Chennai Metro Rail project phase 2 secures 65% central government financing

The Ministry of Finance said on October 5 that the Union Cabinet has approved the Chennai Metro Rail Project Phase 2, transitioning it to a 'Central sector' project with an estimated total cost of Rs 63,246 crore.

This marks a  shift from its previous status as a 'State sector' project, which required the Tamil Nadu government to bear approximately 90% of the project financing.

Central Government funding increased

Under the previous framework established by the Metro Rail Policy 2017, the Central Government contributed only 10 percent of the project costs, excluding land and other specific items. However, with the new approval, the Central Government will now finance nearly 65 percent of the estimated cost, which includes a loan of Rs 33,593 crore and equity and subordinate debt amounting to Rs 7,425 crore. The remaining 35 percent of the costs will be covered by the Tamil Nadu government.

Changes to loan agreements

The Ministry of Finance said it will soon engage with key bilateral and multilateral agencies, including the Japan International Cooperation Agency, Asian Development Bank, Asian Infrastructure Investment Bank, and New Development Bank to renegotiate existing loan agreements to designate these loans as liabilities of the Central Government rather than the State Government. This change will ensure that loans are provided directly to Chennai Metro Rail Limited (CMRL) from the Central Government's budget.

Project execution and loan repayment

The responsibility for executing the project will shift to the Ministry of Housing & Urban Affairs, acting through CMRL, instead of the State Government. Loan repayments will typically commence after a five-year moratorium, coinciding with the project's expected completion. If CMRL faces difficulties in repayment, the State Government is obligated to provide the necessary financial support.