With the Government encouraging cities with a population of over 3 million to develop mass transit systems, Detailed Project Reports (DPRs) for the implementation of metro or mono rail have been prepared for 21 cities, of which the metro is already in operation or under implementation in nine cities. SHRIYAL SETHUMADAHAVAN speaks to India's metro makers to spot opportunities on the go.
'A dollar spent in metro rail leads to a three-dollar flow into the economy' is China's maxim. With India's metro action lagging well behind China, not to mention about 100 years behind the developed world including Germany, France and Japan, we have some catching up to do.
And the shift is on. According to the Ministry of Urban Development (MoUD), new metro projects worth Rs 1.25 lakh crore are lined up in various cities: Mumbai Line 3, Ahmedabad, Pune, Kochi, Lucknow, Nagpur, Bhubaneswar, Guwahati, Bhopal and Indore. Driving this action is the Government of India's encouragement to cities with a population of over 3 million to develop mass transit systems. If we do the math - nine cities already have a population of over 5 million and over 35 cities will do so by 2051 - the opportunity for stakeholders in the metro space becomes all too apparent.
Highlighting the importance of the metro to Indian cities, Jayaraman Ravikumar, CFO, L&T Metro Rail (Hyderabad) Ltd, says, "It addresses the problem of congestion and offers a clean city with low carbon footprint." And today, the metro has gone beyond Tier-I cities to Tier-2 cities with a large population. "The Delhi Metro has been a catalyst," says Anuj Dayal, Executive Director, Delhi Metro Rail Corporation. "The project was completed before time and within budget."
Globally, the preferred mode of metro construction is said to be design and build (D&B). Sunil Srivastava, Managing Director, BARSYL, views engineering, procurement and construction (EPC) as the other mode currently finding favour internationally. "This reduces interface issues for the client and ensures single-point responsibility with the EPC contractor," he says. Suggesting that the EPC route for various subsections may be the most viable - similar to the Delhi model - Milind Joshi, Partner-Infrastructure, IDFC Alternatives Ltd, avers, "If public-private partnership (PPP) models need to be used, then given the relatively less experience in this sector and traffic-related challenges, an annuity + toll model may still work such that debt servicing is largely covered by the annuity." Ashwani Saxena, Director Project, Jaipur Metro Rail Corporation, further tells us that PPP has not been very successful in India: "Although it has not been able to perform in the Delhi Airport Express and Mumbai, Hyderabad is somehow holding on."
However, most Indian authorities are more comfortable with the bill of quantities (BOQ) model as this has historically been followed for all government contracts. "Currently, for ongoing metro projects in India, the D&B and BOQ models are both being followed," adds Srivastava. "Going forward, I see a strong possibility of the EPC model being implemented."
Today, metros are being constructed with the latest and best technologies, many of which are cost-effective. Saxena says, "In a metro project, per kilometre construction cost of an elevated structure is about Rs 200 crore plus, and in the case of an underground structure, it is over Rs 500 crore per km.In terms of speed, India is on par with international standards. "We run at a maximum speed of 80 km per hour, and the average speed is around 30-35 km as the station-to-station distance is less," says Dayal.
This speed is achieved through signalling systems like automatic train protection and automatic train operations, which ensure that the train runs at frequent intervals without causing an accident. In addition, Saxena points to electric traction motors - which power the coaches - as a key technology used to achieve speeds of 80-85 km per hour.
For his part, India's 'metro man' Dr E Sreedharan, Principal Advisor and Former Managing Director, Delhi Metro Rail Corporation, opens a new window of discussion: driverless operations.
"All upcoming metro projects support good technology except for this one," he says, acknowledging Delhi Metro Phase 3 for considering this feature. Dayal highlights the technology here - communication-based train control (CBTC) - saying, "Here, the interval between two trains can be reduced by over 90 seconds." The Hyderabad Metro is also considered among the initiators of adopting this technology that completely works on WiFi.
