Collateral Damage

The urban rail sector came to a standstill due to the Covid-19 pandemic. The complete suspension of metro services for five months and the cessation of construction activities for the first two months of the lockdown took a toll on the sector. Metro authorities are now staring at mounting losses, time and cost overruns in projects, and limited private sector interest. Even after resumption of operations, ridership is low as there is reluctance among commuters to use public transport. Despite the current disruptions, the future of the urban rail sector holds promise with metro operators getting accustomed to the new normal.

Delays in project implementation

Construction work for metro projects in most of the cities has been postponed due to the pandemic. Phase II of the Bengaluru metro rail project has been affected due to supply chain issues caused by the ban on international travel to Covid-19-affected countries, including China. Further, Mumbai Metro Rail Corporation Limited’s plans to complete tunnelling works for the project have been pushed out from December 2020 to beyond February 2021 due to the lack of labour and machinery, and disruptions in the supply chain during the lockdown. Besides, Delhi metro, Phase IV too may see a delay of two to three months.

Revenues taking a hit

A major fallout of the pandemic has been declining revenues and profits of metro corporations. For instance, the Delhi Metro Rail Corporation (DMRC) suffered losses of over Rs 10 billion due to the five-month shutdown. For the first time in nearly two decades it will be unable to pay this year’s instalment of around Rs 12 billion (of the total loan amount of Rs 352 billion for metro construction works) to the Japan International Cooperation Agency (JICA). The DMRC has requested the central government to reschedule the repayment and defer it to next year on account of the financial stress it is under. Further, Bangalore Metro Rail Corporation Limited has incurred a loss of about Rs 1 billion on account of suspended metro operations. It has sought the centre’s approval to increase the borrowing limit and mortgage its properties to raise money to move ahead with metro construction work. Income from other sources such as commercial and retail leases has also dried up.

Financing slowing down

In India, multilateral aid constitutes 30-60 per cent of the cost of engineering, procurement and construction metro projects. The high component is due to the technical assistance provided by multilateral agencies and the cheaper rates at which they offer loans. With the Covid-19 outbreak, multilateral agencies have been doling out huge sums of money to developing countries as financial support towards their healthcare infrastructure and medical equipment purchase. This limits their ability to provide funding to other sectors, including metro projects. As a result, during April-May 2020, funding was received from only JICA for Mumbai metro, Line 3 and Ahmedabad-Gandhinagar metro, Phase II. Recently, the Asian Development Bank and the European Investment Bank approved funds for the Delhi-Meerut regional rapid transit system and Kanpur metro respectively.

Joint venture metro projects usually have an equal share of central and state government equity. As the governments are prioritising their expenditure for providing relief packages to severely hit industries, their fiscal capacity is highly constrained. This will have a bearing on the budgets for upcoming and ongoing metro projects until the economy recovers from the external shock. Moreover, since the public-private partnership model has not been very successful in the urban rail segment, private investment will continue to remain low.

In sum

Low passenger density in the short term will impact fare revenues. Non-fare revenues for the ongoing fiscal year are expected to remain negligible. Thus, metro authorities will not be able to recover their losses completely. They can, at best, offset a certain percentage of the loss by increasing ridership, enhancing frequency and improving passenger density. Raising funds through the value capture financing mechanism and transit-oriented development are options for the long term. Meanwhile, recent instances of funding from multilateral agencies have lent some confidence to stakeholders. Overall, a turnaround in the urban rail sector is likely to be slow. The pace of execution is expected to pick up from the third quarter of 2020-21. Works are likely to start in full swing from the fourth quarter of the ongoing year or the first quarter of the next fiscal year. Thereafter, the sector is expected to grow rapidly on the back of network expansions.