State Seeks IRFC Loan to Buy Metro Operations
Phase-1 was executed under the public-private partnership model at a cost of Rs.15,000 crore, of which nearly Rs.13,000 crore was raised through loans.
Hyderabad: The state government has approached the Indian Railway Finance Corporation (IRFC) to secure low-interest, long-term loans to fund the acquisition of Phase-1 of Hyderabad Metro Rail from Larsen & Toubro (L&T), official sources said on Sunday.
The government requires approximately Rs.15,000 crore for the acquisition. Following Cabinet approval for the purchase on February 23, the government has initiated steps to restructure existing high-interest, short-term loans availed by L&T from commercial banks into lower-interest, long-term borrowings to ease the repayment burden.
Phase-1 was executed under the public-private partnership model at a cost of Rs.15,000 crore, of which nearly Rs.13,000 crore was raised through loans. Currently, L&T is paying crores annually towards interest alone because of higher interest rates. Revenue from passengers declined during the Covid period, and revived subsequently, but debt obligations remained unchanged, increasing financial pressure on the company.
As the government will directly assume repayment responsibility, officials believe it may be able to secure loans at more favourable rates. They said reducing interest liability would improve the project’s financial viability.
Officials are in discussions with financial institutions to secure loans with a tenure of about 20 years at reduced interest rates. IRFC is understood to be offering loans at around eight per cent interest. The government is also examining the possibility of securing funds at rates lower than this.
Officials said efforts are underway to reduce interest rates from eight per cent to between 6 and 6.5 per cent, refinance high-cost loans with cheaper borrowings, and extend repayment tenures from 20 years to 25–30 years to lower annual outgo.
In addition to passenger fares, revenue avenues include commercial advertisements, rentals, lease or auction of 260 acres within the Metro ambit, and transit-oriented development projects.
Land transferred to the project during construction, including parcels allotted for malls and other developments, is also under review. The government is expected to examine the status of commercial assets and privately held parcels after the takeover.
Officials said Metro services are currently operating with 99 per cent punctuality and carry lakhs of passengers daily. They indicated that experienced technical personnel would be retained to ensure uninterrupted services after the takeover. There is also a possibility of the government awarding operations and maintenance contracts to an experienced agency for another year, particularly for automated train control and communication-based systems where in-house expertise is limited.
Officials described the takeover of a PPP-built Metro as one of the largest such transactions in the country and effective handling of financial restructuring and accelerated execution of expansion plans would determine the project’s long-term sustainability.
The Phase-2 of Metro expansion is still at Centre's approval stage. The state government has proposed extending services across five corridors covering about 76 km at an estimated cost of Rs.24,000 crore, in addition to proposals for another 86 km expansion. The state has sought support from the Centre for Phase II. The Centre has stipulated that Phase I and Phase II operations be managed under a single entity, necessitating the takeover of Phase-1 by the state government after L&T refused to be part of Phase-2.
