Telangana Government To Acquire L&T's Hyderabad Metro Stake

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.

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

The discussions were held even as there is increasing pressure to address Hyderabad's growing public transport needs and a decline in the city's national ranking for metro network length. Hyderabad, which once held the second position in India for metro network length in 2014, has now fallen to ninth place.

The Telangana government has proposed an ambitious Phase 2 expansion, covering eight new metro lines and an additional 163 km of track. These proposals have faced a significant hurdle from the Centre, which has insisted on 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 today's meeting, Chief Minister Reddy emphasised the state's preference for L&T's continued participation as an equity partner in the Phase 2 expansion. However, Mr Subrahmanyan explained that the company has shifted its business strategy and no longer participates in the ownership and operation of transportation concession assets.

The discussion then pivoted to the critical issue of the Definitive Agreement. The Chief Minister stressed its importance for securing the Centre's approval for Phase 2.

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

To break the impasse, Mr Subrahmanyan reiterated an earlier proposal for L&T to divest its entire stake in Phase 1 to the state government, turning 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 detailed 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 is still due from the state government to L&T.

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