August 30, 2008

Indian Railways reported to be facing effect of high steel prices

Mint reported that India Railways has begun to feel the pinch of rising steel prices with contractors refusing to complete work on bridges and other projects unless they are compensated for the steep hike in the price of inputs, particularly steel. As a result, the railways runs the risk of a major setback to its plans to ramp up freight capacity, which is currently operating at its peak, through a big step up in capital expenditure.


An official at the railway ministry said that, earlier this week, a delegation of 25 contractor associations from all over the country had held a meeting with the railway board, the apex management body of railways. He added that "The contractors could not complete the work unless they were compensated for the steep hike in steel prices and other input costs."

As per report, vendors who supply finished steel and other components used for manufacturing coaches and wagons, too, are backing out of contracts they had signed with the railway ministry. According to another railway ministry official, the Railway Coach Factory in Kapurthala has also been affected with vendors stopping supply of steel in the last two months, forcing the unit to renegotiate terms to avoid any stoppage in production. He added that "We are canceling existing contracts and signing them anew with the vendors so that they carry out the orders. We have been facing a shortage of steel for the last 3 months and reports coming in from all the zonal railways also suggest that some work is beginning to get affected."

However, an official at SAIL claimed the supply of rails to railways was being maintained. He added that "We supply around 700,000 tonnes of steel to the railways every year and we have been meeting their order requirements. However, when it comes to the problems they face with contractors, the railways must realize that this is an issue that is faced by almost every industry right now."