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BW Businessworld

Railway Is The Buzzword Now

Indian Railways has signed the formal contract agreement with USA based GE (for Marhowra) and France based Alstom (for Madhepura) on November 30, 2015. It was described as the single largest foreign direct investment (FDI) deal in manufacturing

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Almost a decade after staying away from the headlines, the buzz is back in Indian Railways with headline grabbing announcements coming out of the Rail Bhawan. Incidentally, the person at the helm of Indian Railways talks in business language. So FDI, investments, modernisation, bonds, JVs and SPVs are some of the words often spoken by the Union Railway minister Suresh Prabhu who is also a qualified Chartered Accountant.

So it is not a surprise that after remaining stuck for around a decade, the Diesel and Electric locomotive factories at Marhowra and Madhepura (both in Bihar) are set to see the light of the day. Indian Railways has signed the formal contract agreement with USA based GE (for Marhowra) and France based Alstom (for Madhepura) on November 30, 2015. It was described as the single largest foreign direct investment (FDI) deal in manufacturing said the Finance Minister Arun Jaitley who was also present on the occasion.

Prabhu said both these projects will be a great contribution under the ‘Make In India’ vision of Prime Minister Modi. “The setting up of both these state of the art manufacturing facilities will create an eco-system of its own with spin-off benefits, which will not only create jobs in the manufacturing facilities but will also help in creation of jobs in ancillary units,” said Suresh Prabhu at the signing ceremony.” It’s interesting how the signing of this agreement coincides with the climate change conference in Paris, besides other measures signing of these agreements for production of energy efficient locomotives is another contribution of Indian railways towards the environment, he added.

The diesel locomotive factory at Marhowra will manufacture and supply modern diesel electric locomotives of 4500 HP and 6000 HP. According to the agreement, the factory will be supply 1000 diesel locomotives over a period of 11 years with a basic cost of Rs 14,656 crore. While the electric locomotive factory at Madhepura, will supply 800 electric locomotives of 12,000 HP over the period of 11 years at a basic cost of Rs 19,904 crore. “This is a very unique day for Alstom and we are happy to enter in a long term partnership with Indian Railways, the investment for this project will start from 2016 and we will be delivering to the transporter our state of the art locomotives in the year 2018-19.” said Henri Poupart-Lafarge, CEO, Alstom. “This project will help create 1000 jobs within Alstom and in addition create 3000 jobs in India,” he added.

Jaitley said he was very happy to see the progress of Indian railways under the leadership of Prabhu.

Operation of these locos will help improve the Horse Power to trailing load ratio from the present 1:1 to 2:1. They will also double the average speed of the freight trains to 50 Kmph. “I am happy to announce that the price of these high power locos from GE and Alstom is going to be less than the in-house production cost,” said Manoj Sinha, the Minister of State for Railways.

Going the JV, SPV Route
In order to expedite completion of railway projects pending across various states, formation of Special Purpose Vehicles (SPV) or the Joint Venture (JV) route is the best possible solution Prabhu has already said at various public events.

As part of the JV, the railway ministry is providing the land for the factory for a period of 30 years in accordance with the land lease agreement and the Indian Railways will continue to hold equity of not less than 10 per cent in the JV Company until the supply period of 11 years. The JV has also been given the liberty to produce additional locomotives over and above the assured off-take for the Indian Railways, for other customers during the supply period.

In August the railway ministry had approached all State governments urging them to form SPVs for completing all pending railway projects. That request has started bearing fruits as at least 17 State governments have consented to form the SPVs.

On November 4, 2015, Railways signed one of the first memorandum of understanding (MoU) with Odisha government. Under the proposed SPV, which will work on cost sharing basis, the Odisha government will have 51 per cent share in the SPV while railways will contribute the balance 49 per cent. The main objective of the SPV will be to provide rail connectivity to backward districts of Odisha which includes Malkangiri, Nabarangpur, Kandhamal, Deogarh, Boudh and Kendrapara. Initially Rs 200 crore is expected to be invested in the SPV.

