Building The Metro Rail System Finance Essay

The construct of a tube rail for Delhi foremost emerged in 1969-70 but DMRC was formed in May 1995 with equity engagement by the GOI GNCTD in the ratio of 50:50, i.e. , equal engagement. The national and Delhi province authoritiess aimed to develop a rail-based conveyance system that would relieve Delhi ‘s of all time turning conveyance congestion and vehicular pollution. The elaborate undertaking study ( DPR ) and feasibleness survey for the different stages of the undertaking was prepared by Delhi-based Rail India Technical and Economic Services ( RITES ) .

The major support for this undertaking has been through a soft loan disbursed by the Japan Bank for International Cooperation ( JBIC ) . Therefore, the authorities of Japan has contributed more than half the cost of this undertaking. Delhi ‘s first metro line was operational in 2002 and today three working lines connect cardinal Delhi to east, North, and southwest Delhi. The tube rail system, to be constructed in four stages covering 245 kilometres, is scheduled to be finished in 2021.

DMRC is responsible non merely for building of the system but besides for its operation and care. It has 450 forces in its building section and 3,000 staff for system operation and care. Supply concatenation spouses provide critical support, including labour, machinery and constituents, and care services.


Support and Investing

Investing has varied significances in economic sciences and finance. In finance, investing is regarded as seting money into something with the outlook of a addition, normally over a longer term. Therefore, it is application of financess to keep assets over a longer term in the hope to accomplish additions. It normally involves variegation of assets in order to avoid unneeded and unproductive hazard. As urban MRT undertakings are meant to supply a safe, rapid and low-cost manner of travel to the commuters, they have non by and large been found to be financially feasible in the most metropoliss of the universe, despite their big economic benefits.

It was important for DMRC to develop a strong support scheme. Investings are frequently made indirectly through mediators, such as pension financess, Bankss, agents, and insurance companies. These establishments may pool money received from a big figure of persons into financess such as investing trusts, unit trusts, SICAVs etc to do big graduated table investings. Each single investor so has an indirect or direct claim on the assets purchased, capable to charges levied by the mediator, which may be big and varied. For the Delhi Metro Project, Japan Bank of International Corporation ( JBIC ) has extended important support in funding the four stages of the undertaking. Since it was observed that India has immense infra shortage. India needs to construct airdrome, roads and main roads. However, in every sector of infra, India will be catching up with past and will non be constructing for the hereafter. Here lies the chief difference in choosing Japan to finance the undertaking. In Japan there is a new degree of infra. While in India we are catching up with shortage, Japan on the other manus is manner in front. Delhi being national capital and international metropolis, the GOI and GNCTD must besides lend to run into portion of these costs. It has consequently been decided that the undertaking will be financed by manner of equity parts from the GOI / GNCTD, soft loan from the OECF ( Japan ) , belongings development gross and certain distinct levies / revenue enhancements on the metropolis inhabitants. The loan will rapid partially from excesss from the box gross, partially through dedicated levies / revenue enhancements in the NCT. The fiscal program of the undertaking has been approved by the GNCTD and GIO on24.7.1996 and 17.9.19996 severally.

It is indispensable to raise appropriate financess for the successful completion of the undertaking. Timely proviso of financess enables smooth and efficient operation. The undermentioned schemes were established in the assorted stages of development of the Delhi Metro:

A Phase I

The investing proposal for Phase-I of the Delhi MRTS Project was approved by the authorities on 17th September, 1996. The entire estimated cost of the undertaking was INR 10571 crore. Of this the Japan Bank for International Cooperation ( JBIC ) extended the maximal sum in six tranches, with the first one in 1997. The loan carried rate of involvement for this undertaking is 1.2 per cent per annum. The loan has a repayment period of 30 old ages with a moratorium period of 10 old ages.

The SPV, DMRC, was set up with equal equity engagement from the brotherhood and the Delhi authoritiess. Approximately 28 per cent of the undertaking cost was raised through equity parts, jointly financedA by the Government of IndiaA ( GoI ) andA Government of Delhi. In add-on to this, they provided a subsidiary loan to cover the cost of land acquisition, which has a portion of 5 per cent. Another 60 per cent has been raised as a low-level debt through soft loans from JBIC. The balance 7 per cent financess were internally generated through belongings development.


