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Case Study on The Delhi metroEffective Public Sector Management

Submitted to: Ms Sangeeta kamdar

Submitted By Isha Bansal(C011) Astha Agarwal(F003)

INTRODUCTION The Delhi Metro was meant to solve Delhis traffic problems, which had become almost unmanageable. With a 6.5 km section of Line 3 becoming operational in April 2006, Phase I of the Delhi Metroproject was nearing completion. Of the total length of 65.16 km of the first phase, 62 km had been completed and opened for service. This phase was set to cost Rs. 98 billion. As of early 2006, around 450,000 passengers were traveling by the Delhi Metro every day. In 1995, the Government of India (GoI) and the Government of the National Capital Territory of Delhi (GNCTD) formed the Delhi Metro Rail Corporation Ltd (DMRC) under the Companies Act to construct the Delhi Metro. Conceived as a social sector project, a significant portion of the project cost was funded through a soft loan provided by the Japanese government through Japan Bank International Corporation (JBIC). The rest was contributed by GoI and GNCTD through equity. E. Sreedharan was appointed managing director (MD) of the DMRC and project manager for Phase I of the project in November 1997. Work on Line 1 of Phase I started in October 1998. DMRC formed consortiums to advise it on the project and to provide it with the latest technology. It also saw to it that the foreign companies worked with the Indian companies to ensure that the latter assimilated their expertise and technological know-how. The DMRC faced any number of technical and systemic challenges during the construction of the metro. However, thanks to thorough planning, an effective project design, and a we-mean business culture, it was able to overcome all these hurdles. The organizational culture was based on punctuality, honesty, and a strict adherence to deadlines. The DMRC successfully managed the various stakeholders in the project like the general public, government bodies, etc., and also ensured that the project was environmentally safe. With Phase I of the Delhi Metro project nearing completion, the GoI decided to extend the metro network and work on Phase II of the Delhi Metro project was set to commence in September 2006. In the process of implementing the project, the DMRC had gained a lot of technological expertise, which would be used by other cities in India and abroad to build metro systems similar to the Delhi Metro.

START OF THE PROJECT In 1989, the GNCTD, with support from the GoI, commissioned a feasibility study for developing an MRTS for Delhi. The study was undertaken by Rail India Technical & Economic Services Ltd. (RITES)5and completed in 1991. RITES recommended a threecomponent transit system comprising rail corridors (surface/elevated), metro corridors (underground), and a dedicated busway, totaling 198.5 km. This mix of elevated and underground sections was proposed to bring down the overall project cost(Exhibit 1).

In order to implement the Delhi Metro project, the GoI and the GNCTD set up a 50:50 joint venture company called the Delhi Metro Rail Corporation Ltd. (DMRC). The company was incorporated under the Companies Act in May 1995. The DMRC was to complete Phase I of the project within 10 years, i.e., by the end of 2005. After the recommendations of various other civic organizations had been incorporated, the proposal for Phase I of the Delhi Metro project was approved by the GoI in September 1996. FUNDING OF THE PROJECT Globally, most urban MRTS projects were financially unviable because the fares could not be fixed solely on a commercial basis. If the fares were fixed too high, the passenger numbers would remain low, thereby defeating the very purpose of setting up the system. Therefore, the concerned governments generally bore the capital costs of an MRTS system. In the case of the Delhi Metro project too, the GoI and the GNCTD bore the capital costs. The total cost of the first phase of the project was initially estimated at Rs. 60 billion, at April 1996 prices. Later in 2002, with the cost of the project rising by approximately 10% per year, the estimate was revised to Rs. 89.27 billion. (Refer exhibit 3) Initially, for Phase I of the metro to become viable, it was estimated that it would have to transport 2.2 million passengers per day. This was later revised to 1.5 million passengers per day. The economic IRR(internal rate of return) of the project worked out to be about 21.4% while the financial IRR was less than 3%. In view of the high cost of the project and the low financial IRR, some ministers in the GoI even suggested that the project be dropped. However, the GoI decided to go ahead with it, keeping in mind that it was essentially a social sector project, expected to benefit the regional economy in more ways than one. The financial plan for Phase I was approved by the GNCTD and the GoI in 1996. Of the project cost, 28% was to be financed by equity, subscribed to equally by the GoI and the GNTCD. The two also agreed to give interest-free subordinate loans to cover the cost of land acquisition, which was expected to be about 5% of the total project cost. Funding for the major share or about 64% of the project cost was to be provided by the Overseas Economic Cooperation Fund (OECF which later became JBIC) through a time-sliced soft loan. JBIC disbursed the loan in tranches with each tranche treated as a separate loan, with its own moratorium and repayment period. The repayment period for each tranche was set at 30 years, which included a 10-year grace period. The debt-equity ratio was fixed at 2:1. The GoI and the GNCTD also decided to bear the exchange rate risks equally. The DMRC planned to repay the OECF loan through surpluses from revenues, property development around metro stations and its corridors, and levies/taxes on the residents of Delhi. Further, the project was exempted from custom and excise duties.

