New Delhi: India’s railway minister Lalu Prasad is seeking to accelerate the progress on an ambitious $6 billion (Rs29,400 crore) project to manufacture electric and diesel locomotives at facilities in his home state of Bihar in an attempt to take it a step closer to finalization before the general election, scheduled to be held before May.
An official at the railway ministry denied that there had been any effort to hasten the process, even as he admitted that Prasad was keen on pushing it through by May.
Undue haste? The project in railway minister Lalu Prasad’s home state, Bihar, will be a joint venture instead of a public-private partnership. Harikrishna Katragadda / Mint
“It is not true that there is undue haste. We have been doing this for two-and-a-half years. From the minister’s perspective, if he does not take the project to the point of no return before elections, then it may never happen. To that extent, he is pushing for it,” added this person, who did not want to be identified.
The project envisages making electric locomotives at Madhepura and diesel ones at Marora, both in Bihar.
The ministry has now decided that the project will be a joint venture between Indian Railways and a private firm, and not a so-called public-private partnership, or PPP.
The first will require just a clearance from the ministry while the second will require approvals from an interministerial committee, which includes the ministry of finance and the Planning Commission, the country’s apex planning agency.
Interestingly, it was the railway ministry that had initially wanted the project to go through as a PPP.
The move to convert the project from a public-private partnership model to a straight joint venture, however, needs the approval of the cabinet committee on economic affairs, or CCEA, which is expected to discuss the proposal on Thursday.
“The structuring of a PPP only focuses on risk and revenue and how that is shared. In PPP, the railway has no role per se other than creating the framework for the project to happen, all the actual work is done by the person who wins. In a manufacturing set-up, it is like a manufacturing licensing agreement with a technology transfer. The difference is really between a service offer vis-a-vis the actual management of the equipment,” said Arvind Mahajan, executive director at audit and consulting firm KPMG Advisory Services Pvt. Ltd.
The process to award the project began in September but got mired in differences between the ministry of finance and the railway ministry.
Mint had reported on 3 October that Germany’s Siemens AG, Bombardier Transportation India Ltd, a unit of Canada’s Bombardier Inc., and France’s Alstom SA. were competing to secure an order to build and supply at least 660 electric locomotives for the railways.
US-based General Electric Co. (GE) and Electro Motive Diesel Inc. (EMD) were among those competing for the second contract—to build and supply 1,000 diesel train engines.
The finance ministry, said an official familiar with the development who did not want to be identified, had claimed from the outset that the project was not a PPP and should be viewed as a joint venture since the government would own 26% equity in it.
After at least two iterations of the proposal, at a CCEA meeting last week, the ministry of finance once again intervened and made a case for a joint venture, said a second official at the railway ministry who, too, did not want to be identified. Following this, the railway ministry decided to go ahead with the project as a joint venture.
According to the new proposal, after CCEA clears the joint venture proposal, the transaction with the private company will be a procurement and a maintenance contract executed between the ministry and the joint venture.
The railways has said the contract for procurement will last for eight years and the locomotives will have to be delivered by the supplier over eight years.
The contract for procurement of locomotives will also include their maintenance for up to 20 years. Every year, the joint venture will be expected to deliver a specific number of locomotives.
“The railways will also enjoy the flexibility of revising the annual placement of order in case the (Railway) Board (the apex managing body of Indian Railways) decides that there is a need for more or less number of locomotives in a particular year,” said a third railways ministry official who did not want to be identified.