Amid Rail FDI push, foreign players falter doing business in India

UGL, an Australian conglomerate, has just written down fully its investments in its joint venture with Texmaco, while CAF of Spain has abandoned its Kolkata Metro project

While there’s excitement over likely inflow of foreign investment in the railway industry, ground reality is quite different when it comes to some of the few foreign players which are already present.

UGL, a $2.5 billion Australian conglomerate with presence in rail, transport & technology systems, power, resources, water and defence, has just written down fully its investments in its joint venture with Texmaco due to poor demand for specialty wagons.

On the other hand, Construcciones y Auxiliar de Ferrocarriles, or CAF, of Spain has abandoned its project to supply coaches to Kolkata Metro Railway over a dispute, sources said.

“A $9.7 million investment made in India to establish bogie manufacturing as part of a low-cost supply chain in the production of locomotives for the coal and iron ore markets has been fully written down,” Sydney-based UGL revealed in its half yearly earnings, showing its whole investment in the joint venture as impairment charge.

“Reduction in freight rail growth impacting production throughput in India,” UGL told analysts explaining why the impairment was done.

UGL has built a world class manufacturing centre for rail industry components for freight and passenger rolling stock using state-of-the-art facilities like robotic welders.

The plant, based out of Texmaco’s Belgharia plant near Kolkata, has a product line capable of producing platforms and headstocks for passenger and freight rolling stock including diesel and electric locomotives, electric multiple units, coaches and wagons, and also flat packed container and other specialist rail wagons for both Indian and international markets.

The decision to impair the investment has also taken top Texmaco officials by surprise but is being seen as symptomatic of the state of affairs at the railway-related industrial economy where sufficient demand is yet to show up.

This is in sharp contrast to the recent upswing in sentiment around railway stocks triggered by the decision of railway minister Suresh Prabhu on Sunday to give green signal to two big-ticket foreign direct investment proposals worth about Rs 2,400 for setting up diesel and electric locomotive plants.

The predicament of CAF of Spain is somewhat different.

CAF had, in consortium, won a contract to supply to Kolkata Metro Rail Corp (KMRC) 14 rakes of six coaches each for the East-West Metro corridor competing against biggies like Kawasaki-Toshiba-Mitshubishi.  The project, however, has fallen through and CAF is believed to have abandoned the project, sources in KMRC said.

“There were disputes and differences with regard to the execution of the contract. CAF has approached and invoked dispute resolution mechanism,” an official of KMRC said.

CAF was supposed to produce these air-conditioned metro coaches with a maximum passenger capacity of 2,136 pax/train with speed of up to 90 km an hour.

These details about the project has been taken off from CAF’s website signifying its exit and mail sent to the company asking for its comment remained unanswered.