New Delhi: The railways, too, has begun to feel the pinch of rising steel prices with contractors refusing to complete work on bridges and other projects unless they are compensated for the steep hike in the price of inputs, particularly steel.
Vendors who supply finished steel and other components used for manufacturing coaches and wagons, too, are backing out of contracts they had signed with the railway ministry.
As a result, the railways runs the risk of a major setback to its plans to ramp up freight capacity, which is currently operating at its peak, through a big step-up in capital expenditure. Presenting the railway budget this year, minister Lalu Prasad had said that capital expenditure would be increased from Rs31,783 crore in 2007-08 to Rs37,500 crore in the current fiscal year. The railways has already started preparatory work to construct the dedicated freight corridor, a 2,700km railway grid that will connect Mumbai, New Delhi, Kolkata and Chennai.
Rising inflation is a cause for concern for the government. And the prices of some commodities, such as steel, are rising faster than overall inflation. For the week ended 5 April, the annual growth in the index for steel was almost four times the annual rate of inflation at 7.14%.
An official at the railway ministry who did not wish to be named said that earlier this week, a delegation of 25 contractor associations from all over the country had held a meeting with the railway board, the apex management body of railways. “The contractors said they could not compl-ete the work unless they were compensated for the steep hike in steel prices and other input costs,” the official added.
Off track: Contractors refuse to complete work unless compensated for the steep hike in steel prices. (Rajeev Dabral /Mint)
The contractors want an escalation clause in contracts that will insulate them from the vagaries of the market.
According to another railway ministry official who, too, did not wish to be named, the railway coach factory in Kapurthala, Punjab, has also been affected with vendors stopping supply of steel in the last two months, forcing the unit to renegotiate terms to avoid any stoppage in production. “We are cancelling existing contracts and signing them anew with the vendors so that they carry out the orders,” added the official.
The RCF (rail coach factory) keeps a buffer stock which is enough to meet its needs for around two months. “Similar problems are being faced at other production units too,” the official said.
The Railway Board has been getting reports of work being held up across the country. “We have been facing a shortage of steel for the last three months and reports coming in from all the zonal railways also suggest that some work is beginning to get affected,” said a top official at the railway ministry, who also did not want to be identified.
This official added that supply of rails too, was beginning to become a problem, and that railways would soon talk to the Steel Authority of India Ltd, or SAIL, its largest supplier, to ensure adequate supplies of rails through the year.
However, an official at SAIL claimed the supply of rails to railways was being maintained. “We supply around 7 lakh tonnes of steel to the railways every year and we have been meeting their order requirements. However, when it comes to the problems they face with contractors, the railways must realize that this (escalation of steel prices) is an issue that is faced by almost every industry right now,” added this person who did not wish to be identified.
“We have not heard about the problems faced by the railways. If they come to us, we will consider how these problems can be solved,” said India’s steel secretary R.S. Pandey.