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Railways seeks CVC cover for $6 bn tender

Railways seeks CVC cover for $6 bn tender
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First Published: Mon, Feb 23 2009. 12 27 AM IST
Updated: Mon, Feb 23 2009. 12 27 AM IST
New Delhi: The Indian Railways is to approach the Central Vigilance Commission, or CVC, seeking to shield itself from potential controversy before awarding to the sole bidders a $6 billion project to manufacture electric and diesel locomotives in Bihar, home state of railway minister Lalu Prasad.
The proposal to approach CVC, the government oversight body, follows attempts in the last two months by the railways to speed up closure of the project, conceived two years ago, to manufacture electric engines at Madhepura and diesel locomotives at Marora.
When the bids were opened on 16 February, only German engineering firm Siemens AG was found to have bid for the electric locomotive factory and American conglomerate General Electric Co. (GE) for the diesel one. Some companies originally in the race said they didn’t have sufficient time to prepare bids.
“Yes, we are planning to seek a clearance from the CVC, given the special circumstances,” said a top Railway Board official, who didn’t want to be named.
CVC is the apex body that oversees the functioning of government departments and agencies on vigilance issues. An endorsement by CVC that due process had been followed in awarding the tenders would provide the railways a shield in the event of a future legal dispute over the project, and help avoid project delays.
Chairman of the Railway Board S.S. Khurana declined comment on the matter.
“There have been situations earlier, too, when various ministries approached us for a clarification or sanction before completion of awarding (projects) under complicated circumstances,” said a CVC official who didn’t want to be identified. “But normally, if there are serious complaints against the tendering process, the CVC would not agree to their requests.”
A railways official said on condition of anonymity that of the two bids that were received, one was “subject to the ministry agreeing with several conditions stipulated by the winning company”. The official declined to share more details and Mint could not independently ascertain the claim.
Besides Siemens, Bombardier Transportation India Ltd, a unit of Canada’s Bombardier Inc., and France’s Alstom SA had been shortlisted for the the electric engine project. EMD Locomotive Technologies Pvt. Ltd, a subsidiary of US-based Electro-Motive Diesels Inc., had been in the running with GE for the diesel one.
The issue of propriety arose amid concern that if the railways went ahead and awarded the project to Siemens and GE, it could raise uncomfortable questions on the price quoted by the winning bidder in the absence of any competition.
The Railway Board official cited earlier said a tender committee set up by the railways will scrutinize GE’s offer and then decide whether the price it quoted was reasonable or not. “The due process will be followed,” he said.
“But when there was an open tender (and the other companies took a decision not to bid) you cannot say that the awarding will be on a nomination basis,” said this official, who declined to comment on Siemens’ bid.
The project was first approved in early 2007, following which initial bids were called in July 2008. The process gathered pace in January, thanks to consultations between the finance ministry, the Planning Commission and railways to hammer out new terms.
The entire project—first conceived as a so-called public-private partnership—was cleared on 5 February as a joint venture despite objections by finance ministry. This essentially left the firms a fortnight to evaluate terms, tie up funds and make bids in time for the 16 February deadline.
The finance ministry in January had raised several objections to clauses in the project, including the way it was structured, termination payments and the amount of performance guarantees charged from the bidders.
In inter-ministerial consultations, the finance ministry said a public-private partnership was preferable because with an equity of just Rs100 crore, there was a “distinct possibility” that the railways would have no more than a nominal presence on the board of the proposed joint venture.
The railways responded that it had approached both the finance ministry and the cabinet committee on economic affairs for advice on the public-private partnership and joint venture models. The railways said that with the bid process being at an advanced stage, it would not be possible to modify the project structure.
Meanwhile, Mint reviewed the letters EMD and Alstom had sent to the railways seeking an extension of the date of submission of financial bids.
EMD, in a letter dated 13 February, had stated that it was interested in the tender but only if all issues pertaining to the request for proposal, or price bid, were satisfactorily addressed and the opening of the bids was extended by a few months.
Similarly, Alstom, which had shown interest in the electric engine project, told the Railway Board that 16 days were not enough to submit a bid for the project. “We would like to submit that a period of 12 weeks is the bare minimum required for us to explore viable financing models for the project in order to prepare a satisfactory bid,” Alstom said in the letter.
“We do have an objection to the project being awarded to GE,” said an official with one of the firms that were bidding for a tender. However, this executive added that he was unsure whether the company would take legal action. This person neither wanted to identify himself nor his company.
“There is no harm in the railways negotiating with a company if it turns out to be the only one to submit a bid,” said Arvind Mahajan, an infrastructure expert at KPMG. “They also have the prerogative of negotiating a price with the bidder. However, the concerns raised by other companies—of not having been provided enough time—is indeed an issue.”
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First Published: Mon, Feb 23 2009. 12 27 AM IST