Telangana government turns down L&T Hyderabad Metro Rail Ltd\'s plea for aid

Instead, Telangana offered to assist L&T HMRL to raise soft loans from financial institutions

HYDERABAD: The Telangana state government set aside the request of L&T Hyderabad Metro Rail Ltd (L&T HMRL) seeking financial assistance to tide over metro rail losses on account of Covid restrictions and lockdowns since March 2020.

Official sources in the finance department revealed that the L&T HMRL sought financial assistance from the state government to minimise its operational losses but the government expressed its inability to extend the same citing its own financial crisis due to Covid since March 2020.

The state government itself is relying on loans every month to mobilise funds to meet expenditure on salaries, pensions, welfare schemes and development programmes and under these conditions it cannot afford to extend loans to metro rail.

Instead, the state government offered to assist L&T HMRL to raise soft loans from financial institutions including external agencies like JICA (Japan International Cooperation Agency). The JICA has already extended soft loans to various metro rail projects in the country.

In August 2020, the L&T HMRL proposed to invoke force majeure clauses with the Telangana government seeking extension of the concession period equivalent to the time it could not operate due to the lockdown.

The metro trains were confined to depots for 169 days from March 2020 due to Covid lockdowns and restrictions. The company brought to the notice of the state government that its losses mounted to nearly Rs 2,000 crore due to cost escalation of the project and Covid restrictions.

To meet additional costs, the company mobilised loans of nearly Rs 3,000 crore from various banks for which it is spending nearly Rs1,400 crore per year towards repayment. Under these circumstances, the company sought financial assistance from the state government.

Company officials met Chief Minister K. Chandrashekar Rao in the last week of June this year and made a request. Following this, the Chief Minister directed the finance department to submit a report on the possibility of the government extending a loan to the company.

The finance officials who made an in-depth study of L&T's request reportedly submitted a report to the Chief Minister that there were no instances of the government extending loans to a private company so far and even if it was possible, the present financial condition of the government would not permit extending soft loans.

A soft loan is a loan with no interest or a below-market rate of interest. Also known as "soft financing" or "concessional funding," soft loans have lenient terms, such as extended grace periods in which only interest or service charges are due, and interest holidays. They typically offer longer amortisation schedules (in some cases up to 50 years) than conventional bank loans. Normally, such loans are extended by multinational development banks like World Bank, Asia Development Bank, JICA etc.

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