Bhupesh Bhandari: GE waits for the railway signal

General Electric lobbied hard in favour of the Indo-US civilian nuclear deal. And it agreed to stick to Satyam when the company was in serious danger of imploding. Large customers were ready to junk the scam-tainted provider of software services. Alarmed, the government-appointed board soon after it took charge started calling up large customers not to cancel the work given to Satyam.

It would be unreasonable on GE’s part to expect anything in return in a democratic setup. There is without doubt self-interest involved in both Satyam and the nuclear deal. Under its new owner, Tech Mahindra, Satyam will in all probability deliver the services mandated by GE. Moving the business to a new service provider at this moment could be unwise. And the nuclear deal will mean huge orders for GE which is a key maker of nuclear power plants in the world.

Still, GE has an axe to grind. Its proposal to set up a diesel locomotive plant at Marora in the Saran district of Bihar is stuck. In February, the Railways had invited bids for the project and GE was the sole bidder. EMD Locomotive Technologies, which was also in the fray, opted out of the race. On the ground that it might cause a political scandal just before the general elections, the Railways decided to scrap the bid. Instead, they suggested that they could build the plant themselves.

The plant, the Railways have said, will now be built using the “technology transfer” route. Since there are only two companies that make the kind of diesel locomotives the Railways want, there is a good possibility that GE may still get some business out of it. But there are flaws in this decision.

To begin with, the technology in such transfers remains frozen in time. The provider has little incentive to upgrade it. There are enough examples of it in the country. The plants put up with technology transfer have gone to seed in no time. Two, often the technology is not customised for local conditions. Indian Railways run their locomotives on broad gauge. So, what India needs is broader and shorter locomotives.

On its part, GE had spent millions of dollars to develop such a locomotive. It had put together a team of 80 for the project. Since it was designed specially for India, it is unlikely it can be used elsewhere in the world. So, GE’s India team will find it difficult to justify the costs if the project is lost. What will it do with the engineers on its rolls?

Whether the Railways will be able to match GE’s price is not known. The internal reserve price of the Railways was Rs 12.9 crore per locomotive. GE says its bid was below that. The bid document, prepared by the Planning Commission, said that the price would come down by three per cent every year. This advantage will be lost if the Railways put up the plant themselves.

Then there is the question of investment. The Railways have said that they will invest up to Rs 2,000 crore in the project. In GE’s scheme of things, Railways’ investments wouldn’t have added up to more than Rs 100 crore — it was a public-private partnership. The Railways will have to find additional resources to the tune of Rs 1,900 crore at a time when its freight earnings are under strain, thanks to the economic slowdown. GE has not disclosed what would have been its investment in the project. But it is safe to assume that it would have been of the same magnitude as the Railways — Rs 2,000 crore.

GE is no stranger to bureaucratic hassles. Of its four lines of business — finance, energy, technology infrastructure and the media —, at least two (energy and technology infrastructure) involve a huge interface with the government and bureaucrats. And it knows that the wheels of government turn very slowly all over the world. India is no different. Patience and perseverance hold the key in government negotiations.

Once the new Congress-led government has settled down, which shouldn’t take too long, it will need to take a final decision on the issue —whether to revive the GE proposal or go ahead with the Railways. At a time when countries the world over are falling over each other to get investments, should we let the GE proposal die? Companies now have limited budgets for investments. If not the diesel locomotive plant at Marora, GE could find some other use for the money. Will GE go to the courts? That is unlikely because it has to do business with the Indian government in the future. It has zeroed in on China and India as the engines of future growth.

Meanwhile, the story of the Dabhol power plant, owned now by Ratnagiri Gas and Power, has taken another turn. The turbines supplied by GE had stopped functioning. Much time was lost in finger-pointing and passing the buck — who was responsible for maintaining those turbines? A maintenance contract with GE is being drawn up. This will open another revenue stream for GE from India. This could be crucial at a time when global corporations are downscaling their revenue projections.