India signs $6bn Pacts with GE and Alstom for manufacturing 1800 Locomotives

Pact with GE IRNew Delhi: Indian Railways (IR) has signed two contracts with a combined value of around Rs400bn ($6bn) with US-based GE Transportation and French engineering firm Alstom for a total of 1,800 freight locomotives.

Earlier this month, the companies were issued the letters of award (LOA) to establish diesel and electric locomotive factories in Marhowra and Madhepura in the Indian state of Bihar.

Most of the 1,800 locomotives will be assembled at these purpose-built plants as part of the government’s ‘Make in India’ initiative.

The contracts mark the Indian Government’s first major foreign direct investment (FDI) in rail projects.

Under the $3bn contract, Alstom will deliver Indian Railways with 800 electric locomotives in the next 11 years and set up an electric locomotive factory (ELF) in Madhepura.

At the ELF, the French firm will manufacture 12,000HP electric locomotives for heavy haulage applications.

As part of the project, five diesel locos will be imported and the remaining 795 will be manufactured at Madhepura.

The project will be executed by a recently formed joint venture (JV) in which Alstom and Indian Railways respectively hold a 74% and 26% stake.

According to Alstom, the delivery of the locomotives will take place between 2018 and 2028. Alstom Asia Pacific senior vice-president Dominique Pouliquen said: “We are committed to addressing the ever-growing market in India by expanding our local footprint and bringing technological expertise and know-how to the country.”

Alstom could double Indian workforce after bagging two rail contracts worth €3.7bn; according Alstom’s President for Transport, Henri Poupart-Lafarge. Poupart-Lafarge further added “There is a new momentum, that’s clear,” and that the country was becoming the centre of Alstom’s Asian footprint.

These are not the first contracts for the Levallois-Perret-headquartered company. It has previously worked on metro systems across many Indian cities.

As part of the $2.6bn deal, GE will provide the railways with 1,000 diesel locomotives over the next 11 years, as well as invest $200m in a plant and maintenance sheds.

The deal will see GE build a diesel locomotive factory (DLF) in Marhowra, in addition to maintenance sheds at Bhatinda, Punjab, and Gandhidham, Gujarat.

To build and operate the new DLF facility, a new joint venture will be established between the Indian Ministry of Railways and GE Global Sourcing India.

In addition, Alstom also secured a €200m contract from Dedicated Freight Corridor Corporation of India (DFCCIL) to provide electrification, signalling and telecommunications systems for a 343km section of the Eastern Dedicated Freight Corridor that is expected to be completed by 2019.

The deal will also see Alstom build the stations and provide the control centre.

The Indian railways has been due for an upgrade for quite some time and has received a lot of attention under Prime Minister Narendra Modi, with Railways Minister Suresh Prabhu promising to spend about $137bn for its modernisation over the next five years.

As part of the commitment, the Indian government had allowed 100% FDI in certain railway businesses last year. Prabhu had previously stated his intention to hike passenger capacity to 30 million a day apart from increasing track length by 20% and raising freight capacity by 50% to 1.5 billion tonnes a year.

According to Morgan Stanley, a “right-sizing” between Indian road and rail through railway upgrades could facilitate:

  • Reducing logistics costs by a tenth
  • Saving up to 1.5% of gross domestic product
  • Increasing trade by 5% to 6%
  • Doubling the range of Indian products exported
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