L&T Metro Rail may call for force majeure clause for Lockdown losses

Hyderabad, India (Urban Transport News): Hyderabad is one of the two cities in India where the metro is operated under the public-private partnership (PPP) model. Additionally, the Hyderabad Metro is the world's largest elevated Metro Rail developed under the PPP model.

This ambitious Hyderabad Metro rail project was handled by Larsen & Turbo (L&T). In 2010, L&T Metro Rail Hyderabad Limited (LTMRHL), a special purpose vehicle, was established as “the concessionaire” to enter into an agreement with the then Government of Andhra Pradesh. It was the Design-Built-Finance-Operate-Transfer (DBFOT) type of PPP.

In 2012, L&T was appointed and the concession period of the project is 35 years including the initial construction period of 5 years. This can be extended up to 25 years given the fulfillment of certain conditions by the special purpose vehicle. Because of the pandemic and lockdown, Hyderabad's metro has been a standstill since March 22.

Although, the maintenance runs have been continuing even after the services of the Hyderabad Metro have been shut down, Speculations are there are of starting of metro services once again in Hyderabad. According to the annual report of L&T, it may invoke the force majeure clause in its deal with the Telangana government seeking an extension of the concession period equivalent to the time it could not operate due to the lockdown Additionally, L&T Metro Rail (Hyderabad) claimed of already submitting project cost overrun reports to the government.

As per the details, the overrun cost was around Rs 3,756 crore. Till now Rs 20,000 crore has been put in the project which was initially of Rs 16, 375 crores. However, the annual report says that the company is protected by the force majeure clauses of the Concession Agreement. And can claim the extension of concession period equal in length to the period during which the Concessionaire was prevented from the collection of Fare and reimbursement of force majeure costs.

Actually, Force majeure clauses are applicable when the occurrence of an event is beyond the control of the company. And then they are required to demonstrate that they have made attempts to mitigate the impact of such force majeure event.