The Union Cabinet approved the Chennai Metro Rail Project Phase 2 as the ‘Central sector’ project recently at a total estimated cost of Rs. 63,246 crore.

So far, the project was being implemented as a ‘State sector’ project with responsibility of the project financing being primarily on the Government of Tamil Nadu to the extent of almost 90 per cent of the estimated project cost. The role of the Central Government was to finance 10 per cent of the project cost, excluding land cost and few other items as per the Metro Rail Policy 2017. However, the Central Government had also assisted the State Government in mobilisation of Rs. 32,548 crore as loans from bilateral and multilateral agencies to the State Government directly, out of which around Rs. 6,100 crore has been utilised so far.   

With the recent approval, the Central Government now will be financing almost 65 per cent of the estimated cost of Chennai Metro Phase 2.  This financing will include the entire required loan of Rs. 33,593 crore besides the equity and subordinate debt of Rs. 7,425 crore.

The balance 35 per cent of the estimated cost will be financed by the State Government.

The loans taken from multilateral and bilateral development agencies will be treated as the loans to the Central Government and will be provided directly to Chennai Metro Rail Limited (CMRL) from the Central Government's budget.

Before approval of the project by the Centre, the responsibility of providing or arranging the loan financing for the project was on the State Government.

The Union Cabinet’s approval has freed up budgetary resources of the State Government to finance other development activities to an extent of Rs. 33,593 crore.

In pursuance of the Union Cabinet’s approval, the Ministry of Finance will be approaching the bilateral and multilateral agencies, namely Japan International Cooperation Agency, Asian Development Bank, Asian Infrastructure Investment Bank and New Development Bank for renegotiating the loan and project agreements and related documents for:

1. treating the loans as the loans to the Central Government and not to the State Government,
2. changing the loan flow route from the respective agency to the Central Government and from the Central Government’s budget to CMRL directly as the pass-through assistance, in place of the existing route of the flow being from the respective agency to the State Government and from the State Government’s budget to CMRL,  
3. designating Ministry of Housing & Urban Affairs acting through CMRL being the project executing agency in place of the State Government through CMRL being the project executing agency.

The process for these changes to the loan and project agreements and the related documents has been initiated, and will be completed expeditiously in coordination with the State Government.

The responsibility of repayment of the loan will be on the company.  The repayment would normally start after a moratorium of at least five years, i.e., more or less after completion of the project. In the event of CMRL not being in a position to repay the loan, it would be the obligation of the State Government to provide financial support to the company to enable the repayment in those years.

Central sector financing reclassification shifts primary funding responsibility to the Centre, altering loan routing and repayment obligations. Reclassification as a Central sector project shifts primary funding and loan liabilities to the Central Government, which will treat existing multilateral and bilateral loans as loans to the Centre, reroute disbursements through the Central Government budget to the implementing company as pass-through assistance, and designate the Ministry acting through the implementing company as project executing agency; the implementing company remains responsible for loan repayment, with the State obliged to provide support if the company cannot repay.