IRFC loan freeze puts Hyderabad Metro Rail takeover, expansion on hold

The Telangana government’s plan to rapidly expand the Hyderabad Metro Rail (HMR) network from the current 69.2 km across three corridors to around 122 km in Phase II through a joint venture with the Center that will provide access to low-interest financing seems to have been derailed for now.

This failure also cast a shadow over the government’s parallel efforts to take over HMR Phase I from L&T. The takeover plan, formalized last year, included a loan of around ₹13,527 crore from the Indian Railway Finance Corporation (IRFC) and an equity payment of around ₹1,462 crore.

Despite a public spat of words between Chief Minister A. Revanth Reddy and Union Minister G. Kishan Reddy, clarity on the underlying issues still remains elusive. This episode raised many troubling questions and few definitive answers from authorities.

In fact, the situation has been evolving since late May, when it was reported that HMR officials received a brief communication from the IRFC instructing them not to proceed with the transaction. This directive came at a critical moment when the government had transferred the equity component into an escrow account for payment to L&T.

The pause came as a shock to HMR, especially since a formal agreement had been signed with great fanfare just a few days earlier and an official appointed to a public sector bank had expected a quick disbursement of funds!

IRFC had even informed the stock exchanges about the agreement. While specific details about the revised interest rates were not disclosed, expectations were that at least half of the loan would be secured at around 4% interest, potentially with support from the Japan International Cooperation Agency (JICA), according to sources.

However, according to Mr. Kishan Reddy, difficulties appear to have arisen on many fronts apart from the Ministry of Housing and Urban Affairs (MoHUA), which is seeking to repurpose the loan towards operations and maintenance rather than debt repayment. Additionally, there are indications that there is a dispute with the Ministry of Railways over which authority should issue the required No Objection Certificate (NOC) to ensure funding.

L&TMRH’s unresolved contractual obligations with various operations and maintenance suppliers may also have contributed to the IRFC’s decision to halt the process. Without guarantees of sovereignty from the Centre, it may be difficult for the State to access low-cost financing from multilateral institutions. They also point out that central approval is vital for the execution of Metro or railway projects. For now, the ‘old’ L&T MRH is expected to continue operating HMR Phase I services until the intergovernmental issues are resolved.