GE, Alstom bags $5.6 billion contract from railways to build locomotives in Bihar

US major General Electric and French giant Alstom have bagged $5.6 billion ( Rs 37,000 crore) worth of contract from the Indian Railways to build locomotives in Bihar, marking the first major foreign direct investment (FDI) in rail projects after the limit was raised by the government in select railways sectors.

In the largest deal in GE’s 100-year history in India, the $300 billion firm said, “The company received a letter of award from the Ministry of Railways for a locomotive supply and maintenance contract, worth approximately $2.6 billion over 11 years. The deal advances the ‘Make in India’ initiative and reinforces India’s position as a global manufacturing destination.”

Interestingly, the award of the contracts was announced one day after the ruling National Democratic Alliance (NDA) suffered an electoral debacle in Bihar. The mega projects approved since 2007 by the then Railway Minister Lalu Prasad, got mired in controversies, years of red tape and indecision by successive ministers, finally saw the light of the day during Railway Minister Suresh Prabhu regime.

France's Alstom has been picked to supply 800 electric locomotives and will also build an electric locomotive factory in Madhepura, Bihar for $3 billion, according to a senior Railway Ministry official. Alstom spokesperson was not immediately available for comment.

“This infrastructure project is further evidence of India’s position as a growth engine for Asia,” said GE Chairman and CEO Jeff Immelt adding that it is a major advancement and milestone for India and for GE, and a symbol of our commitment and support of the ‘Make in India’ initiative.

A joint venture company between Ministry of Railways and GE Global Sourcing India Pvt. Ltd will now be incorporated, which shall construct and run the diesel locomotive factory (DLF), Marhowra. Ministry of Railways will hold 26% equity in the JV company subject to a maximum of Rs.100 crore, said a government statement on Monday adding that the Railway have completed acquisition of 226 acres of land for this project and taken possession and the factory is expected to be established within a period of next three years at a cost of about Rs.1000 crore.

GE will also work on an assured off-take model of 100 locomotives per annum for 10 years and the basic cost of 1000 freight locomotives will be about Rs 14,656 crore.

GE and Alstom won against competition from rival manufacturers such as Canada's Bombardier Inc. and Germany's Siemens.

The government plans to invest $137 billion to modernize the railways by 2020.