| |
Sleepers are an essential ingredient of the track structure and hence their procurement is an exercise that is vital for Indian Railways.
The sleepers currently used on Indian Railways are concrete sleepers. The use of wooden, cast iron and steel sleepers has slowly been discontinued over a period of time. The main advantages of concrete sleepers over other types of sleepers are their longer life (approx. 40 years), better maintainability and suitability for high-speed track. The main components of concrete sleeper are Cement, Malleable Cast Iron (MCI) Inserts and High Tensile Steel (HTS) wire.
The annual requirement of concrete sleepers is approximately 80-100 lakhs. The financial implication of the annual procurement works out to, as per the contract rates of CS145/2000, roughly Rs.500 crores to Rs.600 crores, exclusive of MCI inserts that were supplied free by the Railways, the cost of which works out to Rs.100 to 120 crores.
The manufacture of concrete sleepers was started almost three decades back in 1972-73 by private manufacturers who were given railway land to set up their units. New private units were added from time to time to augment the production capacity. The manufacture of concrete sleepers has been stabilized since 1992-93 with almost 73 factories all over the country. In every factory one SE works is posted and for at least 2 factories one AEN is posted.
In reality, however, there are only few players in the field as most of the sleeper and HTS factories are owned and controlled by a few groups. For instance, one group based in Chennai controls five factories (four in Southern Railway and one in South Central Railway). Another group based in Hyderabad owns 7 factories spread over Southern, South Central, South Eastern and Northern Railway. These groups also own HTS factories. They function as a cartel and most of the time act as a pressure group dictating terms and threatening to stop production when their demands are not met. Railway administration is most of the time helpless and the tendency is to appease them by conceding to their demands for the sake of ensuring continuous procurement of sleepers as sleepers are crucial for carrying out safety related and targeted works.
The procurement of sleepers is centralized at Railway Board level and was through a system of repeat orders till 1997. The repeat order system was beset with various problems that resulted in law suits, arbitration cases, Audit objections, Vigilance and CBI cases all over the Railways. The system also allowed scope for leakage of revenue.
In 1997, for the first time open tender system with limited competition was initiated in procurement of sleepers which was a first step in the direction of reforming the system. This was followed by another tender called for in Dec.2000 and finalized in Aug. 2001. There were substantial savings that resulted from doing away with the system of repeat orders as sleepers were procured at a lesser rate of around Rs.100/-per sleeper as compared to the earlier repeat order prices. Although changes have been introduced in the system much more remains to be done.
This study has looked at the past system and present system of procurement of concrete sleepers and at the possibility of further improvement and streamlining of the system to ensure further saving in expenditure.
Past System of Procurement
All the private sector plants were initially set up on the basis of open tender system. After completion of the initial contract, a system of awarding repeat orders to the same manufacturer was followed with the validity of order for 5 years. The repeat order provisions permitted price escalations for elements of cement, HTS wire and wages.
Price variation in HTS wire was permitted on the basis of three quotations obtained by the concrete sleeper manufacturers from the established suppliers. The repeat orders also provided that quantum of escalation in wages would be worked out at the rate of 2 man-days per sleeper based on the minimum daily/ monthly rate for permanent unskilled worker. However, the increase in wages was actually paid on tripartite agreements entered by manufacturer, workers unions and the District labour officers.
In 1993, Railway Board constituted a committee of Executive Directors to "look into the escalation parameters in the existing concrete sleeper manufacturing contracts".In particular, intention was "to review the procurement process of HTS, escalation factors for HTS/Cement, escalation factor for wages and the quantum of free supply inserts to the sleeper manufacturers". The committee comprised of ED/F, ED/TK(M) and ED/RS and it made the following recommendations in February 1994.
a) Present system of giving wage escalation on account of tripartite agreements was to be discontinued and in future contracts escalations should be permitted only to the extent of quantum of changes in minimum wages for unskilled labour and that the wage rate may be linked with RBI index.
b)The wastage on account of MCI inserts was to be reduced from the present 2% to 0.5%. Wastages for cement and steel allowed presently was required to be reduced.
c) The wastage allowed on account of cement was reduced from 12% to 5.76%.
d) Wastage on account of steel was reduced from 16% to 9.48%.
e) The quantity of HTS wire was to be reduced to 9 kgs per sleeper from the existing 9.7 kgs.
f) The quantity of cement was recommended as 55 kgs per sleeper in place of existing 60 kgs per sleeper.
g) The quantum of labour was to be reduced to one man-day from the present 2 man-days per sleeper.
h) Total price of the concrete sleeper may be linked with an appropriate RBI price index.
i) The system of adopting three quotations for procuring HTS wire by sleeper manufacturers was to be discontinued. Railway Board was to fix the rate and approved sources on a yearly basis through a tender system from whom HTS wire was to be procured by sleeper manufacturers and this rate would be used for escalation purposes.
