India-Russia joint venture on Vande Bharat trains hits hurdle

This is due to sanctions imposed on Russia, following the Russia-Ukraine war, by multiple countries that are spare parts suppliers for the Vande Bharat trains

June 01, 2023 08:59 am | Updated June 02, 2023 12:14 am IST - New Delhi

Manufacture of the Vande Bharat Express under way at Integral Coach Factory in Chennai.

Manufacture of the Vande Bharat Express under way at Integral Coach Factory in Chennai. | Photo Credit: B. Velankanni Raj

The joint venture (JV) between Russian transportation giant Transmashholding (TNH) and Indian public sector undertaking (PSU) Rail Vikas Nigam Limited (RVNL) to manufacture Vande Bharat Express train sets, valued at nearly $3.63 billion (over ₹30,000 crore), has run into problems. The issue involves sanctions imposed on Russia, following the Russia-Ukraine war, by multiple countries that are spare parts suppliers for Vande Bharat trains.

The Indian Railways awarded the JV deal to the TMH-RVNL consortium after it emerged as the lowest bidder in March earlier this year. But TMH and RVNL are not able to see eye to eye on the majority shareholding issue for the JV, railway officials confirmed to The Hindu.

In the interest of smoother movement of the project, which requires TMH and RVNL to manufacture 120 Vande Bharat train sets, each costing nearly ₹120 crore, officials said that RVNL had requested majority shareholding from TMH. Sources say that TMH has not agreed to this and has also, as a result, not deposited the bank guarantee of nearly ₹200 crore required for the project to get started.

Not all parts of the much-touted ‘Make in India’ Vande Bharat train sets are manufactured indigenously. “Many of these parts have to be imported from Western European and American manufacturers,” a senior RVNL official said. On May 22, the U.S. imposed sanctions on Metrovagonmash, a division of TMH, which specialises in manufacturing rolling stock for the Railways. It is also responsible for the maintenance of the rolling stock and spare parts.

While RVNL has a substantial share in the JV, the Indian PSU is vying for a majority stake as a confidence-building measure. “Many international suppliers and bankers are more confident if the Indian company has the majority share as many of these companies are being guided by sanctions imposed on Russia due to the Ukraine war. They are not comfortable dealing with Russia,” the official said.

By June 2025, the TMH-RVNL consortium have to ready the first two prototype Vande Bharat trains for testing and trials. After the prototypes are approved, every year, 12 to 18 trains will be manufactured in a tapered fashion.

The consortium will also run maintenance services on the trains for 35 years. The Indian Railways is spending $1.8 billion for the train sets and another $2.5 billion for their maintenance. “The payments will be disbursed gradually once the train sets are delivered to the Railways,” the official said.

“While the Russians are highly technically capable, the question is only that of comfort in dealing with them, and we will resolve this issue within a few days,” the official added.

The Russian Embassy did not respond to a request for a comment on the deal. According to sources, both sides had committed to keeping negotiations on the deal bilateral and not making them publicly available.

After touching a record high of ₹142 on May 5, RVNL’s shares fell by 18% to ₹116 on Tuesday and settled at a 4.3% higher value of ₹121 on Wednesday. RVNL’s consolidated net profit of ₹359.5 crore is down 5% when compared with the ₹378 crore in the corresponding period last year. On a yearly basis though, the net profit for the fiscal ended March 2023 was ₹1,420 crore, 28% higher than the ₹1,110 crore profit recorded in the fiscal ended March 2022.

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