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Overview of the problem: Delhi City within India required a solution to resolve the
upcoming promotional events and lack of infrastructure to comply with the
projected tourism traffic.
based on the amount of additional capital subsidy they would require from
government in order to make the concession viable (that is, government
agreed to provide viability gap funding). The concession would be
awarded to the bidder who requested the least amount of viability gap
funding from the government.
2. Was the project economically viable?
From the aspect of both parties economically they were viable, but only for
short term. The project projection considers mainly the economic and
commercial benefits of the promotional events occurring during the upcoming
two to three year hence the expected annual income and revenues were over
projected.
Focusing on the Governmental perspective, the governments expected
income will come directly from DAMEPLs agreement on two payment
aspects, first from the concession fees of 10.53 million dollars at exchange
rate of RS48.41 dollar every year, secondly from gross revenue of one to five
percent of 15 years. This is the first problem, they expect revenue to be
achieved through every year, which could not be guaranteed. Second
problem is the total profit was not able to cover the full operating cost and
running cost.
Whilst for the commercial aspect DAMEPL was merely expected to recover
from its initial investment through fare box collection, advertisement,
commercial space, vending machine and retail outlets. Another problem can
be identified, the expected revenue was highly dependent on the
infrastructure and the future profitability as well as traffic was dependent on
events and other promotional activities within the city. Any additional risks
that may hinder the infrastructures may cause revenue lost.
All responsibility were vaguely listed and described, verbal communication and
formal agreement were lacking. Discussions were not conducted to establish any of
the responsibility in the longer term view.
Quality control
Monitoring team were not assigned formally, both parties reacted merely as a
separate entity. Their teams were in a passive state and only responded when
required or when it was too late. Problems were not resolved even after the
discovery stage. The processes were not streamlined or managed to resolve any of
the existing problems.
Financially
The liability towards the DMRC were funded by the public market and the
government sector, both parties had no full control of the organization therefore
financially it was confusedly funded. Short term wise they identified the running
cost were unable to maintain in full structure hence the outsource of a new
contractor to take up the project as a partnership.
DAMEPL were in a similar structure of a SPV alliance of share balance of 95% to 5%
by the Spanish firm. Debt was also owned by 10 different parties and arranged by
lead banker Axis Bank, hence financially it was extremely unstable and complex to
begin with.
Background overview
Scope and anticipated outcome
Key Project Parameters Estimated Project Cost: US$1.26 billion.
Hours of operation: 5:30 am to 11:30 pm.
1. What were the key reasons for the packaging of this project into separate PPP
and non-PPP components?
The budget for operating was over expected, hence outsourced, also
DMRC did not have the full supporting system or technology to
implement ideal technologies.
The project team for both teams could be more specialized and require
less time planning for multiple tasks. Hence less operating costs as
well as less liability.
2. What risk management consequences arose as a result of the packaging
decision?
Liability was confusing to trace back, as the guideline was vaguely set.
Construction and supply risks were increased, as risk of cost and time may
cause overruns
Performance and patronage risks were also increased as expectation and
benchmark were increased.
Both parties were dependent on each others full completion, their project
teams long term plan must be achieved in according to scale and scope of
the time.
Control must be done by both party and new channels will be required hence
cultural clashes, organization errors and human errors were multiplied.
Risk management
PPP Suitability
1. What are the possible reasons for choosing to deliver the operation and
maintenance component of this project as a PPP?
2. Could other forms of PPP be used for the operation and maintenance of the
rail line?
Matrix team would resolve most of the risks above and create much stable
communication. One of the major benefits of matrix team is that information
can be shared two way hence control and monitor stages could be done
accurately. For example maintenance team can be formed by both parties so
agreement can be mutually agreed and be evaluated by both side
simultaneously and approved together. Creating better decision making
processes.
One of the major issues was that stations that were built by DMRC did not
operate during night period; this could be considered in to three different
external factors. The infrastructure could not support the technology and new
buildings of the station, including electricity cables, ISP and overall utility.
Another problem that occurred were the tracks that were built by DAMEPL
showed multiple flaws and safety issue that required the trains to stop
completely. Local communities, suppliers and also environment unstableness
were all factors that caused this issue
3. Did the party or parties who were allocated construction risk ultimately bear this
risk?
They were all liable to the faults of the failure of this project, the cost to
maintain and send out maintenance team was the first of the additional cost.
The repair was the second but most importantly the project itself had to be
extended because service was unavailable and caused longer running cost and
delays which both side did not plan for.
Operating Risk
1. How was operating risk allocated in this project?
Both partiies were not alert with the existing problems or tried to deny the
existence of the problem from the other side, when the contract stated
unclear liability as each party had more stakeholder behind the organization
and contradicting points create even more difficult judgement to trace back
to the individual who should take responsibility for.
4. Did the party or parties who were allocated operating risk ultimately bear this
risk? Demand (Patronage) Risk
Not sufficient data was researched when the project were created. Multiple
factors were ignored, first the time of the promotion create over projection of
passengers. Cultural aspect caused traveler to consider the service to be unfit or
unsafe to use during night time, which as mentioned previously was due to
three factors, unstableness of the utility, ISP and electricity causing faulty
stations.
Existing time flights were running on their downtime hence their service reach
was not effective nor did it reach the demands.
1. How did DMRC initially propose to allocate demand risk?
The initial criteria required during the tendering process was the first stage of
filtering and establish the risks, but there was no implementation or formal
agreement between both organizations full stakeholder list to accept
conditional requirements.
