Exclusive: Railways may have to reissue tender for 120 Vande Bharat trains

TMH has not agreed to RVNL’s demand for a larger stake in the JV, and thus, has not deposited the bank guarantee of nearly Rs 200 crore required for the project to get started.

The Indian Railways may be forced to reissue its tender for the manufacture and maintenance of 120 Vande Bharat sleeper trains as talks between Russia’s CJSC Transmashholding (TMH) and Rail Vikas Nigam Limited (RVNL) — the consortium that won the contract — have broken down.

The joint venture (JV) between the Russian transportation giant and RVNL is yet to sign a contract with the Ministry of Railways to manufacture the trainsets (locomotive and carriages coupled together), valued at around Rs 36,000 crore, multiple sources told Moneycontrol. The value includes the cost of maintenance for 35 years.

"Railway Board officials met officials from RVNL and TMH earlier this month to discuss the situation. Since then talks between all parties have broken down," a senior government official aware of the situation said.

TMH has not agreed to RVNL’s demand for a larger stake in the JV, and thus, has not deposited the bank guarantee of nearly Rs 200 crore required for the project to get started.

The government official added that not only have talks broken down between RVNL and TMH, but the Russian firm is now looking to add new clauses before signing any new contract with the Indian Railways to protect its liability going forward.

"TMH is now asking to add a safeguard clause in any new contract it signs with the Indian Railways, which will protect the contract from being cancelled by Indian Railways due to delays in execution," the official said.

Negotiations derailed

Another government official said that the Ministry of Railways is under pressure from the Ministry of Finance to wrap up negotiations for the deal by the end of June or look to issue a new tender.

"The Ministry of Finance has asked Indian Railways to wrap up the deal by the end of the first quarter of 2023-24 in order to avoid delays," the second government official said.

Queries sent to TMH, Ministry of Railways and Ministry of Finance remained unanswered at the time of publishing.

A day after this story was published RVNL in a reply to stock exchanges said that "the memorandum of understanding signed between the parties (RVNL & TMH) is still valid as none of the parties have terminated the same."

RVNL added that the "news with respect to breaking of JV between RVNL & TMH is factually incorrect."

RVNL in its response to the stock exchanges also said that "Bank Guarantee will be deposited well within the permissible time limits as per the tender condition."

The public sector utility also said that "further deliberations on the terms of MoU are underway, in case of any changes in the terms of MoU, the same shall be disseminated to the exchange by RVNL."

Another source aware of the situation told Moneycontrol that talks between RVNL and TMH turned sour after RVNL, acting on behalf of the Indian Railways, said that it would like to become the majority shareholder in the JV created to execute the contract to manufacture the 120 trains.

"The Indian government, in order to avoid any delays in execution, has asked RVNL to be the majority shareholder in the JV after the US imposed sanctions on Metrovagonmash, a division of TMH," the source said.

Similarly, an RVNL official said that a number of parts involved in the manufacture of Vande Bharat trains are imported from European and American companies, who are no longer allowed to supply to TMH.

As per the MoU signed by RVNL and Metrowagonmash before bidding for the tender to manufacture these trains, Metrowagonmash held a 70 percent stake in the JV, while Russian train control systems producer LES held 5 percent, and RVNL the balance 25 percent.

RVNL is now eyeing a 69 percent stake in the JV, Sergey Medvedev, Head of Business Development in India, TMH Group, has told Economic Times.

“For this project, the three partners — MWM, RVNL, and LES — had signed an irrevocable, legally binding agreement,” Medvedev told ET.

On March 1, The consortium of TMH and RVNL had emerged as the lowest bidder for the Rs 60,000-crore tender for the manufacture and maintenance of 200 Vande Bharat trains, documents reviewed by Moneycontrol showed.

The consortium had bid Rs 120 crore per train and was looking to manufacture all 200 steel Vande Bharat rakes, the documents showed. Including maintenance, the cost per train comes to Rs 300 crore.

Under the tender, the consortium will also maintain the trains for 35 years, and is expected to ready the first two prototype Vande Bharat trains for testing and trials by June 2025.

After the prototypes are approved, every year, 12 to 18 trains will be manufactured per a tapered plan.

"The emergence of TMH-RVNL as the lowest financial bidder, with the BHEL and Titagarh Wagons consortium as the second-lowest bidder, presents a challenge for the timely production of Vande Bharat trains," said Sudhanshu Mani, former general manager of Integral Coach Factory, Chennai, and the chief architect of India’s first Vande Bharat project.

He added that the quoted rates appeared to be very aggressive and could be so due to TMH’s desperate bid to enter the Indian market through the order for 120 trains.

"Russia’s Transmashholding has no footprint in India and it will not be an easy task for them to deliver these trains on time," Mani added.

Under the bid conditions, the manufacture, supply, and maintenance of 120 trains would be awarded to the lowest bidder (L1). These would be manufactured at the Latur facility of the Indian Railways.

The remaining 80 trains would be manufactured at Chennai and awarded to the second lowest (L2) bidder, provided the L1 price is matched.

Last week, a consortium led by Bharat Heavy Electricals (BHEL) and Titagarh Rail Systems signed a contract for the manufacture and supply of 80 fully-assembled Vande Bharat sleeper trainsets by 2029, along with their maintenance for 35 years, at the price quoted by TMH-RVNL.

This is the first time that the Indian Railways has awarded a contract of this value to a wholly Indian consortium. The estimated value of the contract is Rs 24,000 crore.