Jan 15, 2009

India - Hyderabad Metro Rail project is doomed

Maytas could find it extremely difficult to raise the debt and equity component

HYDERABAD: The elevated metro rail project for the twin cities is doomed. With the Maytas-led consortium, the selected developer, facing an uncertain future following the Satyam Computers scandal, there is little chance of the project taking off.

While the government claims to be reviewing the consortium’s capability to take up the project under the public, private partnership (PPP) mode, it is now clearly waiting for Maytas to blink first.

The other option is to wait till the financial closure on March 18 when Maytas not only has to pay a performance guarantee of Rs. 180 crore, but also show its funds inflow and outflow to build the metro rail. Financial closure would mean that the consortium has to show its equity around Rs. 4,000 crore and a debt component of Rs. 8,000 crore (1:2 ratio) to be raised from financial institutions. Considering the unfolding financial fraud involving Satyam, Maytas could find it extremely difficult to raise the debt and equity component as it is headed by Teja Raju, son of B. Ramalinga Raju, former chairman of scam-hit Satyam.

“It will be very difficult to raise even Rs. 100 crore for the consortium after the Satyam imbroglio,” affirm official sources. The government seems disinclined to cancel the deal unilaterally considering penal clauses in the Concessionaire Agreement (CA) signed with the consortium of Maytas, Navabharat Ventures, Ital Thai and IL&FS.

Maytas Metro Limited (MML), the special purpose vehicle formed by the consortium, had signed the CA with the government in September last and had paid Rs. 11 crore as the initial amount, besides pitching in with Rs. 60 crore in bank guarantee.

It was in July last year that the consortium had successfully bid for the 71.16 km, Rs. 12,132 crore project by making an astonishing offer of royalty of Rs. 30,311 crore spread across the contract period of 35 years. It had also refused a Viability Gap Funding (VGF) of Rs. 4,800 crore (40 per cent project cost) offered by the government.

If the deal falls through, the possibility of handing it over to the next best bidder is being ruled out due to prospective legal tangles. But if fresh bids are to be called, the PPP mode might not be a viable option as infrastructure firms might think twice before investing in such projects and also because of the global recession.

“The project has to be re-worked afresh as the conditions and guarantees inscribed in the pre-bid and bid documents as well as the CA were based on private sector participation on the design, build, finance, operate and transfer (DBFOT) model. If PPP is opted again, more concessions would be sought leading to more controversies,” sources point out.

Otherwise, the government has to build the project itself a la Delhi Metro. But will the Centre fund such a massive project for Hyderabad is a matter of conjecture. And if at all the Centre offers funds or a sovereign guarantee, it could take a year or more to call for fresh bids and choose a developer, aver official sources.

With general elections notification expected soon, nothing is likely to happen on this front till the middle of next year.

No comments: