PPP route for new railway coach factory

Indian Railways has decided to pursue the public-private partnership (PPP) model for setting up a new coach factory, encouraged by the response it received from private companies to build a locomotive project in Bihar.

The railways sought request for qualification (RFQ) documents from private companies on Monday for building the Rs.600 crore coach factory at Palakkad in Kerala. The factory will supply 1,200 stainless steel coaches and 200 aluminium coaches to Indian Railways.

“The factory would have a manufacturing capacity of 400 coaches per annum and the indicative cost for the setting up of the factory is about Rs.600 crore, including the cost of land,” said the RFQ document.

The factory is proposed to be set up through a joint venture in which Indian Railways will own a 26% stake subject to a cap of Rs.60 crore investment limit.

The project aims to create additional capacity for modern passenger coaches and introduce light weight and energy efficient aluminium coaches.

“Indian Railways has an annual demand of 5,500 coaches,” said Arunendra Kumar, acting-chairman of the Board in an interaction with reporters on Friday.

General Electric Co. (GE), Alstom SA, Bombardier Inc., Siemens AG, and China’s CNR Corp. Ltd and CSR Corp., had shown initial interest for setting up a Rs.1,293.57 crore electric locomotive factory at Madhepura in Bihar by submitting their request for qualification documents on 2 September.

RFQs for setting up a diesel locomotive factory at Marhowrah (Bihar) can be submitted till 22 September.

For the Palakkad coach factory, RFQs can be submitted till 24 October. Indian Railways expects to announce a short-list of as many as six suitable pre-qualified applicants eligible for participation in the bid for the project by November.

“The cost of manufacturing an air conditioned (AC) coach is estimated at Rs.2.5 crore and that for manufacturing a non-AC coach is at Rs.1 crore,” said a railway official requesting anonymity.

“Projects such as these will put the economic growth back on track. Manufacturing activity has been weak. If this kind of PPP is done in the right manner, it will spur manufacturing growth. The government clearly needs to leverage on the private capital and market borrowing at a time when it cannot finance manufacturing activity,” said Abhaya Agarwal, partner, infrastructure advisory, at EY Llp in India.

“The railways, however, must ensure that the project develops into a full-fledged globally competitive manufacturing unit rather than just being a lock-in technology with Indian Railways. It is high time we create a success PPP story in railways,” he said.