The spanking world-class Rapid Metro, which became operational in Gurgaon (now Gurugram) in 2013, has certainly added lustre to the modern township built by DLF. But the project is based entirely on fraudulent and fabricated ridership claims, to get government sanctions, right of way for land use and other benefits.
The metro project was conceived by DLF, the realty giant, and mid-wifed by the scandal-hit Infrastructure Leasing & Financial Services (IL&FS). They are also the two biggest beneficiaries. India’s public sector banks (PSBs), as always, are stuck with the bad loans of this gold-plated project.
Here is how it unfolded. DLF originally proposed a 3.2km metro project between Sikanderpur and National Highway-8 (NH8) to the Haryana government in September 2007. It hired IL&FS to prepare the Detailed Project Report (DPR) as a consultant. This was submitted by DLF to the Harayana government’s town and country planning department.
Metros, even elevated ones, are expensive showpiece projects and ought to be considered by smaller cities only when other modes of public transport are inadequate to meet growing transportation demand. But when you have a powerful corporate, captive government and pliant bureaucrats, all good sense is thrown to the wind.
The media has extensively documented DLF’s clout with the Central and state governments. It was at the peak of its power in 2007-08. Gurgaon had been transformed into ‘Millennium City’ and DLF had got itself re-listed on the stock exchanges and was being touted as one of the most valuable companies in India. Its shares were trading at a high of Rs1,200 in January 2008 (as against Rs177 on 22 November 2018); but things took a dramatic downturn soon after.
The Haryana Urban Development Authority (HUDA) invited expressions of interest to construct the metro line on build-operate-transfer (BOT) basis with a 99-year lease in 2008 based on DLF’s persuasion. A fresh tender was called in July 2008 because DLF wanted the metro to connect it to its Cyber City as well.
By then, the world was already hit by the global financial crisis. DLF’s stock was down to Rs400 and the company itself pulled out of the project. But, instead of being alert to the global financial crisis and its implications for realty and infrastructure development, the Haryana government ploughed on with the project.
Someone connected with the early plans says, DLF originally pitched the metro as a Rs325-crore project, but the cost soared to over Rs1,000 crore after it was tendered and IL&FS Transportation Network Ltd (ITNL) became the sole owner. The very rationale and viability were based on completely fraudulent claims about potential riders.
The DPR (detailed project report) projected passenger traffic at a huge 100,000 passengers per day in the first year itself. (See table)
The truth turned out to be vastly different. The actual riders, in phase-1, were barely 30,000 per day. Five years later, after completion of the phase-2, the riders are less than 50,000 a day. (See table for the latest numbers).
But every decision with regard to the rapid metro was based on the big fraud of inflated riders. The Haryana government granted right of way as well as land for the project and the metro stations, based on the traffic projections, for only a revenue share in non-fare revenues (such as advertisement income) and connectivity charges, based on these projections. Banks were also persuaded to fund the project based on these false claims. This raises several questions that beg a full-fledged investigation.
- First, who was the biggest beneficiary of the project? Clearly DFL. It got a free ride on the project, as is clear from the rapid metro’s website. The metro “provides a transport solution for areas in and around Cyber City, DLF phase-2, DLF phase-3, NH8 & Golf Course Road up to Sector 55-56 Gurugram and provides connectivity to Delhi Metro from Sikanderpur Station,” it says. A Haryana government source says that DLF’s ongoing projects saw a minimum cost appreciation of 15% due to the metro, in very difficult times for the realty industry, globally.
- IL&FS was the next big winner. While the project itself was based on spurious projections and doomed to fail, ITNL, the promoter, and the group as a whole, earned plenty in fees, since the Haryana government allowed a generous increase in project cost to the Rapid Metro Rail Gurgaon Ltd (RMGL), a special purpose vehicle (SPV) which built the project.
- The civil construction contract went to IL&FS Engineering and Construction Company Limited, also at a fat fee. A forensic audit would reveal how much IL&FS, as a group, has earned from the project in various types of fees, costs and expenses.
- The poor riders’ data of phase-1 was a wake-up call. Instead, the second phase of the project was built and cleared. And the combined project has yet to achieve half the riders projected for phase-1.The southward extension for phase-2 was a 6.6km long double-track extending from Sikanderpur to Sector 55 and 56 in Gurgaon and was estimated to cost Rs2,423 crore then.
In February last year, the Comptroller and Auditor General (CAG) rapped HUDA for failing to enforce the terms of concession contract, resulting in undue benefit to the concessionaire of the Rapid Metro in Gurgaon at the cost of public.
The report said: “HUDA had entered into a concession contract assuming 80 per cent of liabilities of concessionaire in the event of termination of the contract and default of the concessionaire as to the costing of the project and extent of potential liabilities.” But CAG also did not go into the fact that the entire project was based on false projections.
In February 2016, IL&FS, the failed group holding company, partially bailed out ITNL which promoted RMGL by acquiring a 49% stake at Rs509.9 crore (Rs17 a share for a hugely loss-making project). This was, obviously, to airbrush the performance of ITNL which was a listed company and attracted close scrutiny by stock market analysts and funds.
Interestingly, just around the time that the IL&FS board was sacked by the government in August 2018, the Rapid Metro had issued a notice to the Haryana government alleging “breach of the concession contract” and making a claim of Rs1,484 crore.
One of its allegations is that the Haryana government had “promised that other modes of transport like shared autos would not be permitted on the metro route once it became operational.” Whether such an outrageous promise, to block the most easily accessible public transport, had actually been made is also worth investigation. It would indicate the extent to which the bureaucracy was compromised.
Unfortunately, bankers and bureaucrats appear to have ganged up to protect their own. There is no attempt to go into the dubious deals of the IL&FS’s management cabal.
The Reserve Bank of India (RBI), which is fighting the government to preserve its independence, also failed badly where IL&FS is concerned. Umesh Baveja, founder of RAHI Aviation, who was put behind bars by IL&FS on what looks like trumped up charges, had sent detailed account about the scandalous Rapid Metro in his 2 October 2015 letter to Dr Raghuram Rajan, then governor, RBI.
RBI raised a red flag about IL&FS being over-leveraged. But it was kept a secret. Had it made its conclusions public, bankers, rating agencies, pension funds and mutual funds would have been alerted at least two years earlier.
(Courtesy: Moneylife)