Why Maharashtra Govt Will Not Buy Out Reliance Infrastructure’s Stake In Mumbai Metro One

The deadlock over the acquisition of Mumbai Metro-1 continues, as the deal remains stalled between the Maharashtra government and Anil Ambani-led Reliance Infrastructure (RInfra).

The Eknath Shinde-led Maharashtra cabinet initially granted in-principal approval for the acquisition in March 2024 through MMRDA but has reversed its decision in a recent cabinet meeting.

The decision comes as a huge setback for RInfra-led Mumbai Metro One Pvt Ltd (MMOPL), the SPV that owns and operates the project, as the buyout would have allowed it to exit the project, as per the request made to the state government in 2020 due to financial losses incurred during the Covid pandemic.

Currently, Reliance Infrastructure holds 74 per cent equity in MMOPL, with the remaining 26 per cent held by the Mumbai Metropolitan Region Development Authority (MMRDA).

The government had planned to acquire this stake for Rs 4000 crore, based on a recommendation by a panel chaired by former Chief Secretary Johny Joseph.

Financial troubles for Mumbai Metro-1

The city’s first metro, also known as the Versova-Andheri-Ghatkopar metro corridor, marked a major step in the changing transit landscape of Mumbai, and its continuously expanding metro network.

The 11.4-km corridor began in June 2014 and links the eastern and western suburbs to the Western and Central Railway networks.

The project developed under the Build-Operate-Transfer (BOT) model, however, has encountered disputes among its joint venture partners.

Initially estimated at Rs 2,356 crore and largely financed through loans, the project's final cost escalated to Rs 4,321 crore due to various execution issues.

Despite being the most heavily used metro line, MMOPL consistently reported losses.

The MMRDA had previously raised concerns about MMOPL’s commercial utilisation of metro premises and its ticketing structure, rejecting demands for fare increases.

MMOPL owed more than Rs 1,711 crore to several financial institutions that provided loans.

The agency also faced insolvency proceedings in the National Company Law Tribunal (NCLT), initiated by the State Bank of India and IBDI in 2023, over dues of Rs 416 crore and Rs 133.4 crore, respectively.

The cases were resolved after MMRDA paid Rs 170 crore, equivalent to 10 per cent of the one-time settlement amount.

Deal reaches a halt

Three months after the cabinet’s approval, the acquisition decision has been withdrawn following a third-party study that uncovered numerous irregularities, reports Hindustan Times (HT).

According to HT, the study revealed that arbitrations were not declared as mandated under the Companies Act, licenses for operations and administration had expired, assets worth crores were inefficient and needed upgrading, monetary guarantees to financial institutions remained unpaid, and some borrowings were undisclosed.

Additionally, the MMRDA expressed its inability to finance the acquisition — due to lack of funds, it requested state government funding.

Reports indicate that MMRDA had given huge amounts from its treasury as fixed deposits or loans to various authorities, which have not been returned or yielded results.

Moreover, MMRDA's ongoing projects require significant funds and with its income sources drying up, the agency has taken out loans for these projects.

The development authority already has loans worth Rs 1,03,622 crore sanctioned for various infrastructure projects, of which nearly Rs 27,000 crore has been availed so far.

The review report highlighted the infeasibility of the acquisition under the current circumstances with — the lack of funds, the outdated Metro-1 system, audit concerns, regulatory violations, and legal complexities, all of which contributed to the decision to halt the purchase.

Instead, the government is considering making a one-time payment to clear bank loans and avoid corporate insolvency for MMOPL.