THE PROJECT TEAM With the funding for the project being finalized, the next step was to constitute a project team. Sreedharan was appointed as project manager and managing director of the DMRC in November 1997. A technocrat, he had had a long stint in the Indian Railways (IR) and had retired in 1990 Sreedharan was given complete freedom to pick and choose the project team. He selected a motivated team of professionals whom he regarded as fundamental to the success of the project. The Delhi Metro was only the second metro project in India (the Kolkata Metro being the first). Since the technology to build metro systems was highly specialized, experts in the areas of civil engineering, electrical engineering, communications engineering, etc., were needed. However, the DMRC faced the problem of skill shortage as the country had neither institutes which taught metro technology nor experienced personnel. Therefore, after recruiting suitable candidates, the DMRC sent them abroad for training. The key operating and maintenance personnel received training at Hong Kongs Mass Transit Railway Corporation (MTRC). The corporation aimed to project an image of efficiency, courtesy, and a we-mean-business attitude; the employees were also required to be polite and discharge their duties to perfection. PLANNING In India, major infrastructure projects are often stalled because of a lack of funds, political interference, lack of professionalism and accountability, property disputes, corruption, etc. Therefore, even before the commencement of the project, the DMRC attempted to put in place effective systems to ensure the smooth progress of the project. Funding was not an issue in the case of the Delhi Metro project because it was settled even before the project commenced. In order to steer clear of political interference, the DMRC sought autonomy on all major matters and the GoI promised to give it this autonomy. Next, the project manager put in place a system where every individual would be accountable for his/her role in the project. Each employee had to prepare a detailed project report (DPR) with particulars regarding the work assigned and work completed each day and this was to be submitted to the respective supervisors. Land Disputes Like other major infrastructure projects in India, the Delhi Metro project too faced its share of property disputes. To ensure that these disputes did not hinder the progress of the project, the GoI enacted the Delhi Metro Railway (Operation & Maintenance) Act, 200218 or the Delhi Metro Act in 2002. The Act, which spelt out the rules for the local authorities, superseded the local municipal laws of Delhi. Also, lower courts were barred from issuing stay orders. This, to

a large extent, prevented property owners affected by the project from getting stay orders from courts to halt work on the project. In other cases, the DMRC engaged a team of lawyers to make sure that the courts did not grant such stay orders. Cost In order to control costs, the total expenditure of the Delhi Metro was split into three broad heads manpower, energy, and materials including maintenance. Each of these accounted for approximately one-third of the project cost. Technology DMRC used Primavera Project Planner 3.0 for project planning and monitoring. The resource planning module of the software alerted users if there was an excess or shortage of resources and the cost planning module provided a complete cost break-up for the project. The software allowed the DMRC to keep track of project activities, the quantum of work completed at different levels, the time lost or gained, etc. It also provided information of all critical and upcoming activities, making it possible to keep track of and reschedule activities wherever necessary. This was vital considering that the loss incurred if one day of work was lost was about Rs. 5 million. Technological private Partner The DMRC adopted a global bidding program for consultancy and contracts that required at least one Indian partner. This was done to facilitate technology absorption by Indian firms and to ensure that the technology was localized and re-engineered A five-member consortium, called the General Consultants Group, was constituted in 1998 to provide overall consultancy for the project. This group included the Japanese firms Pacific Consultants International (PCI), Japan Railway Technical Services, and Tonichi Engineering Consultants Inc, US-based Parson Brinkerhoff International Inc., and RITES. The group was lead by PCI. MANAGING THE STAKEHOLDERS IN THE PROJECT Effective project management involved not only completing the project on schedule and within the budget, but also managing the projects stakeholders. The stakeholders included the governments, the contractors, the funding agencies, and the general public. Despite assurances that the DMRC would enjoy autonomy, it faced political pressure not only in its recruitment processes, promotions, and contract awarding but also in land acquisition. However, the DMRC resisted this pressure. The DMRC also ensured that it paid the contractors, whom it called associates, on time. It was able to complete most of the project within the budget mostly by limiting corruption.

