Andhra CM YS Jagan Mohan Reddy in early June had instructed his officials to halt projects in different stages of construction, until a thorough review is conducted.
The decision by Andhra Pradesh Chief Minister YS Jagan Mohan Reddy to review projects awarded for the upcoming capital Amaravati has raised a worry or two for Larsen & Toubro (L&T).
India's largest construction and engineering company is concerned that its projects, which were awarded by the previous government headed by Chandrababu Naidu, will be hit.
Reddy in early June had instructed his officials to halt projects in different stages of construction, until a thorough review is conducted. The Chief Minister suspects graft and irregularities in land allotments and contracts awarded to develop Amaravati.
Reddy constituted teams comprising retired bureaucrats to scrutinise projects where the progress has been less than 25 percent, and has asked them to submit a status report in 45 days.
If the review report find any discrepancies or irregularities, the government would terminate contracts.
The decision to review is sending jitters to several contractors such L&T, Shapoorji Pallonji, NCC, among others. Around Rs 8,000 crore worth of projects are in limbo.
"We have not seen it in the past where one government goes another government comes, they start reviewing of everything what the previous government did," S N Subrahmanyan, Chief Executive Officer and Managing Director of L&T, told Moneycontrol recently.
Subrahmanyan said it is residential projects that are seeing impact.
"I feel it is not good to do that, we got to take forward things from where ever the previous government left. So they are reviewing it, they have every right to do it. And if they can push forward this (review) fast and projects can move and create an atmosphere of positivity," Subrahmanyan added.
Around 3 percent of L&T’s Rs 3 trillion order book comes from Andhra Pradesh.
L&T was awarded the Rs 1,357 crore contract last year to design and build an iconic six-lane bridge over Krishna river connecting capital Amaravati to Vijayawada. The foundation stone of the bridge was laid in January this year.
L&T also won Rs 2,000 crore contract in December last year to build the base infrastructure of Amaravati that includes roads, bridges, stormwater drains, sewerage and utility ducts for power as well as to provide information and communications technology (ICT) connectivity.
The company also won the project to construct a mega residential housing project worth Rs 2,652 crore. L&T also built the temporary secretariat building in the new capital. In addition L&T was chosen as a contractor to construct residential buildings, worth over Rs 1,000 crore under the Prime Minister Awas Yojana Scheme in Krishna district closer to Amaravati.
To be sure for projects that are not yet started, the impact isn’t going to be much.
Subrahmanyan said they have certain legal safeguards to protect themselves, in the eventuality of any termination or inordinate delays in giving right-of-way to execute the project.
Setback to Amaravati
Reddy won a landslide victory in the state assembly and general elections in May this year, defeating longtime rival Naidu.
Naidu loss of power in Andhra, is seen as a huge setback for Amaravati. He wanted to develop the proposed new capital as a world class city. Through land pooling process though controversial one, Naidu was able to acquire 33,000 acres, he brought on board Singaporean firms Ascendas-Singbridge and Sembcorp Development as the master developers for the 6.84 sq km stretch of the planned city.
Naidu is widely credited for developing Cyberabad, the information technology hub in Hyderabad, when he was the Chief Minister of the combined state of Andhra Pradesh between 1995 and 2004.
L&T did much of the core work of Cyberabad then, including the iconic Cyber Towers building.
Reddy on contrary, doesn’t share the exuberance of Naidu on Amaravati, his focus is more towards consolidating his vote bank through a slew of welfare doles.
Even in the recent Budget, the funding for Amaravati was cut drastically to Rs 500 crore, even though officials have submitted proposals for Rs 6000 crore.
Both World Bank and Asian Infrastructure Investment Bank (AIIB) have also pulled out of the project.
Amaravati would need at least Rs 51,000 crore for the completion of the first phase, according to estimates of the AP Capital Region Development Authority (APCRDA). But the recent developments indicate, that Amaravati will be much smaller