Metro projects are cost-intensive, involving a large number of supplies for various items. "Metro sector projects require over Rs 1 lakh crore investments every year," says Gyan Prakash, Director General, Institute of Metro & Rail Technology, a subsidiary of Balaji Railroad Systems Ltd. With nearly 15 upcoming metro projects under various stages of construction, this spells a tremendous opportunity for vendors and suppliers as well as contractors, of course. For instance, for the Jaipur Metro, 40 metro coaches have been procured from BEML, Bengaluru, of which 28 have already been received in Jaipur. As Saxena tells us, the average cost of one metro coach is close to Rs 8-10 crore.
"To begin with, in any metro project, tenders are floated for civil foundations and civil super structure," VB Gadgil, Chief Executive & Managing Director, L&T Metro Rail (Hyderabad) Ltd, informs us. "Then, tenders are floated for track work depending on whether the tunnel is elevated or underground. Other components include signalling, communications, automatic fare collection, rolling stock, power - constructing the receiving substations and distributions, overhead electrification of the track and mechanical electrical and plumbing - elevators and escalators and equipment and vehicles for maintenance." Further, once the main contractor receives the award, an opportunity arises for subcontractors. Here, Saxena highlights the Delhi, Bengaluru, Mumbai, Hyderabad, Chennai and Kolkata Metros as projects now offering good opportunities to subcontractors. While Gadgil highlights that there is enough scope for civil contractors, Prakash sees a growing demand for equipment such as cranes, backhoe loaders and batching plants.
How geared up are vendors for this opportunity?
"Our key strength in India is our local engineers and our metros ensure a high degree of reliability, safety and maintainability while providing low lifecycle costs," says Harsh Dhingra, Chief Country Representative, Bombardier Transportation India. "Bombardier is pursuing various metro projects such as Bengaluru Metro Phase-II, Ahmedabad Metro and Mumbai Metro Phase-III. We are also evaluating producing and exporting metro cars from Savli site for neighbouring countries. In September 2013, the company was awarded a contract valued at about Rs 3.9 billion from DMRC to provide the first driverless unattended mass transit solution in India. The globally proven CITYFLO 650 CBTC solution will be delivered to Line 7, the latest part of Delhi's metro expansion plan." With this contract, Bombardier is now Delhi Metro's largest contractor for signalling and train control solutions.
Faiveley Transport India, one among the largest subsystem suppliers of metro rolling stocks, foresees metros as opportunities to develop high level of skill sets and technology capabilities in India. D Kumar, Executive Director-Projects, Faiveley Transport India, believes, "Offering reliable products through our sound manufacturing practices, which support large-scale localisation, and backing up with our 24 + 7 field services support to meet the stringent demands and expectations of end users (metro organisations) will be the key to success." In India, the company manufactures advanced brake systems, couplers, HVAC systems and pantographs for metro cars. It also plans to manufacture automatic door leaves and platform screen door systems shortly.
"We have supported all metros in India and the growth potential is excellent," says P Ravindranath Bhas, Managing Director, Siepmann's Card Systems, a pioneer in automatic fare collection (AFC). With the AFC segment contributing over 60 per cent of the company's business turnover, its offerings include contactless smart cards for regular travellers and smart tokens for single journey. "Our USP is our ability to offer fully indigenous manufacturing and supply chain right from conceptualisation of the design of cards or tokens to ready-to-use cards or tokens to metro operators."
AFC is right up the alley of Gunnebo too; this Swedish company has sold over 20,000 units of its mass transit products globally; customers in India include the Chennai and New Delhi metros. Gunnebo's gates - bi-parting, full panel, flap panel and tripod turnstiles - can withstand heavy passenger throughput and prevent fare evasion. The USP of the company is its algorithm and sensors that provide 99.9 per cent correct person detection. "Big opportunities lie in India's metro story; the next three years will be very crucialfor us," says Chetanya Vali, Vice President-Institutional Sales, Gunnebo India Pvt Ltd. "And with new projects coming up in Mumbai, Kolkata, Chennai and Lucknow, we are expecting India's total metro business to be around ñ16 million this year."
