[sustran] L&T threatens to pull out of Hyderabad Metro rail project

[Vinay Baindur]

http://www.livemint.com/Politics/v8V3o2i7eyeJRlYlfikZEJ/Ready-to-quit-Hyderabad-metro-rail-project-if-issues-not-res.html#nav=most_read

*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’

E-mailPrint Viswanath Pilla





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 Rs.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 Rs.4,800 crore on the project, of which its equity
contribution was Rs.1,500 crore. The company is investing around Rs.4,330
crore as equity—the single biggest investment so far on any project it has
executed. The debt component is Rs.10,478 crore. The Union government has
provided Rs.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 Rs.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 Rs.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 Rs.7,136 crore, triggering India’s
biggest corporate fraud investigation.