Because of the cordial relationship that the DMRC was able to establish with the contractors, they worked harder to help the DMRC in its project activities. In fact, the project was finished ahead of schedule on certain sections because of the suggestions given by the contractors on utility diversion and surface road traffic management. Considering that the Delhi Metro was constructed mostly with Japanese funds, DMRC put in special efforts to maintain good relations with JBIC officials. It made it a point to invite JBIC officials to the inauguration events of various metro sections. The DMRC also tried to ensure that the project did not cause much inconvenience to the general public. It faced and overcame challenges of relocating a large number of utilities like water pipes, sewerage lines, telephone and electric cables, to facilitate the construction work. It ensured that all these utilities were diverted in advance, so that there was no interruption of services during the construction of the metro in a particular area. It organized community interaction programs to inform and seek solutions from the public. The DMRC also tried to ensure that the construction of the Delhi Metro did not damage the environment. It pursued environmental and safety objectives during the construction and operation of the Metro by seeking and receiving the appropriate ISO certifications. The DMRC took measures to dispose of waste water from the construction sites in an environmentally friendly manner. It initiated a program to plant new saplings along the route of the metro, to replace the trees that had been cut down during the project. It also included the provision of rain-water harvesting facilities as part of its station construction contract, as a measure to conserve water.

PROJECT EVALUATION The DMRC stuck to its completion targets throughout the project and even finished some sections ahead of schedule. The extension work (on a 2.8 kms stretch) on Phase I was progressing smoothly and was expected to be completed by September 2006. DMRC was expected to save Rs. 6 - 7 billion on the project. The project completion cost is Rs10,570 crore. This was in contrast to the cost escalation seen in most public sector projects in India. The DMRC was successful in keeping the cost of the project at US$ 32-53 million per kilometer. In comparison, the Bangkok Metro had incurred costs of US$ 56-80 million per kilometer. OUTLOOK The GoI and the GNTCD had prepared a comprehensive plan to extend the Delhi Metro to 244 km by 2021 in three subsequent phases. The DMRC hoped to start work on Phase II of the Delhi Metro project by September 2006, and was set to receive financial assistance from the JBIC on the same pattern as Phase I. Phase II was planned to be completed before the Commonwealth Games, scheduled to be held in Delhi in 2010. The DMRC was also recruiting new people to work on not only the previously constructed lines but also on the new lines that were coming up. While the number of people recruited for

administration jobs was low, most of the recruitments were for works, maintenance, signaling, and telecommunication. As of March 2006, the employee strength of DMRC was 3,000. It also seemed that the Delhi Metro had provided a stimulus to the GoI and the state governments to improve the public transport infrastructure in other cities in India. With the DMRC assimilating the metro technology from its international partners, it now had the capability to build and manage projects in other Indian cities, for as low as US$ 18 million per kilometer in some cases.

Exhibit 1: Table 1: Studies on Delhi traffic problem S.No Study 1 2 3 4 5 6 7 8 9 Transportation study Town and Country Planning Organization study Metropolitan Transportation Team Metropolitan Transport Project Study group Indian Railway Study Group Task Force Planning of Mass Rapid Transport System for Delhi Mass Rapid Transport System for Delhi Organization Central Road Research Institute, New Delhi Ministry of Urban affairs and Employment Ministry of Urban Development Ministry of Railway Planning Commission Indian Railways Ministry of Urban Development Central Road Research Institute, New Delhi RITES Year 1969 1973 1974 1975 1982 1986 1987 1989 1990

Exhibit 2: Revenue Model Every organization has there method for earning. It may be from selling their product or providing service or else. In DMRC have eight sources for revenue 1. Selling from token 2. Selling from Smart Card (Travel Card) 3. Selling from Tourist Card 4. By advertising 5. Selling from space (for retail store, restaurants, ATM and other) 6. By Penalties 7. By movie clipping 8. By Carbon Credit

