Indian Railways News

Railway Board plan for buying Wagons via Reverse Auction process raises concerns of aggressive bidding

The Railways will outline the demand for the next five years and select suppliers through a reverse-auction method

Having invested in track capacity over the past couple of years, the Railway Board is now ready to purchase wagons.

It wants to break away from the tradition of floating annual tenders, and is toying with the idea of bulk-tendering to meet the demand for the next five years.

The news has brought cheers to wagon makers, which have had low order books for the past two years.

They have just one concern: in return for widening the market by at least five times from the current rate of procuring 10,000-12,000 wagons a year, the Railways wants the prices to remain flat for the five years.

According to the proposal, the Railways will outline the demand for the next five years and select suppliers through a reverse-auction method. The successful bidder(s) will be offered the opportunity to meet the demand for the five years at the same price. The Railways think this will help it save costs.

The concern is that such mechanisms often invite aggressive bidding, leading to disastrous consequences. The economy paid the price for fixed tariff-based bidding of electricity, and most of the captive-coal mines stopped working after the reverse auction in 2015.

“We have discussed this with the Railway Board,” Umesh Chowdhary, Vice-Chairman and Managing Director of Kolkata-headquartered Titagarh Wagons, told BusinessLine.

He, however, welcomes the idea of bulk purchases as it will give manufacturers the opportunity to plan long term.

“Yes, there are concerns (about the reverse auction). But it is too early to pass the verdict. If the Railway Board wants to do something path-breaking to ensure transparency and price discovery, it is welcome,” he said.

Rajaji Meshram, Director of KPMG India, thinks the proposal has merit as the bulk purchases will bring in a “quantitative change” in the market size, thereby creating prospects for “drastic” price reduction.

The bulk purchases proposal will trigger a paradigm shift in the market conditions, and “market price discovery” of wagons is a welcome idea, he said.

Meshram thinks a strong qualification process for participants may limit potential aggressive bidding. Also, a lower price benchmark may be set to identify unviable bids and the resultant failures in fulfilling the order.

While it is yet to be seen how the Railway Board will design the tender, another rolling stock manufacturer, who didn’t want to be named, said any aggressive bidding may end up proving costly to the Railways.

“The Railways has invested heavily in creating the infrastructure, and it needs wagons for return on investment. Aggressive bidding and delay in delivery of rolling stock may convert the notional savings into net loss,” he said.

The concern is also shared by the Finance Ministry. At a recent seminar in Kolkata, Kumar Vinay Pratap, Joint Secretary (Infrastructure Policy and Finance), said aggressive bidding is a concern for the smooth implementation of infrastructure projects.

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