi metro we have incurred a cost of around '2,800 crore and they (the government) also incurred a similar amount.
What is your payment arrangement with Delhi Metro Rail Corporation (DMRC)?
We have to give them '51 crore in the first year of operation. The amount would increase at five per cent every year. This is a fixed amount, irrespective of Reliance's revenue from the operation. That is part of the concession agreement. The initial few years are difficult for any infrastructure project. The company invests all its capital upfront. Revenue increases year on year - with rate increase and growth in traffic. In the Delhi project, the first few years will be challenging but passenger revenue will increase dramatically, along with advertising and other things.
Why has ridership remained low? What was the figure originally expected by you?
We are getting a footfall of 8,000 every day. We had thought it would be 15,000 in a steady state. We are sure that in one and a half years, we will be at a level of 50,000-plus passengers.
Is one reason that you do not run the service in the night hours, when the rush to the airport is more?
We run for as many hours as DMRC runs. Flights take off 24 hours. No metro service in the world runs for more than 20 hours. We require a minimum four hours for maintenance. We have only two lines to operate and with live metro running, maintenance becomes risky.
Would you be increasing the service hours and frequency?
We are at 18 hours today. It will go to 20 hours, the highest in the world, in the next one month. Our current frequency is 20 minutes. We will go to 10 minutes by the end of June.
How would you compare your Mumbai experience with that of Delhi?
In Mumbai, we are still constructing. There are major right of way (RoW) issues in Mumbai, which is not the case in Delhi, where there are wider roads and constructing an elevated corridor is easier. We would be able to commission it before the deadline of mid-2012. The entire civil works of the project would be completed before the end of the year.
With private investment coming into the metro systems, do you see the need for a regulator?
For safety issues, the Commissioner of Metro Rail Safety is there. Other things like tariff (rate) and maintenance are part of the concession agreement. The tariff is fixed. So, this is not like other sectors to that extent. I do not see the need for a regulator. With the need for public transport being high, there is a peak tariff that the concession agreement allows. If there is competition, everybody is free to reduce it.
You will have two metro systems running in two metros next year. When do you think you would achieve break-even in these projects?
In Delhi, we hope to break even by the end of this financial year. Even in the Mumbai project, we should break even faster, as ridership there is higher. We are talking of Ebitda (earnings before interest, taxes, depreciation and amortisation) break-even in the first year and a full break-even next year. Here, I am talking about recovering the operating profit and the interest cost.
What is the lesson you have learnt from building this metro system as a private metro operator?
It is a very aggressive bid timeline for the Delhi metro. It's a 23-km line which we completed in 27 months. Nowhere in the world has a metro of this type come up in less than five-six years.
On bidding policy, there is no fixed way in which metros are being bid out. There should be city-specific models for metros for aspects like real estate, VGF, etc. The rest of the things should be similar.
http://www.business-standard.com/india/news/qa-lalit-jalan-directorceo-r-infra-/434685/
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