DNA EXCLUSIVE: Monorail co L&T-Scomi may lose Rs 250 cr guarantees

The joint venture between Larsen & Toubro (L&T) and Scomi Engineering that runs monorail trains in Mumbai is staring at the prospect of losing its entire bank guarantee of Rs 250 crore if the Malaysian firm fails to pay mounting penalties, including that for the loss of monorail rakes in a fire a month ago.

The bank guarantee may be encashed by the Mumbai Metropolitan Region Development Authority (MMRDA) if Scomi, which faces financial stress currently, is unable to pay penalties.

The fact that Malaysian firm Scomi is in financial distress has not only affected its operations and maintenance of India’s only monorail in Mumbai, but led to delay in delivery of remaining five monorail trains.

Senior MMRDA officials alleged that the woes faced by the monorail project are due to the Malaysian’s firm’s incapability. This, many believe, may strain relations between the two partners.

L&T, being the lead partner, may have to shell out the penalty for its joint venture partner if there’s any payment default. Else, MMRDA may encash the bank guarantee at the end of the contract’s term.

When contacted by DNA Money, L&T officials refused to comment.

The consortium has already been penalised on several occasions, largely due to the Malaysian firm’s faults. “A total of around Rs 34 lakh was paid in penalties during the construction stage on account of an accident. More fine was levied as Scomi fell short of contractual obligations. The entire amount is yet to be recovered as the penalty amount is increasing by the month or even by the day in a few instances,” said an MMRDA official.

The civil construction of the 19.5 km long Chembur-Wadala-Jacob Circle is completed and is expected to be fully operational by January 2018. At present, services are running on the Phase I -- Chembur-Wadala segment.

On November 9, one of the trains caught fire, forcing suspension of services till date that’s almost a month. Due to the shortfall in operating monorail services, the penalty amount has already neared Rs 1.5 crore. Among the biggest amount that L&T-Scomi will have to cough up is by replacing the burnt train. Officials are yet to decide on how much fine should be levied for the incident.

“If they are unable to replace the train, they will obviously be penalised for a train less in the fleet. Secondly, balance five of the total 15 trains are yet to reach Mumbai. The Malaysian firm hasn’t started manufacturing these trains, if they fail to deliver, there will be additional fine,” according to a source. Cost of each train is approximately Rs 34 crore.

CLOGGED TRACK

• L&T may have to shell out the penalty for JV partner Scomi if there’s any default in payment
   
• Else, MMRDA may encash the bank guarantee at the end of the contract’s term