Competence Poverty of #KMG – Machinations Exposed!

#Tenderman miscalculates and exposes the hand of #KMG and reveals the dirty gaming of Indian rolling stock market, which currently is one of the world’s largest. Implications – mind boggling.

Free Market and The Khan Market Gang

The recent order on M/s Siemens for 1200 electric locomotives of 9000hp for 11 crores has dashed the hopes of the Khan Market Gang (#KMG) of creaming the Railways. M/s Siemens, in a bold display of honesty and competition have quoted a price that was below the wildest expectations of anyone in the Railways.

The 9000hp Electric Locomotive and its Pricing

The difference between the L-1 (Siemens) and L-2 (ALSTOM) is so large that technology pundits are bewildered. M/s ALSTOM had quoted a price of Rs 18 crores per locomotive against mere 11 crore by Siemens. Fears were being expressed that M/s Siemens made an error of estimation and judgment and may back out from the bid. But, belying all such hopes of the vested interests, who were desperately hoping for a retender, M/s Siemens have stood by their quote.

The price quoted by Siemens for a 9000hp state of the art locomotive is lower than even CLW cost of a 6000hp locomotive of older vintage. Such is the power of competition and market forces. Even though need for a 9000hp locomotive is not fully established, yet a locomotive designed well has the potential to transform freight movement of Indian Railways.

It appears that the #KMG did convince M/s ALSTOM to bid high so that there was enough margin for payoffs. M/s Siemens were always known to bid high prices. So, whereas ALSTOM obliged their well-wishers and put in a high bid of 19 crores and damaged their own opportunity, Siemens surprised everyone by quoting aggressively.

Read: “Did someone make a #mistake or was #Siemens desperate?“

These modern locomotives will be manufactured by the successful bidder, M/s Siemens, in Dahod Workshop of Western Railway and will be delivered over a period of ten years. Maintenance of these locomotives for 35 years is also built in the contract for which there will be separate, periodical payments. M/s Siemens, with German technology, has emerged as a major player in the Indian market. If the locomotive is successful, there will be large export opportunities for India.

What About the 12000hp Locomotive?

Another project of the ‘Khan Market Gang’ of buying 12000hp freight locomotive through a similar route seems to have been derailed. These locomotives were to be built in DLW, now BLW, by the successful bidder. It was expected that ALSTOM and Siemens would be the main bidders in this case too. With the unexpectedly low bid for the 9000hp locomotive by Siemens calculations of #KMG Gang has gone haywire. The price of a 12000hp locomotive will now be in the same or similar price bracket. It is widely believed by the market experts that if the Siemens quote of 11 crores for a 9000hp locomotive is kept as a benchmark, the 12000hp loco should not cost more than 16-18 crores.

It is here that the equations and expectation of the Khan Market Gang go awry. M/s ALSTOM supplies 12000 hp locomotives ex-Madhepura at a unit cost of Rs. 32 crores – up from 28 crores – when the contract was awarded 4-5 years ago. This difference is due to the Price Variation Clause (PVC) built into the contract. By specifying the same or very similar design of 12000hp locomotive M/s ALSTOM were a guaranteed winner in the competitive bid.

The #KMG, very cleverly, specified the same locomotive as that built in Madhepura for the new procurement too. They conveniently brushed under the carpet the abject failure of the ALSTOM locomotive for the purpose it was intended. It has been reported by freight intensive Railways, such as the SECR, SER, ECoR and ER that the 12000hp loco, in spite of its acclaimed superior design and high power, can’t haul a fully loaded coal or iron ore train. It needs a diesel banker.

A locomotive that was procured with the promised objective of heavy haul has conclusively failed. Yet the #KMG had proposed this very locomotive in even larger numbers. Fortunately Shri VK Tripathi, the former CRB proved to be the nemesis of the Khan Market Gang. Shri Tripathi is a competent engineer and he was fully aware of the sub-par performance of the Madhepura made ALSTOM locomotive. He put his foot down on this tender.

With ALSTOM having established its Indian supply chain, local design and manufacture and India based management and engineers it was a foregone conclusion that this firm would be the L-1 bidder. Now things have become very complicated for ALSTOM and its well-wishers in the Rail Bhawan. If ALSTOM bids 32 crores, which it is charging ex-Madhepura, it will certainly be outbidded by Siemens, who have established a very low yet workable benchmark. And, if ALSTOM bids low to win the tender, say in the range of 16-20 crores, it may probably win this tender, but its price of 32 crores ex-Madhepura will immediately come into question. Indian Railways, even the greedy #KMG, will be dutybound to ask ALSTOM to reduce the price of Madhepura locomotive from 32 crores to their new bid.

Actually, even if Siemens win this 12000hp loco tender at a low price of 16-18 crores, the price of Madhepura loco of ALSTOM will come under a cloud and the latter will be asked to match the new price. If M/s ALSTOM refuses to lower the price of Madhepura locomotives to the new bid price, Indian Railways will again be dutybound to terminate the Madhepura contract, pay the contractual penalty of Rs. 1000-1200 crores, and still save thousands of crores. Either way M/s ALSTOM and their well-wishers have a lot to answer for.

It is believed that Shri VK Tripathi has paid the price of his fairness, fearless protection of national interest and technical expertise in questioning the tender for a 12000 hp locomotive. It remains to be seen if the incumbent CRB, Shri Anil Kumar Lahoti, stands up to these avaricious looters of Indian Railways or he succumbs to the powerplay of the Khan Market Gang.

As this publication has always advised the Railway Minister is a temporary resident of Rail Bhawan; the real operators are the Khan Market Gang. The Railway Minster is, once again, advised to let Market Forces operate freely and uphold rules. That is his main job, not dealing with tenders. This is also a sobering lesson on desirability of entering in to very long term contracts in fast evolving technologies.

It would do well to the minister to do honest 360 degree review of his advisory group and spend sometime to go through the reports and revelations by #Railwhispers. To continue..

Analysis by the team of #Railwhispers

#Siemens #Alstom #Locomotive #Tender #IndianRailways #Dahod #Madhepura #Railbhawan #CRB #VKTripathi #AnilKumarLahoti #CEORlyBd #AshwiniVaishnaw #RailMinister #RailMinIndia #CVC #KhanMarketGang #PMOIndia