Case
Teaching Notes
Supplementary Resources
Abstract
Delhi Metro Airport Express Line (AEL) from New Delhi Metro Station to Dwarka Sector 21 linked the Indira Gandhi International Airport. The line was operated by the Delhi Airport Metro Express Pvt Limited (DAMEPL), a subsidiary of Reliance Infrastructure (RInfra), the concessionaire of the line. The AEL was opened on February 23, 2011. Due to defects with the civil structure on the elevated section of the line, it was temporarily shut down on July 8, 2012. DAMEPL had been unable to run the AEL profitably ever since it started operations due to poor ridership and high operating costs. After three months in October, 2012 with the repairs nearly completed, RInfra had to take a call on the way forward.
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
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Resources
Exhibit 1: DMRC Financials
Balance Sheet as at 31st March 2012 (in Rs cr) | ||
Particulars | March 31, 2012 | March 31, 2011 |
I. Equity and Liabilities | ||
(1) Shareholders Funds a) Share capital b) Reserves and surplus | 11,824 2,262 | 10,306 1,996 |
(2) Share Application Money Pending Allotment | ||
(3) Non-current Liabilities a) Long Term Borrowings b) Deferred Tax Liabilities c) Other Long Term Liabilities d) Long Term Provisions | 17,763 870 237 39 | 16,205 753 289 31 |
(4) Current Liabilities a) Short Term Borrowings b) Trade Payables c) Other Current Liabilities d) Short Term Provisions | —– 99 1,641 46 | 477 97 1,710 42 |
Total | 34,781 | 31,906 |
II. Assets | ||
(1) Non-current Assets a) Fixed Assets
b) Long-term Loans and Advances c) Other non-current assets | 28,872 1 283 162 43 | 27,169 2 900 106 28 |
(2) Current Assets a) Inventories b) Trade Receivables c) Cash and Cash Equivalents d) Short Term Loans and Advances e) Other Current Assets | 63 141 4,146 17 1,534 | 46 229 2,920 9 1040 |
Total | 35,262 | 32,449 |
Statement of Profit and Loss for the Year ended as 31st March, 2012 | ||
Income | ||
a) Revenue from Operations | 1,950 | 1,443 |
b) Other income | 298 | 165 |
Total Revenue | 2,248 | 1,608 |
Expenditure | ||
a) Operating Expenses | 806 | 509 |
b) Employees Benefit Expenses | 268 | 219 |
c) Finance Cost | 201 | 179 |
d) Depreciation and Amortization Expense | 801 | 582 |
e) Other Expenses | 228 | 114 |
f) Prior Period Adjustments | 13 | 17 |
Total Expenditure | 2,317 | 1,620 |
Profit/(loss) before tax | (69) | (12) |
Tax Expenses | ||
a) Wealth tax | — | — |
b) Income tax | — | — |
c) Deferred tax | 117 | 401 |
Profit for the year | (186) | 413 |
Earnings per share (Equity shares of Rs 1000 each) | ||
Basic | (17) | (45) |
Diluted | (17) | (45) |
Source: DMRC Annual Report 2011–12
Exhibit 2: Map of the Delhi Metro Network
Source: http://www.mapsofindia.com/maps/delhi/delhi-metro-map.jpg, accessed on 4/12/2013
Exhibit 3: Projected Time frame for implementation
S No. | Activity | Duration | Time of Completion |
1 | Sanction of Project | 1 month | 30-09-2006 (D) |
2 | Appointment of GC | D+15 days | 15-10-2006 |
3 | Preliminary system design | D+3.5 month | 15-01-2007 |
4 | Issue of tenders for civil works | D+4 months | 31-01-2007 |
5 | Invitation of Bids for Concession Agreement | D+6 months | 31-03-2007 |
6 | Award of Civil Contracts | D+7 months | 30-04-2007 |
7 | Finalization of Concessionaire | D+15 months | 31-12-2007 |
8 | Completion of Civil Works | D+36 months | 30-09-2009 |
9 | Commissioning of Project | D+48 months | 30-09-2010 |
Source: Chapter 13 – Implementation Plan, from the Detailed Project Report on Airport Express Metro Line, August 2006, obtained from Delhi Metro Rail Corporation
Exhibit 4: Traffic Estimate for AEL
I. Section Loads | ||||||
---|---|---|---|---|---|---|
S. No. | From | To | 2011 | 2021 | ||
Daily | PHPDT | Daily | PHPDT | |||
1 | New Delhi Railway Station | Shivaji Stadium | 12000 | 546 | 25000 | 1140 |
