Rail suppliers take steel price hit

The Railways has refused to pay compensation to contractors and suppliers of steel for the unprecedented rise in steel prices last year, despite an internal railway committee favouring such a move for construction contracts.

The ministry, however, has said that the price variation clause in future tenders would incorporate changes in wholesale price index of sub-groups of commodities.

Till now, the average wholesale price index was taken into account, which showed a smaller change. The subgroups include iron & steel, cement, labour, power and fuel.

"Tenders given out by some zonal railways like western zone for the current year have already been modified," a ministry official told Business Standard.

The official, however, added the tenders were structured in such a way that if the prices of the individual inputs fell then the railways would be compensated in return.

The committee set up in August 2004 to look into steep increase in steel prices recommended that in construction contracts of more than one year duration and price variation clause, where steel formed more than 15 per cent of the value of the work, the contractor be compensated.

The compensation was to the extent of the change in the steel price index than the average index.

Even in case of those contracts where price variation clause did not exist, the majority view was that such compensation be provided. Only two members disagreed on the issue.

In case of equipment supply contracts, the committee was unanimous that no compensation would be given. "The stores supply contracts are generally short-term in nature, where it is possible to gauge price risks better," a ministry official said.

Deciding on one of the recommendations, the ministry decided against any compensation on the grounds that same treatment had to be given to both works and stores supply contracts.

The contractors and manufacturers had demanded that they be compensated in line with change inn the market price of steel, while railways insisted on using the price index notified by the Reserve Bank of India. While the market prices of steel nearly doubled in past one year, the wholesale price index of steel increased by 24 per cent.