2. How was demand risk allocated in the PPP contract agreed between DMRC
and DAMEPL?
A general principle is that in general, commercial, operational and
maintenance risks should be allocated to the private party, while political
risk, including expropriation, should be assigned to the public party. The main
issue was that both the maintenance risk was equally shared by both parties
hence the dispute began, because both were liable and the blame game
began.
3. What other techniques for allocating demand risk could have been used in this
project?
These two methods could have used to determine the possible risks and project a
more usable time chart for both parties to evaluate with and follow up with.
Case Study 1: The Delhi Airport Metro Express Project November 2013
Monitoring
1. What monitoring processes were in place for this project?
As for the DMRC their original contract conducted their own monitoring
processes. The observation targeted the profitability and the traffic flow that
affected the macro environment, these did not contribute in to minimizing
risks nor are they useful to controlling the quality of the service. Hence the
effectiveness of their monitoring project were extremely low and the
conducting method were not listed out or fixed hence it was an informal
monitoring process.
Despite the fact DMRC had received an ISO14001 certification. It outsourced
different teams to do selective monitoring processes which could affect the
overall consistency of the results.
Change in Ownership
2. 1. What risks might lead DMRC to restrict changes in the ownership of the
SPV in this project?
As SPV causes risks and liability to be shared and usually handled by the side
with the bigger control and risks. This also means that due to DMRC and
DAMPEL the public and private sector causes the requirement to abide in a
different business process, which may increase the burden for the private
sector if transparency was one of the criteria.
DMRC will also be required to change the technology and skill sets to fit with
DAMPEL hence if changes in ownership does occur, the project scope will
have to be increased as well
Are there other ways in which these risks could be mitigated?
If a shared liability could be formally assigned instead of relying an open
negotiation would have establish a much clearer and project scope for both
side to manage.
The Government should have taken an active role or assigning long term
goals and expectation as the main objective of the partnership was based on
the land development and commercial development that would derive from
the project itself.
3. 2. What reasons might Reliance Infrastructure have for wanting to dispose of
its equity in the SPV?
Reliance Infrastructure held 95% of the DAMEPL shares hence the liability
would become solely owned by them, hence by diluting equity within the SPV
it avoids the responsibilities and also secure ownership of partial public
sector.
No streamline process
Dampel disagreed with the commission payment on the concessionaire
50% of the government liability of the commission payment
Responsibility breakdown
4.
Dispute Resolution
1. What consequences have arisen as a result of the choice of arbitration as
a dispute resolution mechanism?
No trust
Day to day operation
Termination
1. Why did DAMEPL claim to be entitled to terminate the concession
agreement?
The logic is that if the infrastructure was not completed from the public
sector the line could not service and hence causing major losses on revenue
and increased the running costs. As the service was shut down for 90 days
onwards the DMRC had yet to fulfill its full repair service on its infrastructure
hence causing the losses.
2. Why did DAMEPL claim that DMRC was liable to pay a termination
payment?
What purpose does this payment serve?
Financiers Cure Rights meaning that the government had the larger control
over the project. If the WBS was listed out the public sectors task must be
complete in order for the DAEMPL to fully accomplish.
Why did DAMEPLs financiers not step-in to resolve the issues with the
project?
Legal concerns for long-term, arbitration would take up at least 2 years to
negotiate and settle with governmental sectors, second part is that there
were 8 different banks involved in DAMEPLS alliance including reliance
infrastructure and a Spanish firm, their image would have been affected
damaging their credibility, hence it would be more advantageous for the
other parties if reliance infrastructure have a saving face.
There are 4 possible solutions scenarios:
Reliance Exits, Pay no damages
Reliance exits, Pay all damages
Renegotiation
DMRC calls for Rebid.
Handback
1. 1. What information and resources would DMRC require in order to
effectively take over operation of the rail line?
The DAEMPLs project charter / plan including the Operations and WBS,
Budgeting, Risk Management are the fundamentals. Other requirements
include Skill sets, experience, and business asset intelligences.
Introduction
Company overview
Apply project planning: scope and anticipated outcomes
3. Apply project planning: risk management
4. Apply project planning: budgeting and cost management
5. Apply project time management
6. Apply project management: monitoring-ongoing evaluation
7. Understand the importance of leadership, motivation and team
building.
8. Conflict management and communication
9. Analyse broader projects: across or between organizations and
disciplines
Appendix
http://cdmloanscheme.org/sites/default/files/pdd3.pdf DMRC
Responsibilities and contract
Reference
The Role of Private Sector for Disaster Risk Reduction in Large Scale
Infrastructure and Real Estate Development: Case of Delhi, UNISDR,
http://www.preventionweb.net/english/hyogo/gar/2013/en/bgdocs/IIHS,
%202012.pdf
Delhi Airport Metro Fiasco What Can Be Done to Redeem the Project?
http://www.railnews.co.in/delhi-airport-metro-fiasco-what-can-be-done-toredeem-the-project/
Modalities of a Public Private Partnership In implementation of Delhis
Mass Rapid Transit System, Sushil Verma, Rail India Technical & Economic
Services Ltd, India
http://www.thredbo-conferenceseries.org/downloads/thredbo6_papers/Thredbo6-theme2-Verma.pdf
The Chapter, Creating an understanding of SPV.
http://www.pwc.com/en_GX/gx/banking-capitalmarkets/publications/assets/pdf/next-chapter-creating-understanding-ofspvs.pdf
http://articles.economictimes.indiatimes.com/2012-1114/news/35110671_1_reliance-infrastructure-reliance-officials-dmrc/2