Funding Plan of Phase I

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Beginning: Delhi Metro Rail Corporation

A Accumulative outgo incurred upto 31.3.2007 is Rs.10349.59 crore.

Accumulative physical advancement is 100 % .

As grant-in-aid, the Metro has received 1,914.3 crore from assorted bureaus. The Delhi Metro has besides paid back an sum of 567.63 crore which includes loan sum for Phase I and involvement sums for Phases I and II, to the Japan International Cooperation Agency ( JICA ) .

The undertaking ‘s support bureau, the Japan Bank for International Cooperation ( JBIC ) has rated Delhi Metro ‘s execution of Phase-I as “ first-class ” .

Phase II

The sum estimated cost for the undertaking that had been approved by the Government was INR 190 billion. Of this entire investing, ab initio JBIC was to finance 48 per cent through equity engagement. But JBIC contributed merely 30 per cent. However the 18 per cent will non fall under the brotherhood and province authorities ‘s portion. Approximately 36 per cent is being financed through government.A

The staying sum is being funded from belongings development, internal resources, and low-level debt. The economic internal rate of return for this stage is estimated at 23.63 per cent and the fiscal internal rate of return at 8.18 per cent.A

The INR2885 crore airdrome express line under this stage has been funded on a debt-equity ratio of 70:30. While RInfra holds 95 per cent equity, the Spanish spouse holds the staying. However, the SPV had raised a debt of INR25 billion in March 2009 at an involvement rate of 13 per cent, against the demand of INR20 billion.

A Phase III

Japan being hit by a catastrophe was non wholly certain to fund the stage III of the undertaking. However after due diligence, the deadlock over the sanctioning of the soft loan was eventually over. Japan agreed to let go of the first installment of the 105km undertaking in December 2011. Japan Bank of International Corporation was all set to finance the INR 32000 crore undertakings.

The undertaking will be financed in a debt equity ratio of 60:40 under which the Centre and the Delhi authoritiess will lend 30 % each and the remainder will be raised by soft loans from JBIC

In this stage the loan will be sanctioned at 1.40 % rate of involvement to be repaid in 30 old ages with a grace period of 10 old ages. Earlier, JBIC had given a soft loan to Delhi Metro at different rates of involvement changing between1.2 % to 2.3 % in Phases I and II.

Appreciating the sustainability of the relationship between India and Japan for Metro undertakings, the lone feasible ground for cut downing the committedness is decrease in demand for pecuniary support by the Delhi Metro. This is apparent as in the first stage, JBIC had given Delhi Metro 60 % of the INR10571 crore undertaking cost, while in the 2nd stage the tube had received 55 % of INR19600 crore from JBIC. In stage III, DMRC has asked for merely 40 % of about INR32000 crore.

The Phase III undertaking has already got clearances from the province and the Centre and both the authoritiess have made budgetary commissariats to run into the initial cost. TheA Delhi Metro Rail Corporation ( DMRC ) A undertakings have been allocated INR.2216 crore in the budget for 2012-13. TheA money will be spent on building and extension of the Metro web in the national capital.

Phase IV

Nipponese support bureaus which have extended fiscal support for the old three stages of the Delhi Metro has shown enthusiasm to fund in the hereafter plans every bit good. The Phase IV of the Delhi Metro undertaking has 440 kilometer of country of coverage. With the completion of the 4th stage, the largest tube in the universe will be produced.

DMRC Financials


DMRC recorded a entire income of INR7.24 billion in the fiscal twelvemonth 2008-09, inclusive of income from operations, existent estate, consultancy, and other income. It registered an addition of 43.51 per cent over the entire income of INR5.04 billion recorded in 2007-08. The company recorded a net net income of INR413.2 million, as against a net loss of INR482.59 million in 2007-08.


The company ‘s entire outgo stood at INR2.62 billion, an addition of 24.47 per cent over the twelvemonth 2007-08 when it recorded a entire outgo of INR2.11 billion.

Funding Scheme: Delhi Metro Rail Corporation ( DMRC ) v/s Bangalore Metro Rail Corporation Limited ( BMRCL )

Bangalore Metro Rail Corporation Limited

BMRCL is a public sector company jointly owned ( 50:50 ) by the cardinal and province authoritiess. It is responsible for the execution of Bangalore Metro Rail Project ( Namma Metro ) , aimed at supplying a rapid theodolite rail system for Bangalore. The undertaking was prepared by DMRC and submitted to BMRCL in May 2003. The proposed gage was a standard gage unlike the wide gage of the Delhi Metro Network. The principle for the tube includes decreased journey times, cutting fuel usage, accident decrease and lower pollution. GOI approved on 11th May 2006 followed by MOU between GOI-GOK-BMRCL dated on 24th December 2010. The Government sanctioned completion cost of INR11609 crore.






