A new clause on financing the working capital has become a potential threat to the take-off of the Rs 2,000-crore electric locomotive plant at Madhepura in Bihar. At the instance of the finance ministry, Indian Railways has reduced the advance that will be paid to the winning bidder of the project from the industry norm of 20% of total project cost to only 1%.
The railways have also deviated rom the standard of giving the advance money free of interest and without a bank guarantee. It has imposed an interest rate of 2% over the existing bank rate in addition to a bank guarantee. The advance is meant to enable the developer finance its working capital till the time it manages bank loan for the project.
The railways are currently carrying out the bidding process for the project. In the technical bidding, four firms were shortlisted?GE, Siemens, Bombardier and Alstom. The shortlisted candidates were to submit the financial bid on October 25. But in one of the pre-bid meeting on October 6, the new clause became a cause of disagreement between the Planning Commission and the finance ministry. As the issue could not be resolved, the railways had to postpone calling the financial bid to November 25, but the disagreement still remains.
The Plan panel?s contention was that charging interest may force developer to increase the project cost and the same would be recovered out of the public money, senior government officials involved in the bidding process told FE. ?The Plan panel said that the developer may also find it difficult to get loans from banks for working capital as the project is for tailor-made locomotives. If the product is not accepted by the railways, the working capital spent on that unit could not be recovered. If banks don?t give loan, the project may become unviable for the developer,? a senior official of railways said. But the finance ministry did not agree with the commission?s views, the official said. The commission was represented by a letter from Gajendra Haldea, adviser to Planning Commission?s deputy chairman Montek Singh Ahluwalia. The finance ministry had expressed disagreement through its secretary Ashok Chawla.
The railways now plan to call for the bids on January 10, 2011. However, officials say until the logjam is removed the project is unlikely to move forward and the railways will have to shift the timeline forward.
Railway Board chairman Vivek Sahai hinted that financial bids may be called later than January 10. ?We have to do everything very carefully. It can?t e done in a hurry. The January 10 is an internal timeline,? he told FE.
A senior executive of GE in India said, ?The project has been in limbo since quite a long time now and the ministry should take action faster to remove the bottlenecks.? A senior official of Bombardier said, ?The ministry has been very transparent till now, but the problems have to be removed?.
In Lalu?s tenure, the project could not garner enough investor interest and the railways took a long time to apply for a fresh approval from the Cabinet after the government changed in 2009.
The delay in setting up the project will make a dent to the railways? efforts to increase the number of locomotives in its rolling stock. It wants to procure 690 diesel locomotives and 555 electric locomotives by 2012.
