For infra majors, nothing drives like the metro

Metro rail projects have suddenly become one of the most attractive businesses in the country.

The lead players currently are Delhi Metro Rail Corporation (DMRC), Reliance Infra and IL&FS. Many others, including GMR and GVK, are likely to follow suit.

The game was set into motion on August 6 when the Parliament passed The Metro Railways (Amendment) Bill, providing for extension of metro rail services beyond Delhi, with the Centre saying it was ready to introduce this mode of modern transport in all cities with a million-plus population.

Replying to queries, urban development minister S Jaipal Reddy said the Bill facilitates extension of metro rail transport to all cities with populations of over 1 million (10 lakh), if the state government recommends it. 

Work on metro rail projects is already underway in Delhi and Mumbai, and preparations to commence work are on in Bangalore, Hyderabad, Kolkata and Chennai.

Reddy stated that the Centre was ready to organise 50% equity to set up metro rail in any city, provided the state government arranges for the remaining funds.

As of 2001, there were 5,545 towns with populations of over 1 lakh each, and around 45 cities with populations of over 1 million. By 2015, the number of cities with populations of over a million is expected to swell by at least another 300. Multiply this (around 350 cities with population of 1 million or more) with Rs 1,000 crore per metro rail project, and you could see the bonanza this announcement could unleash.

Coming on the heels of this announcement, IL&FS announced that it had bagged a very juicy deal. The Haryana state government had just cleared an IL&FS-DLF bid (the sole bidder) to set up a 6.1 km metro rail project for DLF’s townships in Gurgaon at a cost of Rs 900 crore. DLF will hold 26% of the equity with IL&FS and the state government holding the rest. What makes it mouth-watering is the concession period of 99 years. IL&FS hopes to complete the project within 30 months of achieving financial closure, which is expected before January 2010.

For IL&FS, this project comes as a big morale booster since its major project, the Hyderabad Metro Rail Project, went off the rails thanks to the exposure of the Satyam-Metro scam. IL&FS first tried unsuccessfully to wrest a seat on the Maytas board — IL&FS holds 14.5% of the equity in Maytas Infra even though papers before the Company Law Board put this figure at 37%. Thereafter, in an attempt to salvage and own the project, it even increased its stake in the project to over 50%. However, when other co-promoters lost interest in being associated with the scam-tainted Maytas, the project was finally shelved.

Now, Reliance Infrastructure (RInfra) is said to have become extremely interested in salvaging the Hyderabad project. Somewhat co-incidentally, IL&FS seldom bids for a project when RInfra is a bidder.

The project spells rich dividends for both DLF and IL&FS. DLF has very high stakes in its land banks, much of which is in and around Gurgaon. The metro rail linking his projects to Delhi will push up the value and saleability of his properties. It helps IL&FS too, because it is one of the largest investors (both directly and indirectly though other entities) in real estate around the country and also in and around Delhi and Gurgaon. Moreover, by setting up a metro rail project, it hopes to use this as a proof of concept for bidding for more such projects across the country.

As of now, the Mumbai project has gone to RInfra. Kolkata is likely to be implemented by the Railways, and Chennai, Hyderabad, Chandigarh and Bangalore are yet to decide who their respective implementation partners will be.