Automobiles Peugeot (AP) of France had licensed its TUD5 diesel engine to PAL for five years consequent to transferring its 32 per cent equity in PAL-Peugeot to its Indian partner.

The TUD5 was originally fitted in the 309 GLD introduced in end-1996. It was also tried out in the 1.38D, the car which was later rechristened Viceroy. As per the new technical agreement, the engine can now be used in the diesel version of the Padmini, the 1.37D.

The car is at present fitted with the FNM diesel engine. The TUD5 has, however, been rated by experts as being among the best (diesel engines) in the world. Maruti Udyog has fitted it in the Zen-D, and Hyundai Motor India plans to use it for the Indian version of the Accent scheduled to hit the roads in October this year.

Timely introduction of the TUD5-fitted Padmini will, to a large extent, depend on the company's ability to raise working capital and resume production at the Kurla plant. The car continues to be in demand in the taxi segment, as also from rural areas. However, with the current severe cash shortage position, PAL has been hard-pressed to produce cars.

PAL has the option of supplying the TUD5 engine to third parties with Peugeot's prior approval. Whether this will include Maruti Udyog and Hyundai Motor India remains to be seen, experts say, as these companies would source their requirements directly from Autombiles Peugeot.

The licence has been given to PAL by Peugeot without any lumpsum payment or royalty. The French automaker has given a start-up price discount on the components to be imported for the first several thousand engines to help PAL start production.

PAL and Peugeot had formed their joint venture PAL-Peugeot in 1994 to manufacture the 309. The car did not take off, though it was possibly the best offer in the mid-size segment with its competitive pricing. However, financial difficulties paralysed operations, and Peugeot withdrew from its Indian operations in November 1997. Talks are on with financial institutions to suggest a revival package, and indications are a positive solution will emerge in the next few months.