New Delhi: Indian Railways awarded contracts to General Electric Co. (GE) and Alstom to set up diesel and electric locomotive factories in Bihar at a cost of about 40,000 crore.

The award of the contracts—which will mark the first big foreign direct investment in the railway sector—was announced one day after the ruling National Democratic Alliance (NDA) suffered an electoral debacle in Bihar.

The diesel locomotive factory in Marhora will cost 2,052 crore and the facility to manufacture electrical engines in Madhepura will require an investment of 1,293.57 crore.

The projects, which will be closely monitored by the Prime Minister’s office, will involve manufacturing 1,000 diesel locomotives and 800 electric locomotives over the next 10 years and are together worth about 40,000 crore.

The contract agreements with GE and Alstom will be signed in a month, a railway official said.

Both projects were approved in 2007 by the then railway minister Lalu Prasad, but became mired in controversy and bureaucratic red tape.

The timing of the announcement is opportune for the Grand Alliance, comprising Prasad’s Rashtriya Janata Dal, the Janata Dal (United) and the Congress, that will be sworn into office in Bihar after handing an electoral drubbing to the NDA in state elections.

GE, the lowest bidder for the Marhora diesel locomotive factory, is expected to manufacture the 1,000 locomotives over 10 years. While 100 will be imported, the rest will be manufactured in Marhora as part of the ‘Make in India’ initiative. There will be two types of diesel locos—4,500 horsepower (HP) and 6,000 HP—manufactured by GE.

Two locomotive sheds will be built in Gandhidham (Gujarat) and Bhatinda (Punjab) for maintenance of the modern diesel locomotives.

Alstom, the lowest bidder for the Madhepura electric locomotive factory, will manufacture 800 high-power electric locomotives in the next 10 years. It will manufacture 12,000 HP electric locomotives to be used for heavy haulage. According to the contract, while five diesel locomotives will be imported, the remaining 795 will be manufactured in Madhepura.

Maintenance of the locos will also be the responsibility of the company and for this it will set up two maintenance sheds at Nagpur and Saharanpur.

Railways will have 26% equity and also provide land while the foreign companies will have a stake of 74% in each of the plants.

“This infrastructure project is further evidence of India’s position as a growth engine for Asia," said GE chairman and CEO Jeff Immelt. “It is a major advancement and milestone for India and for GE, and a symbol of our commitment and support of the ‘Make in India’ initiative."

Prime Minister Narendra Modi’s vision is to add track, world-class stations and bullet trains to spur the economy. India also plans to transport more freight, such as coal, on dedicated lines. The challenge is finding the money. The contract follows Modi’s decision to open the doors to foreign investment in railroads last July, part of a push for an ambitious 8.5 trillion ($128 billion) revamp of the railway through 2020.

GE said the deal is the largest in its 100-year history in India. The company is yet to sign the pact to formalize the contract.

Dalian Locomotive and Rolling Stock, CSR Corp. and Electro-Motive Diesel Inc. also bid for the tender in 2013.

Running costs from ferrying about 23 million passengers—equivalent to Australia’s population—and three million tonnes of cargo daily absorb most of the railway’s revenue, starving the network of investment. Last year, the government allowed 100% foreign direct investment in the railway sector.

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