Hyderabad: Larsen and Toubro Ltd (L&T), which is building the 16,375 crore Hyderabad Metro Rail project, said on Tuesday it is facing a cost overrun of as much as 3,000 crore on account of high interest cost and delays in execution.

“The project is at a critical stage," said V.B. Gadgil, chief executive and managing director of L&T Hyderabad Metro Rail Pvt. Ltd, the unit that’s executing the metro rail project.

L&T has so far spent 4,800 crore on the project, of which its equity contribution was 1,500 crore.

L&T is investing around 4,330 crore as equity—the single biggest investment so far on any project the firm has executed. The debt component is 10,478 crore. The Union government has provided 1,458 crore as viability-gap funding.

L&T raised debt from a clutch of 10 banks with the State Bank of India as the lead banker in March 2011 at a floating rate of interest of 10.5%.

But since then, interest rates have risen by two percentage points.

L&T said it has initiated a study to review the economic viability of the project, which was conceived in the undivided state of Andhra Pradesh.

L&T has so far completed around 28% of the project.

Problems of land acquisition have pushed the project timeline by at least 15 months behind schedule.

But the decision of the Telangana government that is seeking a realignment in at least two stretches at Sultan Bazaar and State Assembly could further delay the project.

“An independent committee will study technical, financial and legal implications of the realignment that was sought by the government," said N.V.S. Reddy, managing director of Hyderabad Metro Rail Ltd—the agency that monitors Hyderabad Metro rail project on the behalf of the state government.

Reddy said the committee is expected to submit its report in a month and L&T will be informed about it.

Reddy declined to give details of cost escalation because of the changes.

Gadgil said L&T it is yet to receive any “official communication" from the government.

L&T has put pillars in some of the stretches, where the realignment was sought.

“All delays naturally will have impact on the cost," Gadgil said.

L&T is also talking to India Infrastructure Finance Co. Ltd (IIFCL) to replace some of its existing debt to the tune of 1,000 crore with cheaper and longer-tenure loans.

“We are in discussions with IIFCL," said Gadgil, declining to give details.

Hyderabad Metro Rail is the biggest urban infrastructure project undertaken as a public-private partnership in India. The elevated Metro rail will cover 71.2km with three corridors comprising 66 stations.

The Metro network is to be constructed in five years, with L&T holding the concession for 35 years, extendable by an additional 25 years. The company can earn lease rentals from property development and advertising rights before the real estate is returned to the state government.

L&T won the bid to build the Metro rail network in July 2010 after the government in July 2009 cancelled the mandate given to Maytas Infra Ltd, which failed to tie up finances for the project. Maytas Infra was promoted by B. Ramalinga Raju, the founder of Satyam Computer Services Ltd, who in January 2009 confessed to having misstated accounts to the tune of 7,136 crore, triggering India’s biggest corporate fraud investigation.

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