Larsen & Toubro (L&T), the promoter of the Hyderabad Metro rail, has sought financial assistance from the Telangana state government to save it from a wrenching cash crisis triggered by the the coronavirus lockdown.
The financial bailout will enable the metro corporation to stand on its feet and avoid huge losses, said people familiar with the matter. They did not want to be named.
Hyderabad Metro was closed for months together during the lockdown. The metro rail has been operating at 50 percent capacity since resuming operations. Even so, commuters have been staying away for fear of contracting COVID-19, and this is preventing the metro from scaling up operations, making any recovery difficult.
A Hyderabad Metro Rail (HMRL) official spokesperson said: “Due to the huge financial burden on us we are exploring different options with stakeholders. Though inevitable this situation has caused serious financial loss." L&T didn't respond to queries.
HMRL managing director KVB Reddy was not available for comment.
Last month, SN Subrahmanyan, CEO & MD, told Zee Business that the company wants to exit the Hyderabad Metro project. He said his company is not "operators of the metro" and "so, we would like to divest it in the future and take the money and so some other project or take the proceeds for some other forward investments".
The amount of “financial assistance” being sought, however, is unclear and the spokesperson said the losses were “serious”. However, some media reports suggest that HMRL suffered losses of more than Rs 300 crore due to the shutdown. The spokesperson added that "our primary focus is to continue operations adhering to safety norms to keep passengers safe," and did not reveal the exact amount sought.
The Telangana government, itself facing a severe financial crunch, has been keeping mum. The people cited above said the state government is in a bind because it knows that the promoter, L&T, could well attempt to take recourse to the ‘force majeure’ clause in the concession agreement to threaten to walk out of the project in the case of unforeseen events.
Hyderabad Metro can invoke the clause to not abide by the terms of the agreement in the case of unforeseen events as defined under the section on force majeure. However, there is a catch: the metro was non functional for 169 days and the force majeure clause can be invoked if the metro remained shut for 180 days. This is seen as the reason why it has sought financial assistance instead of taking the force majeure clause.
Unlike Delhi, where the metro lines run partly over ground and partly underground, the metro line in Hyderabad is totally over ground. This is because Hyderabad sits atop the Deccan plateau, where the soil is very rocky and difficult to cut.
Murky past
Hyderabad Metro has been in the thick of controversy from the very beginning. The project was handed over to Maytas, a company floated by Ramalinga Raju of the Satyam accounting scandal in 2008. Raju promised to pay the state government a huge license fee to land the project. Also, while other bidders had sought viability gap funding (VGF), Maytas sought no such funding.
VGF, paid by the central government, was disbursed under the implicit belief that any metro project was loss making but could become profitable with the grant.
Raju, however, felt he would make money selling large tracts of real estate, accumulated around the city, that the planned metro project would end up passing.
However, with Raju’s confession about wrongdoing at Satyam in January 2009, the metro rail project went kaput. It was launched afresh with a new tendering process and L&T won the project.
However, in its hurry to get a new promoter, the state government forgot to change the parameters of the project. “The authorities then were quite excited and overlooked the flaws and let the project pass as it was. They should have reexamined the parameters of the project but failed to,” says a senior secretary to the state government.
L&T has also been granted a VGF of Rs 1,458 crore. Of this, Rs 1,200 crore has already been paid. The VGF is paid by the central government. Additionally real estate was also handed over to the L&T-promoted Hyderabad Metro rail.
Lack of foresight
The Hyderabad metro project was for rail operations across the city on three lines, covering 69.2 km. One of the lines went to the old city of Hyderabad, which went through densely populated areas. This route never took off fully and remained curtailed.
The second line was from Nagole to Hi Tech city. Though metro services on this line run, the problem is about the line’s termination in Hi Tech city. “The city has extended far ahead and the main commercial area is at Gachibowli, ahead of the Hi Tech city. This was quite clear even in 2008 and certainly so when it was rebid. But the lines were not extended,” rued a senior government official.
Now, there is a plan for an extended route to the ‘new’ airport (which came up in 2009). However, this will not be easy to implement considering the ‘urbanisation’ that has taken place near Gachibowli; the route can be extended only by destroying urban structures. This would not have been the case in 2011, when fresh bids were called for the project. The plan has not been put into operation.
So, in the end, it would seem that the Hyderabad Metro has an uncertain future and only concerted thinking by a purpose-driven government can bring it back on the rails.
Kingshuk Nag is a senior journalist based in Hyderabad.
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