Reliance Infra tells Bombay High Court it will not break even for two years even with Rs 10-Rs 40 fare

Jun 19 2014, 20:44 IST
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The company will face a shortfall of Rs 113 crore to run the line in its first year of operations. Reuters The company will face a shortfall of Rs 113 crore to run the line in its first year of operations. Reuters
SummaryThe MMOPL and the Maharashtra govt are embroiled in a conflict over the fixation of initial fare.

Justifying the initial fare structure that it has notified for Mumbai's first Metro corridor, Reliance Infrastructure-led Mumbai Metro One Pvt Ltd (MMOPL), the operator running the Metro line told the Bombay High Court on Thursday that even with this increased fare it will not be able to break even till the end of the second year of operations.

With the fare structure of Rs 10-40 MMOPL has notified, the company will face a shortfall of Rs 113 crore to run the line in its first year of operations, its lawyer told the High Court as part of their arguments.

The MMOPL and the Maharashtra government are embroiled in a conflict over the fixation of initial fare for the Versova-Andheri-Ghatkopar Metro, with the state government insisting on a fare of Rs 9-Rs13 as per the concession agreement. A day before the Metro was opened for public use, the Mumbai Metropolitan Region Development Authority (MMRDA), a state government agency, filed a petition with the Bombay High Court seeking arbitration and an injunction to the fare proposed by MMOPL.

According to information provided by the MMOPL to the court, the company had taken opinion from SBI Capital and Systra MVA Consulting, a Hong Kong-based traffic consultant, before finalising the Rs 10-40 fare structure.

“SBI Capital had considered the revenue and expenses and concluded that there will be financial stress on MMOPL even with a fare of Rs 10-40,” MMOPL said in its submission to the court.

With the fare it has notified, MMOPL said, it will earn an annual income made up of fare-box and non-fare-box revenue of Rs 396 crore, while the cost to operate the line--the direct and indirect expenses, interest cost and depreciation cost—will be Rs 720 crore.

However, MMRDA's lawyer maintained that the fare should be fixed as per the concession agreement, which had the MMOPL's consent at the time of signing. The rejoinder filed by MMRDA stated, “There is no inconsisteny in the manner in which the fare is to be fixed with reference to the Fare Fixation committee. The initial fare, already fixed and approved by the government, does not become void on Metro Act becoming operational.”

Fare has been a bone of contention between the two parties for more than two years with MMOPL demanding a hike claiming a cost escalation of Rs 1,935 crore over and above the original project cost of Rs 2,356 crore. The MMOPL's demand got heft late last

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