Title - Delhi Metro airport line spat: Options before Reliance Infrastructure and DMRC

November 13 was the last day for the two sides that built the troubled Delhi Airport metro project to sort out their differences. But so deep are the fault lines that it was a foregone conclusion that Delhi Metro Rail Corporation, the government entity, and Reliance Infrastructure, its private partner in the Rs 5,800-crore project, would not shake hands. And so, on to arbitration, even as the 22.7-km line, which has been shut since July 8 for repairs, reopens. Over the next month, the two sides will meet to decide on the identity of the three people — from judges and infrastructure sector experts — who will hear them out, and decide who is to blame and how much. DMRC will choose one member of the three-member arbitration panel, the Anil Ambani Group another and the third person will be picked jointly. This could turn out to be a long, even legal, conflict. And it starts with what's in conflict in the first place.
According to press reports, Reliance told DMRC it was leaving because the line had been shut for more than 90 days, though the company maintains it has only asked for a financial restructuring on the line from which it was losing Rs 1 crore a day. Both DMRC and Reliance declined to comment for this story. Whatever the conflict, there's a good chance it won't be sorted out in arbitration, which alone could take up to a year. "With the kind of stakes involved, the issue will not end with arbitration," says Santosh Paul, Supreme Court advocate. "Also, there is a lot of scope to challenge the arbitration award in higher courts by either of the two parties." As of now, in arbitration, there are four options before the two sides.

1) Reliance Exits, Pays No 'Damages'

This is the best-case scenario for Reliance. Even as Reliance officials deny wanting to quit the project, it is increasingly becoming a millstone for it. Delhi Airport Metro Express Private Limited (DAMEPL) — the special purpose vehicle that operates the line and in which Reliance Infrastructure owns 95% — lost Rs 325 crore in 2011-12 on revenues of Rs 39 crore. The general feeling in DMRC is that Reliance is trying to wriggle out of the project.

"They (Reliance) weren't able to market the metro," Akhileshwar Sahay, strategic advisor at DMRC, had told ET in September. "They entered a business with two eyes closed." Before the line shut down on July 8 for repairs, passenger traffic, which was to bring in 25% of Reliance's revenues, was half the 40,000 daily estimate on which its business case rested. Real estate is supposed to deliver the other 75%, but Reliance has leased out only 5% of the space it has. Also, between March 2010 and March 2011, the equity capital of DAMEPL has fallen from Rs 467 crore to just Rs 1 lakh, with the remaining being converted into a form of debt.

If it wants to exit, ideally, Reliance would want to do so without bearing any liabilities of DAMEPL — that is, the project's accumulated losses of Rs 341 crore, or its own debt share of about Rs 2,800 crore. But, conversely, DMRC would not want to pick up those large liabilities, making this an unlikely scenario. A wholesale departure of Reliance might also not hold before the arbitration panel. "Contracts like these are for a period of 30 years or more," says Paul. "A private partner is not entitled to walk out so early. It not only causes a loss to the one who generates the agreement, but also jeopardises the whole (bidding) system."

2) Reliance Exits, Pays all 'Damages'

Given the volume of damages involved, just as DMRC would not like to take over the project's entire liabilities, neither would Reliance want to make good everything. "The risks of the business should be shared between the partners. There should be equitable accountability of the public partner," Sumit Banerjee, CEO of Reliance Infrastructure, had told ET in September. All along, the two partners have been trading charges. Delhi Metro blames Reliance for not commissioning the project on time for the 2010 Commonwealth Games and for not doing the checks as scheduled. Reliance blames DMRC for handing over a faulty construction and putting out misleading passenger projections. DMRC has fined Reliance in the past for deviating from the concession agreement, and some payments are also pending. Going forward, the apportioning of responsibility for the problems with the line will be a bone of contention.

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3) Renegotiate Terms