As a manufacturer and leader in rock machines, Robbins Tunneling and Trenching Technology sees immense potential for underground tunnelling. The company has supplied to the Delhi, Bengaluru and Chennai metros and has its eye on the Jaipur Metro. "We have specialised pressurised machines, mixed phase tunnel boring machines (TBM), which can handle the geology of rock easily," says Kapil Bhati, Managing Director, Robbins Tunneling and Trenchless Technology (I) Pvt Ltd. "On an average, we maintain a speed of 200-350 m per month; our machines can even bore as fast as 800-900 m." After cleaning and basic repair, the machine is ready for the next job.
Equipment aside, the process to establish a metro is complex. First, a detailed project report needs to be prepared. "This takes a minimum of eight to nine months," elaborates Dr Sreedharan. "Then, the project has to be approved by the state government following which the Government of India should agree to partner the same. Approval by the Centre takes about two to two-and-a-half years. It is further scrutinised by the Planning Commission, Finance Ministry and MoUD before work can start."
A project can get stuck at the Centre when it does not qualify as being financially viable. "The requirement is 8 per cent return on investment, which is impossible in the case of many metro projects," rues Dr Sreedharan.
Getting clear right of way is another challenge. Meanwhile, Srivastava observes, "With more projects coming up at the same time, the bigger hurdle will be resources, both trained men and machinery.
If companies do not take adequate action here, there is a strong likelihood of projects getting delayed." Prakash and Saxena also agree that there is an acute shortage of professionals.
According to Gadgil, the biggest challenge is that, as the metro is a new subject in the country, there is little data or history available. To this, Prakash adds, "Actually, at the moment, we are following only the DMRC model, which is a success story, but somewhere this is restricting new ideas from being infused in upcoming projects." He also points to technology in terms of civil and railway systems being challenging, while Dayal cites timely completion and land acquisition as major obstacles.
Talking specifically of Mumbai's first metro project, which is almost ready for commissioning and awaiting safety clearance, K Vijaya Lakshmi, Additional Chief (Metro, Monorail, UMTA), Mumbai Metropolitan Region Development Authority (MMRDA), says, "Challenges include shifting or relocation of various unchartered underground utilities and procuring land for the depot. Traction substation, a portion of alignment, clearances and construction of special bridges across Western Railway tracks and the Western Express Highway, and the rehabilitation and resettlement of project-affected persons have all been overcome."
Coming back to Dr Sreedharan's point on financial viability, though, the capital-intensive nature of metro projects does make this difficult. However, one cannot have an apple to apple comparison among metros as the requirement of every project differs depending on the geography of the state. "Compared to global metros, Indian metros are cheaper as labour is cheaper here," says Ravikumar. "But even within India, to execute a cost-effective metro, it should be done the elevated way." Also, there is no one preferred way to execute a metro project. Each project has specific needs and issues and the financing structure has to be decided accordingly. The choices: internal funding (state government and Government of India); external funding (state government and Government of India and a multilateral funding agency); PPP. Each has its advantages and disadvantages as Srivastava explains: "If the state government is financially strong, the internally funded model is the best (for instance, the Navi Mumbai Metro funded by CIDCO), whereas in states with reasonable financial health, the externally funded model is most suited, like the Chennai Metro and Bengaluru Metro (funded by JICA) and Kochi Metro (funded by AFD France). If there are possibilities for transit-oriented development and good ridership, the PPP model is best suited (Hyderabad Metro and Rapid Metro Gurgaon).
However, under the viability gap funding (VGF) scheme for metro PPP projects, the Centre currently contributes only up to 20 per cent of project costs as grant with no provision of changing it midway through a project cycle. "The ability to change the grant or other key terms midway will lead to subjectivity, disputes and potential litigation, which could further impact project execution," says Joshi. "Given the challenges, metro projects across the world are generally owned by government agencies and constructed through the EPC route." Indian experiences with PPP in metro projects have also not been encouraging so far. Here, Ravikumar points out that the VGF is based on the real viability of the project and should be given without any ridership. He believes that it should be coined in a different manner. "For infrastructure projects, the rider is that equity should take place first and only then can one avail VGF," he says. "But the interest cost during construction is high, to cool down which this condition should be waved off." He says the VGF should be given upfront and the debt or equity can come in based on the credit assessment of the project and capability of project owners. However, he adds that this can be tabled in a fashion where deserving contractors can benefit.