2 | Shivaji Stadium | Dhaula Kuan | 36000 | 1638 | 75000 | 3400 |
3 | Dhaula Kuan | Airport | 42500 | 1934 | 86000 | 3900 |
II. Station Loads | |||
---|---|---|---|
S. No | Station | Daily Boarding/Alighting Passengers | |
2011 | 2021 | ||
1 | New Delhi Railway Station | 6000 | 12500 |
2 | Shivaji Stadium | 12000 | 25000 |
3 | Dhaula Kuan | 3000 | 5600 |
4 | Airport | 21000 | 43000 |
Source: Chapter 2 – Traffic Demand Analysis, from the DPR on AEL, August 2006, obtained from DMRC.
Exhibit 5: Reliance Infrastructure (RInfra)
RInfra, a part of Reliance Group, one of India's largest infrastructure companies had an annual turnover of over Rs 15,690 cr and market capitalization of over Rs 24,450 cr as on March 31, 2010. RInfra is India's leading utility company having presence across the value chain of the power business, i.e. generation, transmission, distribution, EPC and trading. It was also among the largest infrastructure companies, developing projects in all high growth areas in the infrastructure sector, i.e. roads, highways, metro rails, airports and speciality real estate.
Engineering, Procurement and Construction (EPC): RInfra's EPC division was ushering in this energy revolution with power plant projects. Along with full service project advisory capabilities, they manage power plants on a turnkey basis and provide industry specialist services such as fuel management advice and fiscal advice. The turnover of the division was Rs 557 cr and order book position of over Rs 18,530 cr as on June 30, 2010.
Energy: Their core competency in energy extended to generation, transmission, distribution and trading. They distributed more than 36 billion units of electricity to 30 million consumers and generated 941 MW of electricity from their power stations. Their transmission division was developing 5 transmission projects, with total project outlay of Rs 6,640 cr as on March 2011.
Roads: RInfra has bagged eleven projects with a total length of 970 km, costing around Rs 12,000 cr.
Metro: RInfra, had taken up the responsibility for three metro rail projects on a BOT basis in Mumbai and Delhi with project cost over Rs 16,000 cr. They included:
- Mumbai Metro Line I Versova–Andheri–Ghatkopar Corridor: Mumbai Metro One Private Limited (MMOPL) a SPV had been incorporated for implementation of the project. RInfra held 69% of the equity share capital of MMOPL, while MMRDA held 26% and the remaining 5% was held by Veolia Transport, France. The project cost Rs 23,500 cr and included a concession period of 35 years. This metro line encompassed a length of 12 km and it featured 12 stations along the corridor.
- Mumbai Metro Line II Charkop–Bandra–Mankhurd Corridor: Mumbai Metro Transport Private Limited (MMTPL), a SPV had been incorporated for the implementation of the project. RInfra held 48% of the equity share capital of MMTPL, while SNC Lavlin Inc, Canada and Reliance Communication Ltd held 26% each. The project cost Rs 1,15,500 cr and included a concession period of 45 years. This metro line would have a length of 32 km encompassing 27 stations along the corridor.
- The AEL in Delhi: As described in the case.
Source: excerpted from http://www.RInfra.com/
Exhibit 6: Concession Agreement
The salient features of the concession agreement were:
- The scope of the project included performance and execution by DMRC of all design, engineering, financing, procurement, construction, and testing of the civil works, and performance and execution by the concessionaire of all design, engineering, financing, procurement, construction completion, installation, commissioning and testing of the concessionaire's works, together with the subsequent operation and maintenance of the entire project. The scope would also include the creation of additional infrastructure and project system to augment the AEL system during the concession period, to meet the passenger carrying capacity demanded.
