Indian Railways' electric track change

The new railway minister's proposal for 100% electrification raises a question mark over the future of a $2.6-bn contract awarded to GE

It took eight long years for the Indian Railways to make a mark in the public-private partnership sphere, when it awarded two marque contracts to manufacture locomotives to GE Transportation and Alstom in 2015. 

Two years later, the Railways are wondering whether they need the $2.6-billion diesel locomotive contract placed with General Electric (GE), while continuing with the electric locomotive contract with Alstom at Madhepura.
 

Not that the Railways have had a rethink on their rail traction plan. In 2015, when the Railways pitched the two contracts valued at Rs 40,000 crore as the biggest foreign direct investment in the sector, it had already drawn up an electrification plan to increase the share of electrified tracks to 90 per cent by 2021, from the current 45 per cent. 
 

The prospect of cancellation has arisen because, within days of taking charge of the railway ministry, Piyush Goyal, former power minister, said the target now is complete electrification, so he sees no need for diesel locomotives. 
 

“The requirement of diesel locomotives and its associated infrastructure should be viewed in the context of this renewed focus on electrification,” said a senior railway official, though he clarified that no final decision had been taken on the issue. Goyal’s rationale for this change: “Electricity is a domestic and self-sufficient resource whereas we have to import diesel,” he told the media. 
 

This is of a piece with his stance as power minister when he pitched for e-vehicles to replace diesel and petrol vehicles from 2030. As with the automobile sector, the government wants to address the issue of emissions and import-dependency in petroleum through the electrification drive. Though India gets two-thirds of its power from coal, electricity is considered a cleaner fuel than hydrocarbons.
 

The decision to rethink the GE contract, however, has implications that might not have been properly weighed, not least the signals it will send to the global investing community about the sanctity of contracts in India.
 

“It is a contract between a multinational company and the government, and not even between the company and a public sector undertaking or individuals. There should be some sanctity when a government places a contract,” says a former senior railway official, who requested anonymity. 
 

What makes the issue even more intriguing is that it is the National Democratic Alliance government that is now changing track. This is when the project model was in the works for years and the previous United Progressive Alliance in 2009 almost decided to award the contract, if Lalu Prasad, then the railway minister, had not developed cold feet about GE being the sole bidder. 

Besides, this is not a simple supply contract. Under the PPP partnership, GE was asked to fulfil 70 per cent local sourcing for Evolution Series diesel locomotives, which the company will supply to the Indian Railways over 10 years. Of the 1,000 locomotives GE contracted to supply, the Boston, Massachusetts-headquartered conglomerate would import 100 from the United States. On June 1 this year, the company unveiled the first locomotive at its plant at Erie in the US. Despite the uncertainty, the locomotive is scheduled to arrive in Mumbai on October 10.
 

About a year later, in October 2018, the first locally made locomotive was scheduled to be rolled out of a plant in Marhowra in Bihar’s Saran district, construction of which is underway.  “We are on track and actively fulfilling our contract with the Railways to develop and supply 1,000 fuel-efficient diesel-electric Evolution Series locomotives,” GE said in a statement on Tuesday. 
 

To meet the local sourcing commitments in the contract, the company has developed a vendor chain of some 70 suppliers of which 60 are in India. With $1 billion of purchase orders placed, the contract has clearly moved some way down the track.
 

Under the terms of the contract, the company is also developing facilities at Roza in Uttar Pradesh and Gandhidham in Gujarat to support long-term maintenance of the fleet. The company says 1,000 people have been hired for its factory and maintenance shed while another 5,000 are part of the supply network.
   

If the Indian Railways move completely to electricity, it will achieve what no railway system has done globally. Even in the European rail network, which is predominantly electric because of the availability of cheap power, diesel accounts for 30 per cent. 
 

Goyal, however, says the Railways is spending Rs 16,000 crore every year on diesel, and moving to electricity will save it Rs 8,000-10,000 crore. The railway network consumes 17.5 billion units of electricity. In 2015-16, its electricity bill stood at Rs 11,000 crore; it dropped to Rs 9,000 crore in 2016-17. 
 

Supporters of diesel traction, however, point out that the tax structure adds 50 per cent to diesel costs and makes it expensive even when crude prices are low.
 

Besides, electrification comes with a cost. According to a roadmap chalked out by the Railway Board, the Railways would electrify at least 22,400 route kilometre (RKM) by 2020-21. In the last four years, Rs 17,165 crore has been spent on electrifying 16,815 RKM. “It is not viable to electrify low-traffic routes. Even if we forget about traffic density, sometimes the terrain does not permit electrification,” says the former senior official. 
 

According to him, electrification for high-speed passenger services is understandable but in the US, for instance, where the freight business dominates the rail system, diesel continues to be the main traction. On electrified routes, moving double stack containers are difficult to transport though there have been some pilots done by the Railways.
 

For the oil industry that supplies around 2.8 billion litres of diesel a year, complete electrification would mean its biggest customer, with more than three per cent share in the overall diesel consumption in India, would be lost.  
 

Besides, in the event of power supply disruption, like the one in 2012 when grids in the north, east and north-east collapsed and the movement of hundreds of trains was impacted, there will be no recourse if diesel locomotives are not available. An end to the GE contract, therefore, would not only be a blot in India’s PPP history, but would also risk depending on a single source for powering the Railways.