Source: https://www.moneycontrol.com/news/business/economy/16-firms-in-fray-for-indian-railways-largest-wagon-making-order-8396741.html
Publisher: Money Control
About 16 companies are vying to get a slice of the largest-ever wagon-making tender floated by Indian Railways, which intends to procure 90,000 wagons over the next three years, a government official told Moneycontrol.
Wagonmakers competing for the order include Titagarh Wagons, Texmaco
Rail and Engineering, Hindusthan Engineering and Industries Limited, Oriental Rail Infrastructure Limited, Jupiter Wagons, Jindal Rail Infrastructure Limited, Cimmco (acquired by Titagarh Wagons), Om Besco Railway Wagons Manufacturer (erstwhile Besco Limited), industry and government officials confirmed. Other wagon makers in the space include public sector enterprises such as SAIL-RITES, Bengal Wagon Industry, and Braithwaite and Company.
All the companies that qualify technically will have to match the rate offered by the lowest bidder if they wish to be able to supply the wagons, said the government official. It is learnt that technical qualification bids for the large tender (estimated to be around Rs 30,000-35,000 crore — subject to change depending on input prices) are being finalised.
High priority
“Work on this is being done on a priority basis. Technical comments from the Rail Design Standards Organisation (RDSO) were received just in a day, something that did not happen earlier,” said the official.
“There are about ten significant players who are likely to get major orders, and there are some players who may get developmental orders (to widen the base),” said a second industry official.
This mega tender is a part of Indian Railways’ strategy to move closer to its goal of ferrying a much higher share of cargo in the country, to about 40-45 percent by 2030, from 26-27 percent, according to the National Rail Plan it has chalked out.
To achieve the target it has set for itself, the national transporter will need over three lakh wagons till 2030, according to its own estimates, said a railway sector executive. This 90,000 wagon-making order, historically the largest of its kind, is almost five times the wagons procured by railways in a year. Indian Railways may procure an additional one lakh wagons over the next three years, suggested recent media reports.
When asked about the intent, the government official said “We would like to procure as much as the market can offer over the next few years. Whether we would be able to do that over the next three or four or five years, will need to be assessed – say, through longer-term contracts.”
Even as Indian Railways embarks on its ambitious plan to corner wagons from the market, the capacity of the industry to churn out as many wagons amid rising input prices while continuing to supply private sector players may prove challenging. India’s annual assessed wagon production capacity is about 35,000, estimated an industry executive.
On the face of it, for wagon makers, this order provides an assured flow of business for the next three years. However, soaring steel prices, shortage of rail wheels in the backdrop of the Russia-Ukraine war, and lockdowns in China have led to a different set of challenges that have constrained capacities in the current environment.
Complimenting Indian Railways for coming out with the breakthrough step of three-year orders, Ashish Kumar Gupta, Managing Director, Texmaco Rail and Engineering Limited, admitted that cost is a challenge in getting steel for wagons. “Steel prices have gone up by 20 percent in the last two months,” Gupta said.
High steel costs hit non-Indian Railways Customers
In fact, the sharp surge in steel prices is already changing the way contracts are drawn among wagon-makers and their non-railway customers. Pricey steel has pushed wagon makers like Texmaco Rail and Engineering Limited to build in ‘price variation clauses’ (linked with input costs such as steel prices) for the supply of wagons to non-Indian Railways customers for the future purchases. This is a departure from the past when wagon makers had fixed-price contracts for non-Indian Railways customers.
These non-Indian Railways customers include container train operators, as well as steel companies, wagon leasing companies, cement, power sector and oil companies, said Gupta, adding that Texmaco is postponing deliveries wherever possible.
It’s not just wagon makers — high steel prices in the global market have also led to container makers getting stuck with orders that customers are unwilling to accept at the higher prices, noted another industry executive.
Wheel supply bottleneck
Another fallout of Indian Railways placing such a large order is a probable wagon wheel supply crunch, in turn impacting wagon availability for orders placed by non-Indian Railways customers. This has been exacerbated by a global supply shortage of train wheels of which Ukraine is a large supplier – with Indian Railways also reportedly receiving wheels for coaches and locomotives from Ukraine.
For the last three-four years, rail wheels did not have to be imported as wagon makers got their requirement of wheel supplies from Indian Railways’ production unit — Rail Wheel Factory, Bengaluru.
Now, with Railways stepping into the market, Rail Wheel Factory, Bengaluru, has predictably decided that its capacity will be used for Indian Railways’ orders. This has left wagon makers scouting for wheel suppliers globally, including from China, which is facing lockdowns, for its wheels.
For the 90,000 wagon orders, Indian Railways has promised to supply wheels, said Texmaco’s Gupta.
Meanwhile, the Association of Container Train Operators (ACTO) has contended that the capacity of the wheel and axle plant was supposed to be expanded pre-COVID-19 and that the capacity expansion had stopped.
“Now, container train operators also need wagons to move cargo and there is no wheel capacity. Globally, the cheapest rail wheels are available in China. Sourcing wheels from China will take another six months – and the price of the wheels from China is twice the price in India,” said Manish Puri, President, ACTO.
Container train operators may be forced to pass on higher wagon prices to their customers in the form of higher rail freight, according to Puri, which he said will be detrimental for other non-railway customers as well.ACTO has pointed out that importing wheels might lead to a 20 percent increase in the cost of wagons and has also written to Indian Railways seeking a quota in the wheels produced by Rail Wheel Factory.
