Pending disaster on the tracks as city metros overstate ridership numbers

The pandemic has only made matters worse, and experts say some networks could become the next large bad loans for the financial sector even if commuting returns to pre-Covid levels

Long commuter queues formed outside Delhi’s biggest metro interchange station, Rajiv Chowk, on each day of this Diwali week. As a sign of return to normalcy in the economy, it was an impressive demonstration. But despite their size, these queues will not make up for the financial stress that is rapidly building up in the metro network in Indian cities, as ridership falls away rapidly in the wake of the Covid pandemic. 

“There is a distinct possibility that some of the metro networks could become the next large bad loans for the Indian financial sector,” said O P Agarwal, CEO of World Resources Institute. Agarwal, who has chaired the United States Transport Research Board's Committee on Transportation in Developing Countries, says the losses from the operational metros in just 2018 has crossed Rs one trillion, more than the centre’s entire allotment for the countrywide Smart Cities programme to be disbursed over five years. The Covid-19 pandemic has made those numbers much worse, just as those happening  abroad. Los Angeles Metro noted an 80 per cent dip during the pandemic. Metros have to wrestle between the need to run their full fleet soon to bring poorer workers back to work cheaply yet maintain social distance in all compartments, both of which adds to costs immensely. 

With expectations of flat ridership, the stress is clear. There are 13 operational metros, if one combines both the monorail and metro projects in Mumbai as one. Besides projects to expand all of these metros, seven more cities are constructing their metros and 12 more are on the drawing board. For all of them, the Achilles heel has been the estimates of how many people would ride the metros as the table shows. 

To earn a metro for their cities, almost all the state governments have provided rather inflated projections of how viable they will be. In the metro rail policy of 2017, the Centre had made it clear that states should first explore other modes of mass transit such as Bus Rapid Transit System, Light Rail Transit and Tramways, before landing up with a proposal for metros. While the Centre asked for “rigorous assessment of new metro proposals and…an independent third party assessment by agencies” states understood the way to justify the metro was to show a high ridership.  

“In most cases the cities instead decided on getting a metro project and then wrote their project reports ruling out other alternatives,” said a project advisor who has prepared one of those reports. For instance, the Ministry of Home and Urban Affairs had made it compulsory to set up of an Urban Metropolitan Transport Authority in each metro city “for ensuring complete multi-modal integration for optimal utilisation of capacities”. None of the non-metros including Bengaluru has one, so far. 

It is the reason why the Union Ministry of Home and Urban Affairs, the steering organisation for the projects has inserted a safety clause in every one of those projects stating there shall be “no liability on the part of the Government of India if the ridership does not materialise and/or the project does not make adequate profits/surplus”.

The disclaimer is essential. Wary after the experience of the power sector, the Centre has written in clauses protecting itself from the downside if the metros fail to generate adequate revenue. The government of India is an equity holder in all the metro projects. The liability, if the metros become unviable, will certainly fall on it, even though for projects like Bengaluru, the state is the larger shareholder. 

All the new projects have high levels of debt because the special purpose vehicles created to build them have no exposure to the equity markets. The investors, in this case, the state or the central government shall be able to sell their stakes only when these vehicles approach the markets. 

In Hyderabad, the concessionaire L&T Metro Rail Hyderabad (L&TMRH), building the rapid metro for the capital of Telangana, has faced low ridership right from the beginning. Against 400,000 per day, it was seeing a footfall of 70,000-80,000. Even before the pandemic, L&TMRH has been urging the Centre to release the promised tranche of viability gap funding of Rs 1,458 crore. The centre has baulked. It has pointed out that to qualify for the payout, the concessionaire had to keep the fare increase for rides within 5 per cent a year. It has vastly exceeded this limit. A consortium of 10 banks led by State Bank of India has sanctioned the entire debt requirement of the first phase of the Rs 18,800 crore project. According to the website of L&TMRH it is the “largest fund tie-up in India for a non-power infrastructure public private partnership project”. As of FY17, L&TMRH data shows its “indebtedness” at the end of the financial year stood at Rs 8,731 crore while its total equity was Rs 2,038 crore.

It isn't just the private sector. Multilateral institutions too have made these errors. In the case of Jaipur metro, the Asian Development Bank had projected a daily ridership of about 206,060, using Delhi metro as a model, in the first phase of the project. Before the pandemic set in, Jaipur logged an average of 20,343 per day. It had reached a peak of 100,000 in the first week of launch in June 2015. In Lucknow, the project report noted “the total ridership in the proposed North-South corridor in the year 2020 is estimated to be 640,00 passengers per day”. At its best, the actual numbers was less than a tenth, at 60,000 last year. Nagpur’s detailed project report had forecast ridership of over 350,000 per day. That is an impressive number for the larger Nagpur belt with a population of less than three million. 

“In my experience, cities like Lucknow prepared their ridership numbers by simply extrapolating traffic density numbers. The exercise was like modelling a toll plaza,” said Yatish Rajawat, CEO of Centre for Civil Society. He is not wrong. Almost all cities have included all social benefits from the metros including reduction in pollution, of road accidents, employment opportunities to tip the scale in their favour. 

Among all of them, Delhi, is in a far better position. It is not only the largest of those with 389 km of route length. Even though the ridership has plummeted to less than 200,000 (from 4.7 million in 2019), given the pace at which Delhi is expected to grow, it is also fairly certain that the ridership will bounce back faster. Also more than 50 per cent of the funds raised for Delhi Metro’s Rs 70,433 crore has come as a soft loan from JICA. Other metros do not have this advantage. They are like the Hyderabad metro planned as private-public-partnership. The projects are supposed to generate an internal rate of return of 14 per cent. The earlier commissioned projects including Delhi, Mumbai, Chennai and Bengaluru had raised money on expectations of a ‘Financial Internal Rate of Return of 8 per cent’. The union cabinet itself noted the change was “in line with global practices”. 

Agarwal says he is sure ridership will return to pre-pandemic levels next year. As an example, he cites how flights have recovered a large percentage of their lost market. “The challenge, however, is that metros live a hand-to-mouth existence. Wiping off their income for 6-7 months as has happened this year means it is impossible for them to recoup those losses,” he says. Just the 13 existing metros excluding those of Delhi, Mumbai, Chennai and Kolkata cost Rs 1.03 trillion.