The L&T management on Wednesday reiterated its commitment to complete the Rs 16,000-crore (Rs 160 billion) Hyderabad Metro Rail project “expeditiously as per schedule” after local newspapers published reports stating the concessionaire had informed the government its intent to exit from the public-private partnership project owing to several issues, including the change in status of Hyderabad post bifurcation.
While the reports were based on a letter written by L&T Metro Rail chief executive VB Gadgil on September 10, it was disclosed to the media today that a similar request was made as early as in February, 2014, by none other than group executive chairman A M Naik.
However, after meeting the chief minister and the chief secretary in the light of media frenzy generated by these news reports,Gadgil read out a written statement saying the correspondence between the two partners was a routine affair, which helps in understanding and resolving the issues in the interest of the project.
“We would like to clarify that many issues have come up during the execution of the project since March, 2011, which is quite normal for a massive project of this nature, especially in the urban environment,” Gadgil said, while stating the media had published reports about the issues raised by the company prior to bifurcation.
Resenting the extension of Central Acts of 1978 and 2002 related to metro rail systems and also pointing out practical hurdles coming in the way of execution, including failure to provide the right of way (RoW), Naik in his letter addressed to then chief minister N Kiran Kumar Reddy had in fact requested the government to take over the project.
“The above unusual conditions and adverse economic conditions while contributing to an unforeseen increase in the cost of the project have also made the project virtually incapable of performance under the public-private partnership format even if for the moment one does not take into account the proposed division of the state of Andhra Pradesh, which would have an immediate adverse effect on the revenue projections on the basis of which the fare structure in the concession agreement was finalised,” Naik said in his letter dated February 6, 2014.
He further said: “In these circumstances, therefore, we appeal for your indulgence and kind attention in the matter and request that the state government of Andhra Pradesh take over the project by taking over our equity in the L&T SPV in full on a mutually agreed basis and relieve us of our obligation as concessionaire in the best interest of the commuting public of Andhra Pradesh.” Naik’s letter raised material defaults and administrative issues, including the delay in granting RoW and also in handing over land for the project, change in alignment , obstacles created by the traffic police besides the uncertainty in execution and viability of project due to the proposed reorganisation of Andhra Pradesh.
The eight-page letter addressed to Hyderabad Metro Rail Limited (the government wing) managing director NVS Reddy by L&T’s Gadgil points out to a further deterioration of the working relationship between the two partners. Going by the contents of the letter, both the sides have started levelling allegations and counter allegations over non-compliance of the provisions of the Concession Agreement besides debating the bifurcation as a central issue concerning the project viability.
As real estate is an important element of the project viability, the fresh status of Hyderabad as a capital of a smaller Telangana state will adversely impact its revenues, the company claims while hinting at renegotiation of the terms of the agreement. “...since the completion of the project is essential in public interest, it would be most appropriate that the Government of Telangana takes over the project and the underlying contract from the Concessionaire,” Gadgil stated in his letter while maintaining that they remain open to discussions to come to an amicable resolution of the concerns and issues raised by the company.
The Telangana government has termed the media reports as a deliberate attempt to show the project in a bad light.
It said it was sending a team of officials to Delhi in this regard and also to meet metro man E Sreedharan for suggestions on the second phase of the project.
The issues surrounding the execution of metro caught the media attention after the Telangana government reportedly asked the company to make changes in the alignment of the track at two points. The company had even stopped the work on these two locations awaiting government response to compensate for the cost and time overruns.
The first eight-km stretch of the 72-km long project is scheduled to become operational from April, 2015. The entire project is to be completed in 2017.