A BRIEF PRESENTATION PROCUREMENT IN INDIAN RAILWAYS Indian

A BRIEF PRESENTATION PROCUREMENT IN INDIAN RAILWAYS

Indian Railways l l l Indian Railways are one of the largest railway system under single management. Total Route KM is > 63, 465 KM No of locomotives > 7900 No of freight wagons > 222, 370 No of passenger coaches > 42, 440 No of persons employed > 1. 6 million

l l l Indian Railway’s : Annual Turnover : > Rs. 500 bn. Annual purchases for supply of goods including Fuel oil : > Rs. 130 bn. Annual Works : > Rs. 120 bn. Purchases are made through process of competitive bidding. High value purchase mainly thru. Advertised Tenders.

Procurement policy l I. R. have formulated well established procurement policies which have evolved over central theme of ensuring l Transparency l Fair play l Quality procurement l Competition & Equal opportunity to all eligible vendors.

Purchase of goods l l l l Procurement of goods, Raw materials, and equipments for Production, Operation, & maintenance of large fleet of Rolling stock of all types. Rails , Track machines and track fittings, Wheels, Axles. Steel , Cement for construction work. Diesel , oil and lubricants, chemicals. Workshop plants , machines and tools. Rolling stock spares. Electrical, Signaling and Telecom equipments and spares. Staff welfare, healthcare and passenger amenity items.

Purchase breakup: l Indigenous purchase : more than 95% ( Rs 124 bn) l Imports : 5% ( Rs 6 bn )

Purchase: source wise : Share of l Public sector Units : 34 % l Large Private Industry : 60% l S. S. I and rural sector : 6%

Purchase : Agency wise Share of : l Zonal Railway and P. U. ’s (25): 65% (Rs 84 billion. ) l Railway Board : 29% (Rs 38 billion ) l D. G. S. &D. 6% (Rs 8 billion) l

PROCUREMENT POLICY l l l Procurement are made through process of competitive bidding. Advertised Tender documents are uploaded on website for free access, viewing and downloading. Vendor Approvals are based on Capacity assessment coupled with Quality Assurance Plan. Centralized vendor approvals for Safety , critical and Vital items. Vendor Performance Assessment integrated with procurement.

Procurement procedure l l Indigenous Procurement: Limited (selective) Tenders : Upto Rs 0. 5 million. Advertised Tender: Above Rs 0. 5 million Imports: Global tendering. Pre-dispatch inspection agency R. D. S. O. /RITES System of charging Bid and Contract security. B. G. for Warranty obligations. . l l l

Procurement Procedure contd. l l l l Indigenous: Payments after receipt of materials for Road dispatches , against proof of dispatch by Rail. Levy of liquidated damages for delays in supply. Joint Inspections in cases of Rejections and Recoveries thereafter. Purchases are generally based on Firm Price variation clause permitted on merits. Safety, critical , Vital & High value items procured from approved sources only. Multisourcing for Safety, critical , Vital & High value items

Quality procurement plan. l l R. D. S. O. (Central approving Agency) for vendor approvals. Source approval are for developmental and Bulk ordering. Manufacturing and Technical capabilities of indigenous vendor pre- examined by RDSO before approvals. Periodical monitoring of approved sources for quality performance.

Evaluation Criteria l Offers evaluated based on total destination cost. l Indigenous offers evaluated by including all Taxes , Duties and Inland freight upto Destinations. l Import offers evaluated by including FOB Cost, Insurance, sea/air freight and Custom duty, etc. ( Inland freight not reckoned)

Impact of GPA on I. R. Threshold level for Central Govt. as per WTO-GPA: > Rs 8. 0 Million. l Value of purchases > Threshold value: Rs 70 -80 Bn. l Imports : Rs 5 -6 bn. l Diesel : 35 - 40 bn. l Other Indigenous : Rs 30 – 35 bn. l

Issues to be addressed for Government Procurement Agreement l l l Threshold level for Central Govt. as per WTOGPA: > Rs 8. 0 million. With such low threshold value GPA will cover more than 50 % of I. R. purchases. Presently Global Procurement is adopted by Central govt. for high value Tenders only. Capacity assessment is still required for Foreign vendor for Q. A. P. on par with Indigenous venders. M. of Rly/RDSO to be given full freedom for overseas travel for Inspection of foreign vendor. Existing price/purchase preference to Indian SSI/PSU need to be reviewed.

Issues to be addressed. l M. of POL to allow GPA for POL Items. l Existing conditions for shipping need to be revised to allow shipment of goods without restricting Shipment through SCI /Air India. l Payment to Indian suppliers are made after receipt of goods while in Imports payment is thru Letter of credit. This need to be reviewed for uniformity.

Issues to be addressed l GPA will cover more than 50 % of Railways procurement value with threshold value >Rs 8 million l Price escalation clauses where ever necessary can not be identical between domestic and foreign suppliers. l When different Zonal Railways issue tenders for identical items with varying tender values, some tenders may attract GPA while others may not because of threshold value. This will pose problems within IR.

Issues to be addressed l For delays in supply Liquidated damages are levied. Such penalty deductions need to be incorporated in import supplies also while obtaining payments thru L. C. l Most indigenous purchases are made with Firm price. l Exchange rate fluctuations will render Import prices (in Rs terms) variable. They shall never be firm, in Rs terms.

Issues to be addressed l Need for providing base service setup in India for rendering After sale service, warranty obligations and service support at each user location points. l Foreign firms to setup adequate infrastructure in India for meeting pre-and post contractual obligations such as, pre. Inspection, rejections, follow up and post warranty maintenance etc.

Procedural Implications: l l l Expensive procedural obligations to fulfill stringent transparency norms. Likely delay in tender finalisation process. Decision to abandon purchase in GPA tenders may be subjected to challenge and scrutiny. Quality and capacity assessment of foreign vendors will be prohibitively costly when compared to domestic suppliers. Pre-inspection at overseas will be costly. Payment terms are not at par between domestic and foreign suppliers.

Policy review Existing practices need to be reviewed such as: l Selective/restrictive advertisement. l Splitting of awards to more parties. l Negotiations in routine manner with lowest (L 1) bidder. l Domestic price and purchase preference guidelines. l Opening time for GPA will be longer.

System Costs -Cost of ordering and contract management may be substantially higher in case of GPA. l -Likely GPA purchases per year – l Railways & PUs Rs 30 billion. l Railway Board- Rs 45 billion. l Diesel-30 billion l Other than diesel-15 billion l Scope for sourcing IR products from foreign vendors is not yet clear, but GPA will render procurement process complex and costly. l Threshold limit of Rs 8 million is too low. It should be raised to 80 million at least. l

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