MUMBAI: Reliance Infrastructure is in the process of pulling out of mega projects worth 20,000 crore due to inordinate delays by government agencies in fulfilling commitments relating to these projects.
The Anil Ambani-led company hived off its new power projects into subsidiary Reliance PowerBSE 0.50 % so that it could evolve into an infrastructure developer. But the roadblocks faced by some of the trophy projects won by R-Infra have forced it to change gears and exit projects to cap potential losses.
"Four of our projects, Mumbai Metro line 2, Mumbai Sea Link extension project, and two ultra mega transmission projects, have been stuck without clearances. We will not start construction until we have all clearances and I don't see any clearances coming. So, around 20,000 crore of capital expenditure is off my books," Lalit Jalan, chief executive officer, R-Infra, told ET in an interview.
Last year, R-Infra walked out of the 5,000 crore-Worli-Haji Sea Link project after two years of dispute with the government. Its 32-km second phase Metro Rail project faces termination due to lack of substantial progress. It bagged two of the biggest transmission projects the country ever awarded but could not start work on them due to inordinate delay in government clearances.
"In our exuberance, we started work on Mumbai Metro-1 without many approvals and financial closure. But we later faced delay in approvals and depot site allocation by government while we were paying interest," Jalan said.
"We have learnt from our experience and would not start work on projects unless approvals and clearances are in place. We are answerable to our shareholders," he said.
The Mumbai Metro-1 project, that connects Versova-Andheri, recently had its trial run after a decade of planning and five years of construction. Delay in the project could have resulted in the cost of the project rising to almost 4,500 crore from 2,200 crore planned originally, analysts said.
"Reliance Infra is not the only company suffering from delay in getting approvals and land to start a project. It is a reasonable strategy if they want to exit some difficult projects and want to focus on few core projects that have visibility of completion and revenue," said Gaurang Shah, assistant vice-president, Geojit BNP Paribas Financial ServicesBSE -3.09 %.
Reliance Infrastructure is also in arbitration, seeking termination of its Delhi Airport Metro Express line which is completed but is making losses. "In hindsight, the only project that I would say we went wrong in bidding was the Delhi Airport metro line project. We bid it at a premium thinking that there would be a lot of traffic and retail growth. But the retail market crashed and the revenue stream wasn't there," he said.
The process of getting rid of the "white elephant" projects has resulted in an exodus of around 20 mid-to-senior executives from the company in the last few quarters. Industry watchers believe that the exit of KP Maheshwari, who was heading the Mumbai Metro Rail project, and Vidya Basarkod, who was in charge of airport projects, among other executives, was prompted by the ADAG management's mandate to scale down the group's infrastructure ambitions.