Indian Railways News

Analysts says “Indian Railways exiting the Diesel Locomotive contract surprising”

Indian Railways’ reported move to reconsider the Marhowra diesel locomotive project, awarded to General Electric (GE) in 2015, may not spell good for the transporter, which is hinging on private investments to fund its projects, according to analysts. The Indian Express on Monday reported the railways is looking to wind up or exit the contract as it plans to electrify all routes. The transporter plans electrification of 24,400 km of routes by 2020-21 in a phased manner of which 4,000 km are to be electrified in 2017-18. However, according to a Railway Board member who did not want to be identified, railway minister Piyush Goyal has asked officials to double the target for the current year to 8,000 km and electrify all routes at the earliest.

Though GE confirmed to a television channel that it is implementing the plant, Railway Board chairman Ashwani Lohani said the issue will be studied in depth and no final decision has been taken. According to an analyst with one of the Big Four consulting firms, the news of the railways thinking of exiting the diesel locomotive contract looks a little surprising. “This will have an impact on the IR’s image as it was a global tender. It is not a good sign for the long term at time when private investment is low,” said the analyst. A former Railway Board member, however, added that every such contract has an exit clause for the parties concerned and, if at all the railways abandons the contract, it will cost the transporter. The former member added that there must be very strong reasons to quit such a project.

After almost a decade-long delay, the railways had awarded the Marhowra and Madhepura (electric locomotive factory to Alstom) projects with a foreign direct investment amounting to Rs.40,000 crore. In both cases, railways has assured initial offtake. For the Marhowra project, the Indian Railways had assured offtake of 1,000 units over a period of 11 years at a basic cost of Rs.14,656 crore and the electric locomotive project was assured offtake of 800 units at a basic cost of Rs.19,904 crore. The diesel locomotives are to be of 4,500 HP and 6,000 HP and the electric locomotives of 12,000 HP. The former railway board member said the railways will have to see how it will plus the deficit of locomotives in case it plans to phase out diesel locomotives. As per the newspaper report cited earlier, the railways may also stop fresh investment in rehabilitation of diesel locomotives.

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