Rlys plan to scrap PPP model for wagon and locomotive factories

Written by Praveen Kumar Singh | Praveen Kumar Singh | New Delhi | Updated: Jan 28 2011, 07:00am hrs
In what would adversely impact India plans of multinational conglomerates such as GE, Alstom, Seimens, the Indian Railways may scrap big-ticket public-private partnership (PPP) projects that was conceptualised to increase falling passenger and freight carrying capacity. Few years ago, the railways had proposed PPP model for augmenting wagon and locomotive manufacturing capacity. The proposal immediately drew attention of overseas investors, with more than 10 international transportation companies such as GE, Bombardier, Siemens, Alstom and Eletro Motive Diesel showing interest to participate in railway projects.

Railways' financial position is deteriorating by the day. The PPP projects will further drain railways' resources and also impact existing manufacturing facilities, a senior railway ministry official with direct knowledge of the development told FE on the condition anonymity.

Under the PPP projects, railways have to ensure procurement of locomotives and wagons from private manufacturers for at least 10 years. In addition, railways have to contribute towards initial working capital of these projects. These investments are considered unviable at this moment when railways' finances are severly strained and the ministry is looking at extra budgetary support from the government.

We have already started examining the viability of PPP model for wagon and locomotive plants. Railway Board chairman Vivek Sahai has set up a six-member internal committee for the purpose, the official said.

The issue of changing the PPP model was also discussed at a meeting of a high-level committee headed by Ficci secretary-general Amit Mitra on January 24. In the meeting, Sahai, who is also a member of the committee, told Mitra that the Indian Railways is not comfortable with the PPP model as it has to close down its existing manufacturing units if private parties are allowed to set up new factories.

Sahai said the provision of assured offtake from the new plants is unacceptable as limited financial resources can be used either for buying from own units or new plants. The internal panel will particularly check the viability of the assured offtake provision by mid-February, another official, present in the meeting, said. The current PPP model was approved by Cabinet.

At Sahai's observation, Mitra said you are taking us on garden path and you will prove that nothing will happen on PPP, the second official said. While repeated calls to Sahai remained unanswered, Mitra was unavailable for comment. The Mitra committee was formed by railway minister Mamata Banerjee in 2009-10 to look for a suitable PPP model for railway projects and find an innovative way of financing them. Interestingly, railways realised its lack of comfort after more than three years of working on the model of private involvements in capacity expansion. At last count, more than 10 firms are in race to win contracts of setting up two locomotive plants in Bihar, a coach factory and a locomotive component unit in West Bengal.

The PPP model was thought of as a solution to the depleting funds with railways.