Even as conventional power T&D contractors are busy with routine government works that range from augmenting capacity of the National Grid right down to household electrification, there is another growth wave in the making—railway electrification.
According to sources in Central Organization for Railway Electrification (CORE), India is likely to complete 4,000 route kilometer (rkm) of railway electrification in FY18. This is way above the annual average of around 1,400 rkm seen in recent years. The target for FY19 is 6,000 rkm while that of FY20 is 7,000 rkm. More aggression is envisaged in the subsequent FY21 and FY22 with as much as 10,500 rkm targeted in each year.
Estimates suggest that of the total route km in India, which stands at around 67,350 rkm, the non-electrified component is 56 per cent. In the coming five years, including the recenty-concluded FY18, a total of 38,000 rkm is expected to be electrified.
Already, giant power transmission players including Power Grid Corporation of India (PGCIL) as well as private EPC turnkey players like KEC International Ltd have entered the fray. In their corporate statements, both these companies, as also several others, have indicated that they recognize railway electrification as a growth opportunity.
The core concern
The pressing concern with CORE as also another agency RDSO (Research Designs & Safety Organization) that is involved in vendor registration is the sheer lack of vendors. CORE, it may be mentioned, is vested with conventional equipment like hardware, whereas RDSO looks after technical equipment, such as transformers.
It is learned that CORE, in particular, is facing acute shortage of hardware suppliers. If one takes a typical category like forged steel components, the shortage of suppliers is estimated to be nearly 40 per cent. CORE relies heavily on just 5-6 suppliers, when it comes to the category stated. The situation with most other product categories is not very different.
CORE is trying its best to expand its vendor base and to this effect, it is trying to streamline the vendor registration process. Currently, it could take nearly four months for a vendor to get registered but efforts are on to bring this down by at one-third. CORE is also trying to reduce the formalities involved. It is learnt that vendors that are already registered with entities like Rural Electrification Corporation, Power Grid Corporation of India and state power utilities might be able to skip the preliminary steps whilst registering as vendors for CORE.
When it comes to even vendors registered with CORE, there is a peculiar problem with lead time management and inventory control. The Indian Railways needs very specific items for railway electrification works. Most of these items have no other market. This is precisely why vendors would not like to manufacture and stock. Production will start only when firm orders are placed. This explains why the procurement cycle is longer. The only way to tackle this, and this is being successfully experimented by CORE, is to have fewer components in key equipment. The modular catenary, which needs much fewer components that the conventional ones, is a shining example to this effect.
CORE is also taking steps to bringing down the gestation period of its contracts. A senior CORE official said that as opposed to piecemeal tenders, the agency is now actively looking at turnkey contracts.
Why the resistance?
Some contractors that T&D India interacted with acknowledged that railway electrification was an emerging area. In fact, even national power transmission player Power Grid Corporation of India is now executing railway electrification works and so are some leading private EPC contractors like KEC International. However, there is a general perception that dealing with the Indian Railways is a time-consuming process as the eligibility criteria is often debilitating. Besides, according to an EPC player that did not wish to be named, said that Indian Railways showed general reluctance to adoption of new technology. Another turnkey contractor, again on conditions of anonymity, was of the view that it was not easy even for established contractors to get an early entry into the Railway domain. However, this contractor, despite the difficulties, asserted that railway electrification was being considered as a thrust area.
Power procurement by Railways
The Indian Railways is also expected to see a gradual change in its power procurement, especially after the formation of Rail Energy Management Co Ltd, a joint venture between RITES Ltd (51 per cent equity) and Ministry of Railways (49 per cent), in 2013. A senior official of REMCL interacted with T&D India during Elecrama 2018, and gave keen insights on the imminent changes in the power procurement process.
The Indian Railways currently accounts for 2.5 per cent of the total electricity consumed in the country. According to estimates, total electricity consumption by railways for traction purposes was around 16 billion kwh in FY17. The railways also used 2.5 billion kwh for non-traction purposes, which typically includes lighting at railway stations, offices, etc.
REMCL is now entrusted with the task of procurement of electricity, among other responsibilities. A senior official of REMCL said that traditionally Railways bought electricity from power distribution companies, and usually at higher tariffs than those paid by industrial or commercial consumers. Now, REMCL is a deemed distribution franchisee and can hence buy power from the Open Access route. Today, nearly 50 per cent of the electricity procured by Indian Railways is through the OA mechanism. It is interesting to note that the OA route is also posing some curious difficulties. When REMCL chooses the OA route, local discoms lose their business. Hence, they try and create “technical issues” so as to preempt the Open Access. It may be mentioned that under OA, a power procurer is free to source power from any location (even from outside the home state) and compensate the local power distribution company by paying wheeling charges.
From the perspective of power T&D contractors, it is pertinent to observe that REMCL is planning to construct its own 132kV power transmission network of around 20,000 ckm that will be connected to the network of Central transmission utility Power Grid Corporation of India. Once this network takes shape, Indian Railway will become more of a transmission utility. It can then source a large portion of its power requirement through its own network, thereby obviating the need for power purchase through discoms. The modalities of the transmission network are being worked out, but it is likely that the Indian Railway would employ the DBFOT route, thereby engaging private sector enterprise. Both as developers and contractors, this 20,000-ckm power transmission network could spell business opportunity to Indian companies.
(This story is based on presentations made by CORE and REMCL during Elecrama 2018, and subsequent interactions by T&D India with officials of these companies during the event)