Telangana Government to Acquire L&T's Stake in Hyderabad Metro Rail: Paving Way for Phase 2 Expansion

The Telangana government and Larsen and Toubro group have reached an in-principle agreement for the state to acquire L&T's stake in the Hyderabad Metro Rail project.

This development follows a prolonged deadlock over expansion plans and aims to clear the way for the long-awaited Phase 2 of the Metro network. The agreement was reached during a high-level meeting on Thursday when Chief Minister Revanth Reddy met with L&T Group Chairman and Managing Director SN Subrahmanyan.

These discussions occurred amid increasing pressure to address Hyderabad's growing public transport needs and a decline in the city's national ranking for metro network length. Hyderabad has fallen from second position in India for metro network length in 2014 to ninth place currently.

The Telangana government has proposed an ambitious Phase 2 expansion, encompassing eight new metro lines and an additional 163 km of track. These proposals have encountered a significant obstacle from the Centre, which has demanded a "Definitive Agreement" to ensure seamless operational integration between the existing Phase 1, a private concession, and the proposed Phase 2, which would be managed by a government agency.

During the meeting, Chief Minister Reddy highlighted the state's preference for L&T to continue as an equity partner in the Phase 2 expansion. However, Mr. Subrahmanyan explained that the company has altered its business strategy and no longer participates in the ownership and operation of transportation concession assets.

The discussion then focused on the critical issue of the Definitive Agreement. The Chief Minister emphasized its importance for securing the Centre's approval for Phase 2.

While acknowledging the need for integration, Mr. Subrahmanyan expressed concerns about the complexity of seamless train operations and the challenges of revenue and cost-sharing, stating that L&T could not sign the agreement under current circumstances.

To resolve the impasse, Mr. Subrahmanyan repeated an earlier proposal for L&T to divest its entire stake in Phase 1 to the state government, transforming the metro project into a fully state-controlled entity. This alternative was presented as a solution to address the Centre's concerns and expedite the approval process for the expansion.

After extensive deliberations, the two parties reached an in-principle agreement for the state to take over the Phase 1 metro.

The proposed terms involve the Telangana government assuming the project's current debt of approximately Rs 13,000 crore and providing a one-time settlement of about Rs 2,000 crore for L&T's equity investment. The agreement also considers a supplementary concession agreement from 2022, under which Rs 2,100 crore remains due from the state government to L&T.

The final terms and modalities of the takeover will be determined through mutual discussions to ensure legal and statutory compliance, while protecting public interest and paving the way for the Phase 2 expansion.