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India Takes Over First Private Rail as Reliance Walks Out

July 1 (Bloomberg) -- Billionaire Anil Ambani’s Reliance Infrastructure Ltd. said it stopped operating New Delhi’s airport rail link, the nation’s first privately run urban train service, over a breach of contract relating to defects.

State-controlled Delhi Metro Rail Corp. will operate the 23-kilometer (14-mile) line starting today, Reliance Infrastructure said in a stock exchange filing. Reliance, which invested 28 billion rupees ($472 million) in the project, is seeking a termination fee including outstanding debt.

The government takeover of the rail link within three years of opening underscores the nation’s challenges in attracting private funds for infrastructure. Prime Minister Manmohan Singh, who set a goal in June to win 1 trillion rupees of investments in six months, last year began directly reviewing the pace of infrastructure construction in India.

Reliance Infrastructure gained 1 percent to 352.80 rupees as of 10:02 a.m. in Mumbai trading. The stock has fallen 32 percent this year after climbing 53 percent in 2012.

Reliance shut the link for repairs in July last year after finding defects in civil structures built by Delhi Metro. The Mumbai-based company today cited delays to the repairs and failure to rectify them within an agreed timeframe for terminating the contract.

“Delhi Metro strongly denies this,” Anuj Dayal, a company spokesman, said by phone from New Delhi today. “All repairs were carried out within the stipulated time. The issues raised by Reliance are under arbitration.”

Reliance, which had a license for 30 years, operated the project through a special-purpose vehicle, Delhi Airport Metro Express Pvt.

Delhi Metro, operator of the city’s subway system, built tunnels and other infrastructure. Reliance and its partner, Construcciones y Auxiliar de Ferrocarriles SA of Beasain, Spain, paid for equipment including tracks and trains.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Vipin V. Nair at vnair12@bloomberg.net

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