In India, where infrastructure projects
are often plagued by delays and cost overruns, the success story of the Delhi Metro
has been a remarkable exception. Last month, the Delhi Metro
Rail Corporation (DMRC) was awarded the “Outstanding Civil Engineering Achievement Award” by the Japan Society of Civil Engineers, for its high-quality infrastructure development projects. Other recipients of this award include the Japanese Shinkansen (bullet train) operated by the national Japan Railways Group and the Singapore mass rapid transit (ranked among the world’s longest driverless MRT) operated by the Singapore Land Transport Authority.
Infrastructure, specifically metro systems, is a procurement-intensive sector. In addition to the role of the government agency, the quality and outcomes of such projects also depend on the private players who contract with the government to execute these projects. Payment discipline of the procurers become a key consideration as private firms are often reluctant to enter a contract if they anticipate large payment delays, which affect their working capital cycle. This, in turn, affects the quality and competition of the bids that are received. Despite the challenges, the Delhi Metro
has managed to remain a global forerunner. It features among the top 10 busiest metro systems in the world. On the completion of its ongoing project of constructing the Phase IV network, it will also become the third largest metro network in the world. Several factors contribute to the success of DMRC.
In this article, I emphasise two such factors — the DMRC’s organisational structure and the role of the external funding agency, Japan International Cooperation Agency (JICA).
In India, the government often forms a special statutory body when it aims to own and manage an infrastructure project such as the highways or airports. For example, the National Highways Authority of India and the Airports Authority of India. In contrast, the DMRC
was created as a limited liability company under the Companies Act with a 50:50 joint equity ownership by the Government of India and the Government of NCT of Delhi. This joint participation of the state and Central government is advantageous to DMRC
in four ways. First, urban transport being a State subject, the proposals for such projects are initiated at the state-government level, which incorporates better understanding of local transport demands into the project. Second, the construction of a metro rail service requires a high degree of coordination with the state and local government bodies. Managing activities such as traffic diversion, land acquisition and urban planning are critical for the timely execution of metro rail projects. The participation of the state government as a stakeholder ensures easier co-ordination with local authorities and helps speedier execution of the project. Third, equal ownership vested in both the Central and state government means neither has the power to veto a decision by the other. This lack of veto power ensures that decisions are taken consensually, and no party can hold up decision-making inordinately. Fourth, the structure ensures dual accountability. The DMRC is accountable to the Central government with the Ministry of Housing and Urban Affairs as the nodal ministry as well as to the Department of Transport, Government of NCT of Delhi.
The part that JICA has played in the DMRC journey has been significant on two accounts. First, it provided DMRC with timely flow of funds that facilitated payment discipline. Nearly 60 per cent of the DMRC project is funded by an official development assistance loan from JICA, a low-interest and long-term concessional loan provided to developing countries. However, it is the structured consistency of flow of funds in tranches (14 tranches for Phase I, II and III) which ensured that the project was not subject to delays due to an unanticipated lack of funds. The agreement for Phase IV was executed earlier this year in March.
Second, JICA ensured a transfer of Japanese expertise in metro-building as part of the assistance provided to DMRC. The initial leadership of the DMRC was keen to avail of this expertise not just for DMRC, but for other metro projects throughout India. The onboarding of JICA provided value to DMRC in terms of their innovative technologies, management ethics and their value for time. Since the majority of project cost was provided by JICA, DMRC also had to adhere to their standards of international best practices. This not only provided DMRC the global expertise and perspective that is now reflected in its international rankings, but also built the in-house capacity of DMRC to be able to design, construct and execute complex infrastructure works that meet global standards.
With growing urbanisation in the country, the need for better urban infrastructure facilities is inevitable. Creating effective institutions and building strong technical capacity and knowledge become paramount in reaching this goal. Globally, the public private partnership (PPP) model is largely used in such infrastructure projects.
It allows for better allocation of risk between the government and private entities. In India, the Mumbai Metro Line 1 and Hyderabad Metro Rail have been taken up in the PPP model, with viability gap funding from the Government of India. However, the impediments faced by the Delhi Metro Airport Line implemented through this model have caused much dissatisfaction towards it in the Indian metro rail space. On the other hand, following the lead set by DMRC, a 50:50 joint venture bundled with external finance, has been adopted by several other metro projects in the country. For instance, the Chennai, Bengaluru and Ahmedabad metro projects. Thus, government agencies have the choice of opting for the Centre-state equity sharing model following a successful precedent, or offering it to private concessionaires to avail of the benefits of the PPP model. With new metro projects in the pipeline for over 15 cities in the country, how both these models will play out is to be seen.
The writer is a senior researcher at xKDR Forum
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