Rupee depreciation, construction costs cited

The cost of the city’s Metro Rail project may escalate from the current estimate of Rs. 14,600 crore to nearly Rs. 20,000 crore due to a variety of factors, including Rupee depreciation and increase in the construction and labour costs. Chennai Metro Rail Limited (CMRL) that is executing the project is seeking additional funds to complete its work.

In the five years since work started, this is the first time that CMRL has decided to seek additional funds, said officials. So far, CMRL has exhausted about Rs.8,000 crore of the Rs. 14,600 crore and wants about Rs. 6,000 crore more to complete the work on the 45 km-stretch by the end of 2016, an official said.

One of the reasons for the nearly 40 percent cost overrun, the official said, was the depreciation of the Rupee against the Dollar. For instance, in the case of the purchase of Metro Rail coaches from Alstom in Brazil, there was a significant appreciation of the Dollar in the duration between the signing of the contracts and the delivery. Also, while CMRL had initially proposed to spend about Rs. 800 crore for land acquisition, it finally ended up spending almost Rs. 2,500 crore, he added.

The delays in the construction of stations both in the underground and elevated stretches have also pushed up the cost.

Japan International Cooperation Agency (JICA) is to contribute 59 percent of the project cost of Rs. 14,600 crore for phase I, the Centre 20 per cent and the State, the rest of the amount.

CMRL has begun discussions and will soon send a proposal for further sanction.

Although, cost escalations are part of huge infrastructure projects, overruns as much as 40 per cent can be avoided. N.S. Srinivasan, former director of National Transportation Planning and Research Centre said, “Time is money in such large projects. Firstly, we run into such high expenses because we still depend on foreign expertise even after the construction of Delhi Metro Rail. Then, as soon as planning is done, the land acquisition must immediately be sorted out by paying the right market value instead of indulging in negotiations. It is our own inbuilt delay. It can be avoided with systematic planning and regular audit,” he added.

S. Santhanam, former member, chief urban planner of Chennai Metropolitan Development Authority (CMDA) said the kind of cost escalation was bound to occur since the soil conditions were quite challenging and rupee depreciation pretty acute.