In a move to get more players involved in the growing metro industry, MoUD had recently proposed an equity-to-debt ratio of 20:80, as against the traditional 30:70 - which has not been based on any government policy but has evolved through experience.
"The lending community focuses primarily on cash-flow generation and the ability of the project to service debt (with sufficient coverage) from its cash flows," shares Joshi. "I expect the same trend to continue for financing infrastructure projects, including metro rails." On a positive note, Srivastava believes, "For the big players, this lowering of ratio will free their resources, making it possible for them to get involved with more projects." However, Joshi feels the lowering of the ratio is unlikely to impact the ability to raise more debt. "In case of metro projects, risks and uncertainties are higher than other infrastructure projects on account of uncertainty around land acquisition in heavy density urban areas leading to time and cost overruns, higher traffic uncertainty and sensitivities around pricing for user charges," he contends. "Hence, I expect lenders to be more cautious and take a conservative approach while evaluating these projects."
In addition, Srivastava draws attention to a possible new set of opportunities. "Lowering ratios will also allow smaller corporate houses with strong balance sheets to enter this space," he says. While he is confident that this can offer opportunities to mid-size contractors, he adds, "They can associate with appropriate international partners to enhance their technical capabilities and take part in metro projects."
To this, though, Joshi brings to light a new set of challenges. "One has to bear in mind that metro projects have a very long gestation," he points out. "Construction periods are typically upwards of four years, followed by a long period for the traffic to build up. It is not unusual for these projects to have cash losses in the initial years of operation. The project sponsors have to arrange financing not only for construction purposes but fund the losses in the initial periods of operation. Further, the size of these projects can be large, typically over Rs 10,000 crore. Even with the VGF, the funding required is beyond the reach of most mid-size contractors." Considering that the balance sheets of most infrastructure developers are stretched at present and many are struggling to complete their existing projects, he suggests that mid-size contractors must be restricted to take on such large projects. Thus, for mid-size contractors to explore this opportunity, the biggest challenge will be to bring their contribution of equity and raise project finance from lenders.
Connecting the future
All considered though, the metro is the only way to go for a country with a burgeoning urban population like India. Indeed, wherever the population exceeds 2 million, the planning for a metro has to begin. "MoUD has already identified 22 cities based on current population and future growth that should have a metro system," says Srivastava. Of these, some cities have already commenced planning studies while some others are in the process of doing this. What's more, existing and ongoing metro projects will also need to expand, broadening the opportunities. "A McKinsey report talked about 8,000 km of metro required for the Indian market in the next 10-15 years," Gadgil informs us. At the same time, he reminds us, "We know the speed at which our projects get cleared and move forward." Dr Sreedharan knows this all too well and thus his plea to the government is succinct: "Sanction the metros as soon as possible and let the construction begin." Amen.
Company: Mumbai Metro Rail Corporation
Project: Mumbai Metro III
Company: Pune Mahanagar Metro Rail Corporation Ltd
Project: Pune Metro Project
Company: Metro Link Express for Gandhinagar and Ahmedabad (MEGA) Company Ltd
Project: Metro cum Regional Rail Transit System (MRRTS) for Gandhinagar-Ahmedabad
Company: City and Industrial Development Corporation (CIDCO)
Project: Navi Mumbai's Metro Rail Corridor
Company: Kochi Metro Rail Ltd
Project: Kochi Metro Rail (Phase 1)
Company: Jaipur Metro Rail Corporation Ltd (JMRC)
Project: Jaipur Metro (Phase 1 a and 1 b)
Company: Bangalore Metro Rail Corporation (BMRCL)
Project: Bangalore Metro Rail (Namma Metro) Phase 1
Source: Industry Voices
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