Blessing in disguise for Metro

Blessing in disguise for Metro


Monica Jha
First Published : 15 Dec 2008 05:49:00 AM IST
Last Updated : 15 Dec 2008 09:56:45 AM IST

BANGALORE: The BMRCL officials are neither deluding themselves nor kidding the public if they say that the global meltdown would indeed be beneficial for BMRCL. If the current trend of nose-diving prices of raw materials (steel and cement) persists, BMRCL could end up paying much less than the estimated amount to each of its contractors.

As if pre-ordained, the agreement between BMRCL and the contractor has a provision that transfers the benefit of price-drop to BMRCL. The pricing clause ensures that the amount to be paid to the contractor is not fixed at the time of contract, but depends on the current market prices of material at the time of work.

The contract amount for Reach I work was fixed in 2007 at the time of the contract, when prices were high compared to the current ones.

This (current situation) is where the price variation formula comes into play when a variation in the prices of raw material is reflected in the amount paid to the contractor and is applicable only when the prices go beyond (or below) a certain threshold level. This amount is dependent on the prices of commodities when the work is on.

The managing director of BMRCL, N Sivasailam, said: “If the current trend of slowdown continues and prices do not rise for some more time, BMRCL and the contractor would both be benefited. We might end up paying less than the original contract amount and the contractor would have to invest less.” “Prices of steel had touched Rs 52,000 per tonne in March 2007 and the trend of price-rise continued till recently when slowdown started.

Steel prices started falling around three months ago and have come down to Rs 36,000 now. The current scenario does not indicate any sign of price rise in the near future,” said a steel and cement dealer in JP Nagar The BMRCL contract also has an annual cost escalation factor of 5 per cent. However, this cost escalation factor is applicable only when prices exceed a certain point. Pricerise below that point would not bind BMRCL to compensate the contractor.

T he chances of BMRCL enjoying this unusual benefit from the economic slowdown have been increased owing to the slow pace of construction work. After being over nine months behind schedule, work on Reach I of the metro rail project is expected to be completed by December 2010, which means that at least a part of the construction coincides with the economic slowdown period.

BMRCL chief not enthused though

Even if BMRCL pays less than the contract amount to the contractor, it cannot be seen as a saving for BMRCL owing to the delay in the work conducted for Reach I, said BMRCL chief Sivasailam. “Early or timely completion of work would mean revenue for BMRCL.

More importantly, for an infrastructure project, meeting the deadline is the most important issue.” The ‘gross state happiness factor’ in adhering to the schedule in a mega infrastructure project like metro rail cannot be ignored, he explained.