1. TokenAll tokens are single journey tokens that are valid only for a one way journey. The minimum cost of travelling on the Metro is Rs 8 The maximum cost of travelling on the Metro is Rs 29 The value of the token will depend on the destination. It is valid only till the day of purchase. Token fare can be calculated by using the Fare Calculator or viewing the Fare Chart 5.5 lakh tokens are sold every day (Aprial-2011) 2. Travel Card (Smart Card)It is a most convenient option for the frequent commuter. A stored value card, Travel Cards or Smart Cards are available in the denominations of Rs. 50and can be recharged in a multiples of Rs 50 to a maximum limit of Rs. 800. Security Deposit of Rs 50 payable at purchase (refundable on return of card). It is valid for one year from the date of purchase or one year from the date of recharge There is no extra charge on renewal of Smart Card. Over 60% of Metro passengers use smart cards on a regular basis. DMRC has sold around 45 lakh smart cards since the Metro became operational in 2002. DMRC sells 10,500 smart cards daily (Aprial-2011) Highest sales recorded at the Rajiv Chowk station -around 2,500-3,000 cards are sold here each day. Ticket Reading Machines are available at all Metro Stations. This facility helps commuters to check the balance on their Smart Card. 3. Tourist CardThis card is for unlimited travel over short periods. There are two kinds of cards - 1 day and 3 day Value of 1-Day Card: Rs 150 ; Value of 3-Day Card: Rs 300 Security Deposit of Rs 50 payable at purchase (refundable on return of card).

4- By advertisingSites are offered on first cum first serve basis. Minimum contractual period for three months Service tax as applicable, current service tax 12.36% Payment on advance basis. Inputs for display material to be provided by the client

5- By Carbon Credit- has earned Rs 2.4 crore ($ 5,42,269) from the sale of 82,000 certified emission reductions (CER) under the carbon credits scheme by the Japan Finance Carbon Ltd in 2008 and 2009. While the DMRC earned Rs 1.07 crore through the sale of 39,000 CERs for 2008, it earned Rs 1.33 crore through the sale of 43,000 CERs for 2009. 6- By Penalties A fine of Rs. 200-if in case any male passenger is found travelling in the reserved ladies coach of a Metro train

Exhibit: 3: Sources of funding

References 1. 4. 5. 6. 7. 8. 9. 10. 11. DMRC Annual report 2008-2009 12.Project Management: A Systems Approach to Planning, Scheduling, and Controlling, Eighth Edition, Harold Kerzner, John Wiley & Sons 13. 14. 15. 16. 17. 18.

Teaching Notes Planning for this project began in 1995. Construction started in 1998. The first trains ran in 2002. It now has six lines, 143 stations, and carries 2 million passengers a day. By 2021, when stage four is complete, it will be bigger than the London Underground, and is forecast to carry 6 million passengers a day. As a rule, nothing in India's public sector works as intended. But the Delhi metro works: 99.97 per cent of trains arrive within one minute of schedule. They are clean, cool and safe. At peak hour, they come every 2 minutes. It runs at a profit. Every stage has been completed on time, within budget. In India, in the modern world, that is a sterling example. This case study is an attempt to learn the key features of the project that helped make it successful without the need for a private partner. Infrastructure projects in India are usually characterised by political interference, corruption, delays, cost overruns and inefficiency. The major problem of Railway Sector is the nonavailability of adequate funds for large number of New Line, Gauge Conversion, Doubling projects. A number of projects are also facing land acquisition, rehabilitation problems due to lack of proper response from the State Governments. The Delhi metro broke the mould because they appointed a quietly brilliant, incorruptible, inspiring team leader as director, and gave him freedom to run it as he chose. The table below shows the various risks involved in an infrastructure project. The features of the metro project seen in context of these risks will help one understand the success factors for success of the Delhi metro project in particular, and of a Public sector infrastructure project in general.

The various aspects of the project that contributed to its success were: 1. Organisation Structure: The DMRC had two departments-project organization and operation & maintenance in what is known as a lean organisation structure. Selected group of professionals were trained at Hong Kongss Mass Rapid Transit Railway Corporation (MTRC) Complete freedom was provided to Mr. Sreedharan to recruit people of his choice and build a team. Each candidate was personally interviewed by him after a thorough review of their track records with emphasis on integrity. Most of the employees were in the age group of 18 to 30 years. The stress was on effective contract awarding and procurement processes in order to prevent corruption. The contract awarding process was made simple and transparent, the procurement processes fair and just by removing all traces of subjectivity from tender evaluation. The MD was given complete autonomy on all matters and was the last authority on tenders.

