As per the Japan International Cooperation Agency's (JICA) STEP loan contract, the funding agency of the 1,483-km freight corridor, the lead partner for the project has to be from Japan and 30% of goods and services should be sourced from Japanese companies which, after a recent change in the norm, includes companies in which Japanese equity is 10% or more.
The loan agreement, amended in April 2013, says in case there's lack of participation from Japanese companies, an Indian firm could be allowed to be the lead partner and Japanese firm could become junior partner in the consortium.
DFCCIL wants this clause to be invoked in the current scenario.
If accepted, this would be a major relief for the railways, which is struggling to find contractors for the construction of the western freight corridor due to strict Japanese tied loan conditions.
The lead partner condition could be relaxed as there's a clause in the JICA loan agreement that says in case that there's lack of participation from Japanese companies, Indian company can be made the partner...We have sent the proposal to ministry of railways, RK Gupta, MD, DFCCIL told FE.
With hardly two-three Japanese companies coming for western corridor contracts, there's also an apprehension that they won't be able to bid for other civil construction contracts of the same corridor as their capacity to undertake such big projects would be exhausted.
When we award the contract, we see whether the contractor has the capacity to do more contracts. Since the number of Japanese companies is limited, so whether they'll have the capacity or not is yet to be seen, Gupta added.