Rlys tweak rules to put Madhepura plant on fast track

Written by Ashutosh Kumar | New Delhi, Jul 30 | Updated: Jul 31 2008, 06:32am hrs
The Railways have altered bidding conditions and eligibility guidelines to make sure Lalu Prasad can gift his constituency, Madhepura, in Bihar, a locomotive factory. The railway minister had announced the Rs 1,300-crore dream project in the Railway Budget 2007-08, for which the ministry came out with a request for qualification (RFQ) on April 25, 2008.

But, on July 4, a fresh RFQ was issued, despite the ministry having held a pre-application meeting with the prospective bidders in June.

Under the new norms, the minimum net worth of a company to participate in the project is just Rs 500 crore, a third of the originally planned Rs 1, 500 crore. Not only that, the ministry has also done away with the Rs 100-crore exposure limit it had set for itself in the proposed company for executing the project. The Railways have now committed to pick up 26% equity in the company.

The changes put the project on the fast track. The cut in the minimum net worth condition will allow smaller companies to be a part of the project. The 26% equity exposure by the Railways means committing a much higher percentage of rail revenues to the project that will produce electric locomotives.

According to a senior railway ministry official, the revision of the net worth and bid security criteria is based on an internal review and meant to ensure uniformity of provisions with similar projects of the ministry.

The removal of the cap on equity participation will help the Railways maintain its equity in the project, the official claimed. In addition, with a 26% stake in the venture, it will have a say in the functioning of the project.

The changes would also allow smaller consortiums to bid for the project, with a condition that the lead member need to have a minimum net worth of Rs 250 crore. The other sweeteners include a reduction of the bid security from Rs 25 crore to Rs 10 crore. The Railways already have two locomotive factories, in Varanasi and Chittaranjan, which work well below their capacity. In last fiscal, the Railways have added only 400 more locomotives to its fleet.

The participation of up to 26% equity by the Railways is very significant, as it provides full operational freedom to the participant company, said an analyst with Feedback Ventures.

A Railways official associated with the project said, The cap of Rs 100 crore has been deleted to ensure that the Railways equity does not fall below 26 % in the event of future capital expansion of the joint venture company.

Putting the project on the fast track in important at this juncture for Lalu Prasad, as this was one of the major commitments he had made as the railway minister. In addition, it would also provide huge employment opportunity in the area, an election plank.

The Railways have also increased the number of locomotives to be manufactured to 120 a year from 100.