2. Review and Supervision: Every individual would be accountable for his/her role in the project. Each employee had to prepare a Detailed Project Report (DPR) with particulars regarding the work assigned and work completed each day to be submitted to the respective supervisors. In case of any deviations, the employees had to give reasons for the same and steps for rectification. Every Monday, the heads of departments had to meet to review progress, set new targets or revise targets. The stress was on adherence to schedules with reverse clocks to indicate the number of days left before important deadlines. Due to delay in setting up of the organisation the first phase of the project commenced thr ee years after the scheduled date, but the original deadline was not revised and the project duration was reduced from 10 years to 7 years to make up for the delayed star The Delhi Metro Railway (Operation & Maintenance) Act, 2002 was enacted, supersedin g the local municipal laws of Delhi and the lower courts were barred from issuing stay or ders. A group of lawyers was engaged to make sure that the courts did not grant such stay orders.

3. Cost Control measures: The total expenditure was split into 3 heads:manpower, energy and materials including maintenance, each accounting for onethird of the total project cost. The DMRC employed only 45 persons per kilometre of track to adhere to international norms. This was only a third of the number of persons employed in the Kol kata Metro Rail project which was the only other such project in India before Delhi. To cut energy costs, a special agreement was entered into with the Delhi Transco Ltd to source power at low rates. Project duration was controlled by use of special construction technologies like trenchles s digging, use of ballastless tracks,etc.

4. Primavera Project Planner: A special software Primavera Project Planner, was used for project planning and monitoring. The resource planning module of the project alerted users in case of excess or shortage of resources while the cost planning module provided a complete cost breakup of the project. The software was also used to keep track of project activities, quantum of work complete d at different levels, the time lost or gained etc. Information regarding all critical and upcoming activities was also available to facilitate tracking and rescheduling of activities where necessary. All this was necessary as the loss incurred if one day of work is lost is about 5 million rup ees.

5. Quality Assurance: A special quality assurance team independent of the field executives was appointed to ens ure quality in construction. All personnel working at the construction site were required to wear helmets and other appropriate safety gear Consultancy and contracts was undertaken by a global bidding program which required at least one Indian partner, to ensure technology absorption by Indian firms and for localisation and reengineering of technology. The technology used was the best and the latest available. Multinational engineering corporations from across the globe worked on the project. A five member consortium led by the Pacific Consultants International (PCI) was constituted to provide overall consultancy for the project. Work on utility diversion was undertaken much before the commencement of work on a particular section. The concerned consortium surveyed the area for utilities (water pipes, sewer, water pipes, etc) to submit a written report to DMRC which completed the work w ithin the prescribed period.

6. Managing the stakeholders Government, contractors, funding agencies and general public Autonomy of the DMRC was ensured in the recruitment process, promotions, contract aw arding and land acquisition. It took a stand that any change in any decision would be mad e only if it was required from a technical or professional angle and not simply because so mebody wants it. Cordial relationship was maintained with the contractors by making payment on time. Th e contractors were grateful for not having to give bribes to secure the contracts which ensured their full cooperation and completion of the project ahead of schedule in c ertain sections because of their suggestions. The officials of JBIC which provided a major part of the funding for the project were involved in all major events concerned with the project to maintain cordial relations with them. All utilities were diverted well in advance so as to ensure minimum inconvenience to the general public. Community interaction programmes were organised to inform and see k solutions from the public. Alternate traffic arrangements were made for the roads affected by the construction with the assistance of the Indian Institute of Technology, Delhi. This was done by building new roads or by widening of existing roads. The ISO 14001 certification, which deals with standards for minimising the adverse effects of the operational processes on the environment, was obtained. New York Metro is the only other metro to have obtained this certification. It also obtained the OHS AS 18001 certification for its environment, occupational health and safety management s ystem.

Conclusion: Studying the features of the project, it becomes clear that many infrastructure project risks were effectively plugged in this undertaking by DMRC. Much of the credit for this success can be laid at the feet of Elattuvalapil Sreedharan, the 77-year-old technocrat who served as the Delhi Metro Rail Corporation's managing director. Mr. Sreedharan has a reputation for fearlessness and incorruptibility. At the Metro he has tried to create the culture of a private start-up business in the most unlikely of environments: the epicenter of India's sprawling bureaucracy. About 70 per cent of DMRCs revenues come from operational sources (ticket sales) and the rest from non-operational ones such as advertising and property development. Because non-operational revenues have not only raised funds for the project but also ensured that fares are affordable for the common man.