The new Railway Minister’s decision for 100% electrification raises a question mark over the future of a $2.6-billion contract awarded to GE.
NEW DELHI: It took eight long years for the Indian Railways to make a mark in public-private partnership sphere, when it awarded two marque contracts for manufacturing locomotives to GE Transportation and Alstom in 2015. Two years later, the Railways are wondering whether they need the $2.6-billion diesel locomotive contract placed with General Electric (GE), while continuing with electric locomotive contract with Alstom at Madhepura.
In a blow to PM’s pro-industry image, US giant General Electric on Tuesday said any move by the Indian Railways to wind up the company’s Marhowra diesel locomotive factory in Bihar would “undermine the government’s signature Make in India initiative and will put future foreign investment at risk”. “If railways moves forward with changes to the joint venture, they will undermine one of the most promising infrastructure projects in the country and put future foreign investment at risk. This will also undermine the government’s signature Make in India initiative,” the company said in response to a questionnaire.
India could also be on the hook for “substantial fees associated with this project”, the company stated.
The proposal to wind up the project was mooted in a review meeting held by Union Railway Minister Piyush Goyal on September 7 since the railways plans to become fully electrified. The $2.6-billion deal for supplying diesel locomotives and setting up a locomotive factory was the largest foreign direct investment in the history of railways and also the largest deal in the 100-year-history of GE in India.
In case the government decides to scrap the project, it would be liable to pay GE damages that would include compensating investment made by the company. “The company has placed supply order of about $1 billion with its suppliers who would raise claims on GE which in turn would seek that from the government,” said an official who did not want to be quoted. The company further added that an alteration of the contract will have serious impact on job creation and skills development and cause “the government to incur substantial costs”. It, however, said, “We expect the partnership to move forward and the company continues to fully execute towards the plan.” Though in a meeting with Goyal last week, the idea of converting the diesel plant to electric was discussed. GE does not manufacture electric locomotives. “Moreover, GE got the project through a bidding process and the cost of an electric and diesel plant may differ,” a railway official said.
The bid was allotted to GE on November 9, 2015. Other than the GE, US-based Electromotive Diesel (EMD) and two Chinese firms were also in race to bag the Marhowra project. “We are on track and actively fulfilling our contract with Indian Railways to develop and supply 1,000 fuel-efficient diesel-electric Evolution Series locomotives,” GE said. GE said two locomotives have been built and tested and the first locomotive has been shipped and will arrive in India on October 10. The project was expected to create a robust supply chain ecosystem in India, constituting 60 new local suppliers and 10 global suppliers to achieve over 70 per cent localisation.
The company had already hired 1,000 roles in the factory and maintenance shed and 5,000 jobs created and sustained in the supplier network.