Implementing these revised norms for input levels and escalation factors in the ongoing repeat orders resulted in a number of Court Cases and Arbitration Cases. There was no uniformity among Zonal Railways while implementing these norms. The issues that arose on this account are not settled even on date (i.e.) even after 9 years on some Railways.
Deficiencies in the past agreements
The following deficiencies were found in the past Agreements (prior to CS 120/1997)
-- lack of uniformity in rates among varioous repeat orders
-- Very liberal input levels and wastage nnorms
-- Escalation allowed on three quotation ssystems for HTS wire
-- Escalation of wage element was allowed on tripartite agreements without Railway being a party to these agreements. The tripartite agreements were revised frequently at the manufacturer's wish and many times before the expiry of the existing wage agreement as this facilitated sleeper manufacturers to claim higher amount by way of showing unbridled increase in labour rates. They exploited the liberal norms and Railways had to pay very high rates without any relations to the actual costs. In fact, the contractor have collected PF element on wages as two mandays per sleeper whereas they have remitted the PF to the PF authorities only for the actual manpower employed which is much less.
Very long duration contracts (repeat orders were awarded with 5 years validity) because of which the administration could neither effect any changes in the existing agreements nor close the contracts even after the ED committee's recommendation in Feb. 1994. There was strong resistance from sleeper manufacturers to effect any changes in the agreement. They resorted to legal suits and Railways had to continue the payment at higher rates till the period of the various contracts ended which took a long time from 1994. In some cases the old contracts could not be closed due to various disputes.
lack of clarity in the agreement provisions especially in the price escalation clauses which provided too many linkages making it difficult to understand and implement the clauses. Some clauses were contradictory. For instance in case of MCI inserts which is a free supply item it was mentioned in one place that sleeper manufacturer is required to dimensionally check and verify the inserts before putting them into the sleeper and defective inserts are to be returned back to the Railways, to enable the Railways for taking replacements from insert manufacturer whereas in another place it is stated that 2% wastage of MCI inserts is allowed.
Unmatched durations of sleeper and input (HTS wires, cement and MCI inserts) contracts: The repeat orders for sleepers were valid for 5 years while the input contracts (cement and HTS wire) were finalized for 1 year validity at a time. There were delays in finalizing these input contracts leaving big gaps between one contract to another contract. This led to complaints from sleeper manufacturers about non-availability of approved source/ rate for cement and HTS wire that further resulted in sleeper manufacturers taking advantage of the situation by claiming to have bought at higher rates and demanding higher amounts from Railways. In cases when Railways refused to pay, there were demands for arbitration
Irregular inclusion of the Turnover Tax in the agreements - although in some states Sales Tax Acts do not permit the firms to collect turnover tax from the customers and may even penalize in the event of its collection, Railways paid huge amounts as turnover tax in these states also
Mode of payment required 100% payment immediately after dispatch. In some cases consignments were not received but the payment had been made and there were cases when consignees were not even aware of. - what had not been received by them. A study done in Southern Railway reveals that 28.00 % of the dispatches had not been received.
HTS wire was made free supply item from November 1994 during the mid-course of the ongoing contracts without changing the Modvat allowed. This gave rise to lot of interpretations by Audit and Vigilance resulting in complications for the Administration.
The command zone concept of moving the sleepers from the nearest sleeper plant to the usage point has also not met with success as in certain cases the sleeper plants were clustered in one area necessitating the movement of sleepers from the plant to far away usage points.
Though the intention was to move the sleepers by rail, it is observed that there was a lot of movement by road on various grounds
Deficiencies in the input contracts :-
a) The intention behind entering into contracts with input suppliers is to have a uniform rate and fix source nearest to the sleeper factory to save on the freight involved. However, it was observed that this assumption was not true in many cases as the nearest suppliers of HTS, cement and inserts had not been participating in the tenders called by the Railway Board whereby the lead and the freight implications have not decreased as expected.
b) Uncertainty regarding availability of input contracts due to non-matching of the validity of the input contracts with the sleeper contracts that led to complaints by sleeper manufacturers about non-availability of input contracts. This also led to stoppage of production and disputes when they were asked to procure on the basis of expired contracts. There were claims that they had to procure at higher rate and from distant plants incurring additional expenditure on freight. When Railways did not honour their claims there were court cases and arbitration cases.
c) Even when raw materials were moved by road by sleeper manufacturers where no rail connection was there, they were paid only the rail freight due to them. This resulted in never ending disputes.
