Engine Deals.

Railways may alter norms for engine deals

Changes could relate to price variation clause in draft agreements for the purchase of 1,800 diesel, electric engines

Aman Malik

New Delhi: Indian Railways may alter some norms in two draft procurement-cum-maintenance (PCM) agreements for 1,800 diesel and electric engines, to be purchased at an estimated $13 billion (Rs. 58,370 crore), two senior government officials said.

One of the officials is from the railways and the other is from the Planning Commission. Both declined to be named.

The Plan panel official said these changes could relate to the so-called price variation clause (PVC) in the draft PCM agrements, which are shared with bidders, who respond to open tenders.

“The government wants to bring about greater transparency in the process, so some changes could be made,” one of the officials said, without elaborating.

PVC is an instrument in long-term contracting that typically governs how the increase in price is indexed to inflation over time. Currently, the PVC for the electric engine contract is fully variable. The PVC for the diesel engine contract has a fixed component of 15%, while the rest is variable.

An empowered committee will meet on Tuesday to consider the matter. Senior officials from the railways, the Planning Commission, and the finance and law ministries are expected to attend. The agenda note for the meeting was floated on Friday, the two officials said.

The two contracts are for manufacturing 800 electric engines and 1,000 diesel engines respectively, via the public-private partnership (PPP) route. While the electric engine contract is expected to be worth $8 billion, the diesel engine contract could be to the tune of $5 billion, a third person aware of the matter said.

Four companies—General Electric Co. (GE), Alstom SA, Bombardier Inc. and Siemens AG—are competing for the electric engine contract. A joint venture between GE and Bharat Heavy Electricals Ltd (Bhel) is competing with Electro-Motive Diesel, Inc. (EMD) for the diesel contract.

The Union cabinet gave its green signal to the two projects in 2006, but approved contract documents only by February 2009. The contracts had to be re-tendered as only one bidder each responded to the tenders.

Both contracts were put on the PPP mode in February 2010. While the last pre-bid meeting for the electric engine contract was held on 19 January, the same for the diesel engine contract was held on 27 October.

“In the January meeting, the government said that they would tweak some provision of the draft PCM for the electric engines. None of the bidders were totally convinced, but we decided to wait. Since then, we’ve heard nothing from their side,” said a representative of one of the bidders. The railway official cited above declined to comment on this.

The industry executive also said that while the the price bid opening date for the electric engine contract has been postponed eight times, that for the diesel contract has been postponed six times. The new dates are 15 July and 29 July, respectively.

aman.m@livemint.com