Japan Delhi Metro's knight in shining armour again

Phase-III of the Delhi Metro's rail network, work on which is to commence soon, will see a jump in borrowing from the Japanese government's aid agency, in line with a rise in the cost of construction.

Delhi Metro Rail Corporation is under pressure to deliver on a major network expansion, but the cost of construction is set to almost double, to Rs 303 crore (Rs 3.03 billion) a km, for each line in the third phase.

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While the percentage contribution of Japan International Cooperation Agency in funding DMRC's projects is to decrease from 60 per cent in phase-I to 50 per cent in phase-III, the borrowing in absolute terms is set to jump three-fold, to Rs 17,621 crore (Rs 176.21 billion).

Jica is the Japanese government agency for extending technical and financial assistance for projects in developing nations.
Its loan to DMRC does not come with any strings attached on awarding contracts to a Japanese company, according to a senior official.

Phase-III is to add 116 km more to the present 180 km.

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Jica's contribution was to come down to 40 per cent of the overall project cost of Rs 35,242 crore or Rs 352.42 billion (initial estimates).

However, it has since agreed to fund half the project cost for the third phase, which becomes operational in 2015.

"This comes as a major relief and good news for us. This is an indication of the trust the Japanese government has in DMRC's repayment capacity and sound project financials," Mangu Singh, director (works) at DMRC told Business Standard.

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Singh is also the choice for next chief of DMRC when the veteran incumbent, E Sreedharan, retires as managing director on December 31.

DMRC had constructed a 65-km network in phase-I, with an investment of Rs 10,571 crore (Rs 105.71 billion).
Around 60 per cent of this -- Rs 6,342 crore (Rs 63.42 billion) -- came from Jica, in the form of long-term debt.

Of the rest, 28 per cent was provided by the Union government and the Delhi government as equity.

In phase-II, while the overall project cost almost doubled to Rs 19,131 crore (Rs 191.31 billion), Jica's contribution came down to 49 per cent (Rs 9,374 crore or Rs 93.74 billion) and the equity contribution from the government went up to 50 per cent of the total cost.

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A major reason for the huge jump in per-km cost of construction from Rs 162 crore (Rs 1.2 billion) in phase-I to Rs 303 crore (Rs 3.03 billion) in phase-III is the ambitious plan to increase the underground component in the network, to avoid land acquisition issues.

While the underground component accounted for 20 per cent of route length in phase-I and 27 per cent in phase-II, underground lines would account for around 40 per cent of the rail network in phase-III.

The cost of construction came down to Rs 153 crore (Rs 1.53 billion) per km in phase-II, as compared to Rs 162 crore (Rs 1.62 billion) in phase-I, despite an increase in the share of the underground component from 20 per cent in the first phase to 27 per cent in the second.

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This was achieved by efficient project management, said Singh.

"Unbundling of contracts and a higher number of domestic contractors allowed us to pull down per-km cost of construction in the second phase," he said.     

Jica's loan of Rs 6,342 crore (Rs 63.42 billion) for phase-I had come at an annual interest rate between 1.3 and 2.3 per cent.

The entire project was completed in 2002 and the loan amount disbursed in six tranches between 1998 and 2005.

The Rs 9,374-crore (Rs 93.74-billion) loan from Jica for phase-II was finalised at an annual rate between 1.2 and 1.4 per cent.

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For the third phase, too, DMRC expects the loan to flow in five or six tranches, at roughly the same rate.

DMRC's annual outgo to the Japanese government on loan repayment is around Rs 250 crore (Rs 2.5 billion), around 45 per cent of its total annual income.

While this outgo is being met by DMRC on its own, it leaves the company with no funds to provide for depreciation reserves.

A government official, who did not want to be named, said in the years to come, the company would have to look for ways to restructure its finances.