Present System of Procurement
For the first time in June 1997, Railway Board floated an open tender (CS120/97) with reduced inputs and wastages, further revising the escalation formula. The rates concluded in this tender were Rs.504/- + Rs.66/- (MODVAT) was substantially lower than the rates allowed in the repeat orders.
The next tender CS 145/2000 was opened on 12/12/00 and the contracts were concluded in Aug. 2001 which are valid upto31/03/03. The rates concluded in this contract are Rs.542+Rs.66(Modvat)
Though some semblance of order has been brought in the tenders finalized since 1997, however a lot needs to be improved as there are still many grey areas and ambiguous clauses. One such ambiguous clause that relates to raw material advance relating to payment of cement and steel at site.
As per this clause, Rs. 30 lakhs will be given as raw material advance to the contractor which is interest free and he is supposed to hold this material in his custody all the time in the name of President of India. About Rs.25 crores of Railways money is held with the contractors on account of raw material advance without any interest being paid by them. In this era of Just-in- time inventory management it is not financially appropriate to block money in the form of raw material stocks without giving permission to use the material. It is also financially unwise to extend interest free advance of such huge amounts. Hence this clause needs to be done away with. This example amply illustrates that the deficiencies in the past agreements have not been entirely removed from the present agreement. The procurement system for sleepers requires drastic streamlining.
C& AG in their Report for the year 2001-2002 have also pointed out the loss to the tune of Rs 100 crores resulted to the railways due to various deficiencies in the procurement of concrete sleepers
Proposed System
As discussed earlier, the past and present system of sleeper contract management has resulted in numerous problems. Sleeper manufacturers have exploited the system to their full advantage. Though railway has been procuring thousands of items of stores without any problems, managing the few sleeper contracts has become a Herculean task for the railway administration. Lot of administrative time is wasted in attending to the issues arising out of these contracts.
A simple system is the need of the hour. The contracts need to be streamlined and put in a simple system of procurement. The present system is neither a stores contract nor a works contract. It is imperative that full scale competition be allowed by opening of the industry for others also who are having the know-how of PSC technology since the investment in setting up a concrete sleeper plant for 2 lakh sleepers per annum at the maximum is roughly 2 crores only as per one of the studies made. The following changes are suggested as given below:
Procurement should be de-centralised and Zonal Railways be given powers to finalise these contracts.
Railways should dispense with the system of entering into contracts with HTS wire, cement and insert manufacturers
The sleeper manufacturer will procure all raw materials/inputs including the inserts from the approved sources fixed by Railway Administration.
Contract with sleeper manufacturers should be for a maximum period of one year preferably without any price variation.
If price variation is to be allowed it should be with reference to RBI indexes only
All-in -cost rate (after taking Modvat benefit on the date of opening of tender and future benefits to Railways account) to be introduced.
System of giving interest free raw material/ advance to be done away with. There is absolutely no need to give money as interest free raw material advance for procurement of new material in this era of just in time concept of inventory.
Wastage allowed on MCI inserts, cement and HTS wire to be withdrawn
Atleast part of the payment should be retained with Railways till the receipt of consignment at consignee end and this should be released only on receipt of the consignment when the consignee issues the receipt note. This will eliminate non-accountal of consignments.
Instead of exclusive and dedicated sleeper production, manufacturers may be left free to produce any other PSC/Concrete products. This freedom may also bring in more players.
Railways should opt for a simple system of procurement, through open tenders similar to other stores items procured through purchase orders, with relevant inspection clauses necessary for ensuring the safety aspect.
Benefits of the proposed system Financial Benefits
| Sl.No. |
Benefits Likely |
saving perannum |
| 1. |
Sleeper rates are likely to come down by atleast 10%. due toincrease in competition |
Rs. 60 crores |
2. |
Removal of 0.5% wastage permitted for MCI inserts |
Rs. 2.5 crores |
3. |
Not providing of raw material advance (73 factories x 30lakhs). Interest @ 10% on 22 crores. |
Rs. 2.1 crores |
4. |
Withdrawing of 73 SEs and 37 AENs |
Rs. 2 crores |
5. |
By doing away with HTS Wire & Cement Wastages |
Rs. 21 crores |
Other Benefits
(i) Since the investment involved is very high, with readily available technology there may be possibility of mini concrete sleeper plants emerging nearer to the usage points reducing freight implications. While sleeper rates are likely to come down with opening up of the sector to more competition, new players will be encouraged to enter the market.
(ii) All-in-cost rates will help in removing the hassles in going through input contracts for both Railways as well as the manufacturers. This could yield substantial saving of time and energy not only for Railway Administration but also for the manufacturers.
(iii)Unnecessary law suits, arbitrations, Audit objections, Vigilance and CBI cases that cause headaches for all parties involved can be avoided.
|
