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Business News/ Industry / Infrastructure/  L&T threatens to pull out of Hyderabad Metro rail project
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L&T threatens to pull out of Hyderabad Metro rail project

Firm insists it was keen to complete ambitious project, saying exchange of such letters is a 'common practice'

L&T expressed apprehensions about the attractiveness of Hyderabad in drawing investments from the central government and the private sector. Photo: PTIPremium
L&T expressed apprehensions about the attractiveness of Hyderabad in drawing investments from the central government and the private sector. Photo: PTI

Hyderabad:Larsen and Toubro Ltd (L&T), the company building the 16,375 crore Hyderabad Metro rail project, has threatened to pull out because of issues relating to project viability and non-availability of right of way.

L&T proposed that the government of Telangana (GoT) “take over the project and the underlying contract from the concessionaire" in a 10 September letter to N.V.S. Reddy, managing director of Hyderabad Metro Rail Ltd—the agency that monitors the project on behalf of the state government.

“GoT should do so by restituting the concessionaire in a manner whereby the concessionaire’s property and entitlements are returned to it," V.B. Gadgil, chief executive and managing director of L&T Hyderabad Metro Rail Pvt. Ltd, the unit that’s executing the project, wrote in the letter. Mint has reviewed a copy of the letter.

L&T also expressed concerns over the economic viability of the project, which was conceived in undivided Andhra Pradesh.

Telangana was carved out of Andhra Pradesh to become India’s 29th state on 2 June. According to the terms of the bifurcation, Hyderabad will be the joint capital of Telangana and residuary Andhra Pradesh for a period of 10 years while the latter builds its own capital. Thereafter, it will solely be the capital of Telangana.

“The change in the status of Hyderabad has resulted in a significant change in the economic and political outlook of Hyderabad, thereby causing material impact on the financial viability of the project," Gadgil said.

L&T expressed apprehensions about the attractiveness of Hyderabad in drawing investments from the central government and the private sector, as real estate constitutes a significant component of the project revenue stream.

The Metro rail project allows L&T to develop 18.5 million square feet of real estate all across the 269 acres allotted for three depots and 66 stations.

The company expects around 30-35% of revenue from real estate and the rest from passenger fares.

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

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

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

Gadgil also complained about delay in providing right of way to the project.

Later in the day, L&T in a statement clarified that it is still committed for the completion of the project and termed the letter routine correspondence between two partners.

“Our commitment is to complete this prestigious project expeditiously as per schedule with all the support and cooperation of the state government and the people of Telangana," the company said.

The letter caused a furore in Hyderabad. Telangana chief minister K. Chandrashekar Rao summoned his top officials including chief secretary, principal secretary of the municipal administration and urban development, and the managing director of Hyderabad Metro Rail to discuss the fallout of the letter.

The government said the issues raised by the developer will be amicably resolved.

“The project will be completed on schedule," said Reddy of Hyderabad Metro Rail.

“The Metro rail is very important project for Hyderabad and Telangana," said Sandip Patnaik, managing director (Hyderabad) at Jones Lang LaSalle India.

After spending 5,000-6,000 crore, no company will go back on a project, and the letter could well be a pressure tactic by the developer to get the state government on board, Patnaik said.

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

L&T recently said the project cost escalated by 3,000 crore on account of high interest costs and delays in execution.

Hyderabad Metro rail is the biggest urban infrastructure project undertaken as a public-private partnership in the country. 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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Updated: 18 Sep 2014, 01:11 AM IST
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