- The project would be handed over for a total of 30 years including a period of about two years for development of the project.
- The Special Purpose Vehicle (SPV) would design, maintain and operate the metro link that would be operational by July 2010, well in advance of the Commonwealth Games. The SPV would pay a concession fee during the first year of commercial operation to DMRC.
- DAMEPL had to pay DMRC Rs 10,000 annually as licence fee and a concession fee, which was to be quoted by the bidder.
- DAMEPL also had to share one per cent of the revenue for five years with DMRC. The revenue share was to increase by one percentage point every five years till the 16th year of operation, when the private operator had to start sharing five per cent annually till the end of the concession period.
- The equity share of the lead member of the consortium in the issued and paid up share capital of the concessionaire would not be less than 30% until the date falling two years after date of commercial operations (COD) and 26% until the date falling ten years after COD.
- The one-way fare for the New Delhi-Airport trip was to be capped at Rs 150 for the first year of operations, but DAMEPL was free to charge a lesser fare. The maximum fare could be revised later, based on an annual fare revision formula. No additional charges for handling of luggage, etc. were to be levied.
- All the maintenance works after the COD were to be undertaken by DAMEPL. It would also ensure safe operations during the concession period. In the event of an emergency decommissioning, resulting in suspension of passenger services, DAMEPL would pay damages to DMRC calculated at the rate of 0.1% per day or part thereof of the average daily fare of that section until such time the section had been re-opened for passenger use. However DAMEPL would not be liable if the suspension was due to unsafe conditions directly caused by a defect in the DMRC works which was not apparent at the time of handing over of the section.
- There was no mention of any expansion of the AEL, or of new stations coming up on the AEL when more lines of the Delhi Metro become operational, some of which are planned to cut across the AEL.
- Cases of non-completion of agreement.
a) Compensation for Breach of Agreement
In the event of DMRC being in material breach of this agreement and such breach is cured before Termination, DMRC shall pay to the concessionaire as compensation, all direct additional costs suffered or incurred by the concessionaire arising out of such breach by DMRC, in one lump sum within 30 days of receiving the demand or at DMRC's option in 3 equal semi-annual instalments with interest at an annualised rate of SBI PLR plus 2%.
b) Compensation for Termination of Agreement
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% 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.
Upon termination by the concessionaire on account of a DMRC event of default, DMRC shall pay to the concessionaire, by way of termination payment, an amount equal to:
- debt due;
- 130% 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.
Source: DMRC AEL Concession Agreement http://www.delhimetrorail.com/otherdocuments/644/P1Contract_AgreementPart-1.pdf
Exhibit 7: Reliance Infrastructure financials
S No. | Name of the Subsidary | Share Capital @ | Reserves and Surplus | Total Assets | Total Liabilities | Investment (in Mutual Fund at cost) | Turnover | Profit/(loss) before taxation | Profit/(loss) after taxation |
1 | DAMEPL | 0.01 | (341.13) | 2,503.20 | 2,844.32 | 0.55 | 38.89 | (325.65) | (325.65) |
(in Rs cr)
@ including share application money
Source: Reliance Infrastructure Annual Report 2011–12
Abbreviations
- AAI – Airport Authority of India
- AEL – Airport Express Line
- COD – Date of commercial operations
- DAMEPL – Delhi Airport Metro Express Private Limited
- DIAL – Delhi International Airport Limited
- DMRC – Delhi Metro Rail Corporation
- DPR – Daily Project Report
- GIA – Indira Gandhi International Airport
- GNCTD – Government of the National Capital Territory of Delhi
- GOI – Government of India
- GoM – Group of ministers
- JBIC – Japan Bank of International Cooperation
- RInfra – Reliance Infrastructure
- SPV – Special Purpose Vehicle
This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.
2024 Sage Publications, Inc. All Rights Reserved