The Telangana government’s plan to rapidly expand the Hyderabad Metro Rail (HMR) network —from the existing 69.2 km across three corridors to nearly 122 km in Phase II — through a joint venture with the Centre to access low-interest funding, appears to have been derailed for now.

The setback has also cast a shadow over the government’s parallel effort to take over HMR Phase I from L&T. The takeover plan, formalised last year, involved a loan of about ₹1,527 crore from the Indian Railway Finance Corporation (IRFC) and an equity payment of roughly ₹1,462 crore.

Despite a public war of words between Chief Minister A. Revanth Reddy and Union Minister G. Kishan Reddy, clarity on the underlying issues remains elusive. The episode has raised several troubling questions, with few definitive answers from officials.

In fact, the situation has been brewing since late May, when HMR officials reportedly received a terse communication from IRFC instructing them not to proceed with the transaction process. This directive came at a critical moment, after the government had already transferred the equity component into an escrow account for payment to L&T.

The pause came as a shock to HMR, particularly since a formal agreement had been signed just days earlier with considerable fanfare, and expectations of a swift fund disbursal for which an official was stationed at a public sector bank!

IRFC had even informed stock exchanges about the agreement. While specific details on 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, complications appear to have emerged on multiple fronts apart from the Ministry of Housing and Urban Affairs (MoHUA) seeking repurposing of the loan towards operations and maintenance rather than debt repayment as per Mr. Kishan Reddy. Additionally, there are indications of a disagreement with the Ministry of Railways over which authority must issue the required No Objection Certificate (NOC) to clear the funding.

Unresolved contractual obligations with various operations and maintenance vendors of L&TMRH may also have contributed to IRFC’s decision to halt the process. Without a sovereign guarantee from the Centre, the State may find it difficult to access low-cost funding from multilateral agencies. Moreover, Central approval remains crucial for executing Metro or railway projects, they point out. For now, the ‘old’ L&T MRH is expected to continue operating HMR Phase I services till inter-governmental challenges get resolved.