Hyderabad Metro Rail in political crossfire

हैदराबाद Hyderabad (HYD): On the afternoon of September 11, Larsen & Toubro (L&T) Metro Rail (Hyderabad) CEO & Managing Director V.B.Gadgil unveiled its mascot, the Niz, an obvious take on the erstwhile rulers of Hyderabad, to build up excitement for the start of the first 8-km stretch in March 2015. Nobody would have believed that Gadgil had written an eight-page letter to the government just a day before. It was marked “Project Takeover Proposal”. Gadgil had been protesting the Telangana government’s attempts to realign the project. In this letter, he suggested that the state should take over the venture and compensate L&T.

The issue quickly degenerated into political mudslinging with Chandrababu Naidu’s Telugu Desam Party holding land-related decisions of the ruling Telangana Rashtra Samithi, or TRS, responsible for derailing the Rs.16375 crore project. TRS in turn, openly accused “forces inimical to Telangana” of leaking the letter to the media in order to tarnish the image of the government and hurt Hyderabad’s prospects as a business-friendly metropolis.

FACT SHEET
  • Rs 16,375 crore Total Project Cost (Of this, Rs 2,243 crore is meant for transit-oriented real estate development)
  • Rs 3,439 crore Equity component
  • Rs 1,458 crore Viability gap funding from the Centre
  • 269 Acres of land state government provides to the company in addition to the right of way.
  • Rs 5,000-6,000 crore The amount spent so far
  • March 2015, The project deadline to complete the first stage

On September 17, Chief Minister K Chandra Sekhara Rao, or KCR, summoned Gadgil for a meeting. According to insiders in the government, KCR said that his government was not scared by L&T’s intent to quit the project as there will be several others ready to take it forward. After two lengthy sittings with the chief secretary, Rajiv Sharma, Gadgil read out a hurriedly prepared statement, reiterating “L&T’s commitment to complete this prestigious project expeditiously as per schedule”.

The scorching pace of execution demonstrated on the ground by L&T adds to the mystery of the letter-a 27-km viaduct for the overhead line was built in just 20 months by L&T. Whereas it took seven years to complete the 11-km viaduct of Mumbai Metro and five years to complete a 25-km one for Bangalore Metro, according to NVS Reddy, managing director of Hyderabad Metro Rail, which is the government’s nodal agency overseeing the project. He argues that if the government had been unhelpful, it wouldn’t have been possible for the company to achieve such progress. The company says work was done fast also because 70 per cent of the construction used pre-fabrications.

The speed of execution, it says, does not explain the underlining issues.

War of letters
To prove that the present government had no role in the dispute, the authorities on the same day released to the media a letter written by L&T Chairman A.M.Naik in February 2014 to N Kiran Kumar Reddy, the then chief minister of undivided Andhra Pradesh, wherein he asked the state government to take over the project by taking over the company’s equity in the project SPV. But what had made Naik make this extreme proposal? L&T had signed the concession agreement to design, build, finance, operate and transfer Hyderabad Metro on September 4, 2010, and did the financial closure in the following year. However, land acquisition, right of way and other issues related to the project were addressed in a very slow pace by the government. In addition, Naik wanted autonomy in fixing tariff and safety measures. Following the Central Metro Acts in these two critical areas would have meant extra costs for the company.

To make matters worse, between February and September 2014, Gadgil of L&T Metro Rail (Hyderabad) and Reddy of Hyderabad Metro Rail got into a full-blown argument.

On the question of the cost overruns -almost Rs 3,000 crore, according to Gadgil -and the impact of bifurcation of Andhra Pradesh on the financial viability of the project as it greatly depends on real estate income, Reddy says that it is not possible to accept these claims at face value. “In regard to the cost overruns, they have to provide the proof and not simply make public statements. When it comes to the stated impact of the bifurcation on the project viability, you have to wait until the project is completed and then will you be able to know the impact in terms of the revenue flows. The government is ready to extend its support in case of such an eventuality,” he says. “I wrote a letter to the lenders’ consortium after this episode. They never raised any concern over viability.”

Industry’s sympathies are with L&T. “Even though only one party invests the money and takes all the risk in every public-private partnership, there is no effective third-party arbitration mechanism or a single window available for dispute resolution. In the absence of this, both the sides are stepping on each other’s toes,” says E Sudhir Reddy, chairman and managing director of Hyderabad-based construction company IVRCL. The recent controversy too seems to be working in favour of L&T with the government stepping up efforts to clear physical hurdles on various locations by ordering the diversion of traffic and also softening its stand on the change in route alignment in the legislative assembly. It had also sent the chief secretary, Sharma, to meet the officials in the Prime Minister’s Office in Delhi to apprise them of the project status apart from seeking amendments to the Central Metro Acts as was sought by the company.

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