PPP : Importance of Underlying Agreements

Hyderabad Metro is primarily financed through private investment, unlike other metro projects that are entirely funded by the public exchequer.

It is also the largest PPP (public-private partnership) investment in India, and one of the largest in the world.

The total investment could well be about Rs. 20,000 crore. Other than a viability gap grant of Rs. 1,458 crore from the Central government, the rest will be private investment.

State government is only required to provide the land for three maintenance depots where real estate development can be undertaken above the ground floor.

In particular, the fare structure laid down in the Concession Agreement will always remain affordable on account of greater efficiencies as well as the cross-subsidization from real estate development.

The accountability framework laid down in the Concession Agreement is clear and precise as it can identify and address any defaults or malfeasance.

The other PPP project in question is the Airport Metro Line project of Delhi Metro Rail Corporation (DMRC), which was terminated by the concessionaire, Reliance Infrastructure, with an arbitration award of about Rs. 5,000 crore [interest included] against the former, primarily on account of a flawed concession agreement that enabled inflated costs and claims.

Notably, the arbitration panel comprising three engineers, empanelled by DMRC itself, held that the construction works suffered from serious defects, including over 1,500 cracks in concrete structures.

Separately, the Commissioner for Railway Safety reduced the stipulated train speed due to safety concerns.

The project is now being run by DMRC consequent upon the demise of PPP. In sum, public interest has been ripped apart by means of a huge termination payment as well as large recurring losses in the years ahead.

The Hyderabad Metro is entirely based on the model concession agreement (MCA) of the erstwhile Planning Commission whereas DMRC’s Metro Line is based on a distorted version of the same MCA.

Their comparison will clearly reveal how critical the underlying contractual framework is. This is akin to the software which determines the success of a satellite.

This tale reflects two extremes in the same sector, during the same period and in the same country.

The lessons learnt would be invaluable for accelerating the much-needed infrastructure investment in India.