CHINA-US: IN RACE FOR RS8 BN PAKISTAN RAILWAYS CONTRACT

SYED FAZL-E-HAIDER
Dec 29 - Jan 04, 2009

US General Electric Corporation and China’s Dongfang Electric Company (DEC) are battling for wining Rs 8 billion contract to supply 75 locomotives to Pakistan Railways. The country has already refused to finalize a deal to procure locomotives from an already failed supplier- Dongfang.

Some media reports however claim that the United States has been pressurizing Pakistan Railways to keep the cancellation of purchase contract and award it to the US company.

President Asif Ali Zardari has reportedly directed the government to decide the matter on merit after the Chinese Ambassador Luo Zhaohui met him last month. The US firm had reportedly offered $227 million for the contract as against Chinese offer of $107 million. Both the companies have been contacting the government at the highest level to get the contract.

Chinese firm, being the lowest bidder in the international tender, was awarded the contract in July but the US company pressurized the PRs to cancel the contract on the ground that substandard locomotives were earlier supplied by the Chinese firm.

The contract document with Dongfang has already been finalized. The Chinese has extended the validity of its bid from October 31, 2008 to December 31 after President's intervention and directives to Railways ministry. Despite President's directives and assurance, the US officials are still pressurizing the ministry to cancel the contract with China. Under constant pressure, PRs is resorting to delaying tactics to finalize the contract.

Pakistan is wary of procuring more locomotives from china after 69 substandard locomotives supplied by a Chinese company in 2001 proved to be a disaster for the country’s railways system. The excessive weight of locomotives, crack in engines and consistent requirements of maintenance created a mess for the railway runner.

"A corrupt mafia in the Pakistan Railways is trying to strike a new deal for 75 more locomotives from the Chinese company Dongfang which could wreck the whole system", said former railway minister Sheikh Rashid Ahmad on a private TV Channel while criticizing the procurement of 69 locomotives in 2001 from the same Chinese company.

Railways Minister Haji Ghulam Ahmad Bilour during a recently held high-level meeting showed his unwillingness to take the responsibility of the circumstances that may arise in case of procurement of 75 locomotives from an already failed supplier. The minister was informed by the participants of the high-level meeting that the Chinese locomotives were not used anywhere in the world as its consumption was more than others available in the market and its maintenance cost was also higher than others. He was also told that rules of the business and the Pakistan Procurement Regulatory Authority (PPRA) were overlooked while giving the contract to the Chinese company. The minister said those people should be brought before the public who had paved the way for the procurement of substandard locomotives.

Some railway officials are reportedly manipulating the purchase of locomotives, as they are consistently trying to convince the railways minister that the Chinese company has fulfilled all the technical requirements. The meeting of senior railway officials presided over by Railways Minister on November 25 was also attended by US embassy officials and some American engineers, who asked the government to reconsider Pakistan Railways' contract with a Chinese company for purchase of 75 locomotives.

The tender for the procurement of 75 locomotives was awarded to a Chinese company despite the fact that the technical committee had rejected its technical proposals thrice in the past. The said technical committee was changed after the new secretary railways took over who got approved both technical and financial proposals of the controversial company by forming new committees, according to a media report. The report said that the US ambassador to Pakistan Anne Peterson called on the railways minister last month and discussed the issue with him. The minister was told that the locomotives which the railway officials are bent on to purchase from a Chinese company would be cheaper at the time of purchase only, and that their lifetime cost will be much higher as compared to those of international quality.

In July 2003, China Exim Bank signed a deal with Dongfang for a supplier’s credit to support company’s export to Pakistan of 69 railway locomotives. The $98.25 million contract for the locomotive export project was the largest deal for China in terms of the number of engines to be exported, and of the monetary sum involved. The locomotives bought from China had gone wrong on Pakistani tracks. In 2005, Pakistan Railways had suspended the reassembly of eight Chinese diesel engine locomotives and asked the Dongfang to stop the delivery of the remaining 38 machines out of the total 69 contracted till issues were resolved. The country lost millions of rupees due to purchase of 18 defective locomotives and parts of railway engines from China.

The first lot of eight CBU Chinese locomotives was received in July 2003 and seven CBU 2000-HP units in September 2003 and they all were put into operation immediately. First lot of semi-knocked down (SKD) locomotives were reassembled at the Pakistan Railways locomotive factory at Risalpur in the NWFP province and put into operation in 2004. Another lot of eight SKD 3000-HP locomotives was received in December 2004 and under process of assembling at the Risalpur factory. The locomotives had been purchased on suppliers' credit basis with funding provided by the EXIM Bank China through the Dongfang while the machines were being manufactured by China's Dalian Locomotive and Rolling Stock Works.

Giving reasons for going for the Chinese locomotives, the Former Railways Minister Mian Shamim Haider told the National Assembly that China had offered the suppliers' credit in the deal when no other country was prepared to give such a facility to Pakistan as a consequence of the 9/11 events.

In March 2005, the National Assembly’s Public Accounts Committee (PAC) had detected massive irregularity in PRs. PAC found that PRs had signed contracts with Chinese companies Dalian and Dongfang for the purchase of 69 locomotives in 2001. The total package included 44 locomotives of 3,000 horsepower each and 25 locomotives of 2,000 horsepower each at a cost of $98.25 million. The officials had told the PAC that the decision had been made hastily because Railways had been under severe pressure from the government to purchase locomotives for fulfilling domestic needs. They said Pakistan had been hit by nuclear related sanctions in 1998 and could not buy locomotives from any country other than China. The committee was informed that in February 2005, cracks were noticed on the welding seams on the under frames of the 3,000 horsepower locomotives. As a result of these, ten locomotives broke down completely.

Plagued by corruption, the state-owned Pakistan Railways is currently facing a loss of Rs 28 billion which was Rs 23 billion last year showing a loss increment by Rs 5 billion in a year. Railways is paying Rs 609 million in form of salaries to the employees, but these workers and officers are not delivering 100 percent results, according to Senator Talha Mahmood, the chairman Senate Standing Committee on Interior. He stressed the need to induct modern equipment and latest technologies, as all the equipment being used by PRs are obsolete.