15 %

15 %

30 %


10 %

17 %

27 %

Senior Term Debt

43 %

Grand Total

100 %

While Delhi tube is to the full funded by authorities equity and JICA sovereign- guaranteed debt, GOK, BMRCL decided to make a new funding theoretical account for the undertaking which would be a mix of

a. authorities equity, ( 30 % )

b. authorities subordinated debt, ( 27 % )

c. and Pass Through Assistance signifier JICA, ( 25 % )

and leverage these beginnings to raise the balance of 18 % as commercial debt from fiscal establishments.

The scheme adopted by BMRCL to fund the Namma Metro Project faced many challenges and legal issues.

The Challenge:

a. Structuring a non-sovereign long-run MDB loans with involvement below market rates.

B. With no legal hurdlings for MDB to impart straight to an entity entirely owned by the Government

c. To construction a recognition sweetening mechanism between several Government entities and borrower ( BMRCL ) for payment mechanism

d. Support of GOI and GOK in the building of the refund agreements.

A Legality: The threshold issue

Can a foreign entity straight lend to a Company ( BMRCL ) to the full owned by the authorities?

The Constitution of India – Article 293 ( Borrowing by States ) bars imparting by a foreign entity straight to State Governments.

However, BMRCL is a company created under the Indian Companies Act 1956 and should be regarded as different entity from the province authorities like any other State tally companies


All security would be every bit shared on pari passu among the loaners in the payment waterfall under the TRA into which all Project grosss will flow.Hypothecation and mortgage of assets of BMRCL will be with the Security Trustee created for the intent.

Inter creditor Agreement between the loaners is being finalized on which footing a Security Account to be opened at an acceptable Bank in Bangalore under a Security Trustee Agreement.

ADB Facility Agreement contains footings and conditions that are customary in undertaking funding minutess.

As per the MOU, if BMRCL was non able to keep the debt service ratio, so GOK to step in with extra sub-debt. While this status would fulfill domestic loaners, appreciating that foreign loans would necessitate a different comfort mechanism, GOKBMRCL working closely with ADB designed extra security/guarantee in the signifier of Concession Support Agreement.

Ridership and benefits


In the seven old ages since its startup, the tube has carried over one billion riders. On gap, approximately 35,000 riders were utilizing the line daily. With add-on of lines, there has been a changeless upswing in ridership. Soon, 0.85 million riders use the tube per twenty-four hours.


Citizens of Delhi are deducing assorted indirect benefits from the Delhi tube. A recent survey conducted to measure these indirect benefits has revealed that Delhi tube has prevented 28,800 metric tons of C dioxide from being emitted into the ambiance every twelvemonth. For Phase II, DMRC has estimated that about 610 coachs will be removed, ensuing in a economy of INR890 million towards capital and operating costs. Further, nest eggs of about INR3.24 billion will take topographic point due to a decrease of private vehicles, INR3.66 billion due to a decrease in fuel ingestion, and INR1.65 billion due to a decrease in investing in route substructure.


The Delhi tube is besides the first railroad undertaking in the universe to be registered for C credits by the United Nations. It has been certified to forestall release of over 90,000 metric tons of C dioxide by usage of regenerative braking systems in trains. It is estimated that in 2008, release of 39,000 metric tons of C dioxide were prevented and this figure is expected to increase to over 100,000 metric tons per twelvemonth when Phase II of the tube undertaking is to the full operational.


To better connectivity, DMRC has introduced 120 feeder coachs. It has besides placed an order to buy 300 air-conditioned tight natural gas coachs to move as feeder coachs. In add-on to feeder coachs, it has besides started a wireless cab service for Delhi tube commuters in association with a cab service bureau.


DMRC has gained acknowledgment with clip. Today, it has non merely triggered metro undertakings in other metropoliss but is besides moving as a adviser for bulk of the undertakings coming up in India. Whether these undertakings will retroflex Delhi metro ‘s success will merely be seen with clip.