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This article was first published 10 years ago

'Fare hike must for Mumbai Metro to make money'

Last updated on: December 12, 2013 15:06 IST

Image: Metro trains pass through a residential area during its first official safety trial run in Mumbai.
Photographs: Danish Siddiqui/Reuters BS Reporter in Mumbai

With Mumbai Metro One Pvt Ltd, a Reliance Infrastructure Ltd company, set to launch the first phase of the 11.4-km Mumbai metro services next month, analysts and lenders say the company’s ability to generate profits from the project in the near term will depend on the government’s clearance to hike fares.

“There is absolutely little or no interest from investors in Reliance Infrastructure,” said a Citi analyst.

The Rs 4,300-crore (Rs 43-billion) project -- marred by missed deadlines and cost overruns -- has finally started full scale test run last week between Ghatkopar and Versova and will open to public by mid-January.  

. . .

'Fare hike must for Mumbai Metro to make money'

Image: Trial run of the Mumbai Metro.
Photographs: Suyogaerospace/Wikimedia Commons

Analysts say the project’s viability hinges on getting a nod from the government for a fare hike.

While rating its Rs 1,840 crore (Rs 18.4 billion) of rupee loans and $70 million of its foreign loans, rating firm ICRA warned the project’s ability to generate enough cash flows to meet the debt servicing obligation remains contingent on the grant of the proposed fare hike by the Maharashtra government.

“Any delay in approval of the proposed fare hike would impact the project profitability and hence the rating of Mumbai Metro has been placed on rating watch and we would continue to monitor the developments and conclude the rating once clarity emerges on the proposed fare revision on the project,” says an ICRA analyst.

. . .

 

'Fare hike must for Mumbai Metro to make money'


Photographs: Reuters

Although the company, owned 69 per cent by Reliance Infrastructure, has asked the state government to raise its minimum fare to Rs 33 from Rs 10, the government has ruled out any fare hike.

According to a Maharashtra government official, the agreement with the company provides for a 11 per cent rate revision after every four years.

Though the fares are estimated to be Rs 13.7 in the highest distance bracket, Mumbai Metro has sought a fare hike of Rs 28-30 for travel beyond 8 km.

An email sent to Mumbai Metro One Pvt Ltd and Reliance Infrastructure did not elicit a reply.

But, while replying to analysts, Lalit Jalan, chief executive officer of Reliance Infrastructure, had said the fare hike would no longer be decided by the state.

. . .

'Fare hike must for Mumbai Metro to make money'

Image: An international boat show in Mumbai.
Photographs: Prashanth Vishwanathan/Reuters

"There are two aspects.

“One is the approval for the increased cost; that approval we already have.

“They have cleared the financing documents for the Mumbai Metro.

“The second bit is the change in tariff; this matter will now be done since the metro is under the Metro Act, as per the new regulation.

“The tariff-related issues will be done at the central level through Fare Fixation Committee.

“It will no longer be done by the state," Jalan told analysts on November 11.

Lenders with exposure to the project say they are keeping a close watch on the project. “As the company is backed by financially sound promoters, we are not worried.

“But in the absence of a fare hike, it will be interesting to see how Mumbai Metro pays the high finance costs of the project,” said a banker.

Source: source