Jindal Steel may gain at SAIL’s cost as Railways opens up

27 Mar 2017


The Indian Railways is looking at private suppliers for its annual purchases worth over Rs4,500 crore ($700 million) ending a virtual monopoly of state-owned Steel Authority of India Ltd's (Sail) on supplying rail tracks to the world's fourth-largest rail network.

Jindal Steel and Power Ltd, could be the biggest winner once Indian Railways opens up to private suppliers as the company has a proven track record of supplying rails to Iran.

Sail currently supplies almost all steel for standard rail tracks to Indian Railways, but under a new Rs8,50,000-crore ($130 billion) five-year revamp plan, the railway ministry is planning to rope in private players as well.

Indian Railways is bogged down by ageing track and saturated capacity and finds it is necessary to modernise the tracks in order to run faster trains and improve operational efficiency.

The government has made a Rs1,00,000-crore ($15 billion) provision for improving rail safety after a 25-per cent increase in train accidents due to track defects over the last two years.

Sail's production capacity will face a major shortfall and company will not be able to meet the production targets stipulated by the Indian Railways.

The rails shortfall has slowed Prime Minister Narendra Modi's plans to revamp the network, and highlights how his infrastructure investment drive is forcing government units to get tough on suppliers.

Sail, which is struggling to meet the Railway's annual demand for steel rail tracks, is expected to fall 2,50,000 tonnes in the current fiscal year against the Railways' demand for 8,50,000 tonnes of steel rail tracks.

Sail executives attribute the current shortfall to a sudden jump in demand for steel - up 45 per cent since 2015 - to replace old tracks and lay new ones, although SAIL has had a record of short supplies for eight of the past 10 years.

Losing even a small part of its sales to the railways - its top customer - would be a blow to Sail, which has lost money in seven straight quarters.

"Sail's performance has been very poor and given that we have a MoU (Memorandum of Understanding), any failure will not be appreciated," a government official said, quoting from an 11 January letter from the railways to the steel ministry that oversees SAIL, threatening to sever a deal to buy rails almost exclusively from the company.

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