Through the SPV, the aim is to provide rail connectivity to seven districts in Odisha including the Naxal infested Malkangiri and Nabarangpur districts, railway officials explained.

Railway minister Prabhu said that the MoU with Odisha is a welcome step which will go a long way in the infrastructure development in the State of Odisha. “Such JV companies will provide the necessary impetus for faster growth of railway network in various States including Odisha,” he said.

Prabhu said Odisha got special attention since formation of the new government at Centre. “We enhanced the outlay for development of network in Odisha, in 2014-15 (Rs 1073 crore) by about 40 per cent as compared to 2013-14 (Rs 754 crore). This year, it has been further enhanced to three times (Rs 3310 crore including EBRIF of Rs 2056 crore),” the minister said.

Several states including Maharashtra, Haryana and others have expressed keen interest in forming SPVs to expedite railway network expansion within their respective states. The Maharashtra government is reportedly agreed to share half of the costs of eight proposed and pending rail routes, including the Ahmednagar-Beed-Parli Vaijanath railway. For this, the State cabinet recently approved Rs 1,413 crore.

Senior Railway officials said setting up SPV for project implementation will end arbitrary demands from states for new rail lines and projects while making the states accountable and co-responsible for completing pending projects. With State governments as partners, bottlenecks like delays in land acquisition, other state-level clearances will also speed up and the credit of expediting and completing projects in time-bound fashion will also impact the popularity of the local members of Parliament as well as the local members of the legislative assembly, said one official.

It should be noted that in March this year, the Union Cabinet had cleared a proposal for the formation of SPV for funding port-related railway projects in order to enhance capacity and efficiency of ports.

In Turnaround Mode
Not just in India, Prabhu has been abroad too looking to get the best deals for modernising the Indian Railways. In October he was in Singapore addressing a gathering of investors at the Infrastructure Finance Summit. Before that Prabhu was on a week-long tour of Japan and South Korea to explore collaborations of overseas companies with Indian Railways.

Foreign tours and trips aside, Prabhu has got work to show for his time as the railway minister. From setting in motion the railway station redevelopment plan to awarding port connectivity projects to finding investors for stalled locomotive manufacturing units in Bihar, Indian Railways under Prabhu’s leadership has been buzzing with activities. It was under Prabhu’s stewardship that the capital expenditure to decongest projects went up by 20 per cent to Rs 6,880 crore in the first six month period of the current fiscal year (2015-2016).

Prabhu also managed to tie-up with the Life Insurance Corporation of India to secure funding worth Rs 1.5 lakh crore over the next five year period. In his maiden railway Budget presented earlier in the year, Prabhu had laid out a five-year capital investment plan of Rs 8.6 lakh crore. Prabhu is the only railway minister who has laid out a five year investment-led vision for Indian Railways and did not announce even a single new project during his Budget speech.

In terms of showing the work-in-progress, there are around 80 projects (worth Rs 90,000 crore) that are expected to be commissioned before March 31, 2016. These projects will help decongest around two dozen saturated corridors.

Under Prabhu’s leadership there is also activity on the long-standing infrastructure project managed by the Dedicated Freight Corridor Corporation (DFCC). Between November 2014 and October 2015, DFCC has finalised contracts worth Rs 17,500 crore. A similar amount worth of contracts are also expected to be awarded in the balance five months of 2015-2016. Compare this to the 2005-2013 period when a total of less than Rs 13,000 crore worth of contracts were awarded on this crucial dedicated freight corridor which will decongest the existing railway network of freight trains.

Prabhu has also managed to set in motion activity in the two locomotive manufacturing projects that were gathering dust for the past seven years. Located in Bihar, both these factories have been bid out to foreign investors who are expected to put in around Rs 3,000 crore as equity. Then around a dozen and half port connectivity projects are under various stages of implementation with the combined projects worth Rs 12,000 crore. The Cabinet has also given its go ahead on the railway station modernisation and redevelopment of around 400 railway station.