DISINVESTMENT OF RITES AND IRCON
LOK SABHA
The Ministry of Railways is not in
favour of disinvestments in Rail India Technical and Economic
Services (RITES) and Indian Railway Construction Corporation (IRCON
International Ltd.)
RITES is a consultancy organization
under the Ministry of Railways which carried out studies as required
by the Indian Railways, clients railways abroad and other sectors.
RITES also is in the business of export of rolling stock and inspection
of materials procured by the Railways. IRCON is in the field of
construction of railway projects which are of specialized nature.
The Ministry is not is favour of disinvestments of RITES and IRCON
International Ltd., for the following reasons:
- IRCON and RITES being construction and consultancy
organizations can keep only a small work force on permanent
basis. In the existing scenario of stiff competition in the
construction industry. Both in domestic and international
market, only companies which are lean with respect to their
fixed cadre can sustain their profits. Presently the skills
for undertaking rail related consultancies are acquired by
RITES through personnel on deputation from railways. After
disinvestments it will not be possible to induct railwaymen
into RITES. It will affect the competence of the organization
to carry out rail related consultancy in India and abroad.
- Activities of RITES/IRCON abroad an opportunity
to railway personnel to observe developments which benefit
the railway officers on repatriation.
- Indian Railways have got surplus manufacturing
capacity in production units for manufacture of locomotives
and coaches. RITES and IRCON are the export arms of Indian
Railways for export of locomotives, coaches etc. For export
of locomotives and coaches, a close coordination between Railway
Research, Design and Standard Organization, Indian Railway
manufacturing units and RITES is required. The railway rolling
stock requirement varies from country to country and considerable
design inputs and manufacturing effort is required in most
cases, e.g. the Indian Railways in association with RITES
and IRCON have developed locomotive suitable for ‘Cape Gauge’
which is prevalent in some African countries and Southeast
Asian countries.
- RITES also carries out independent third party
acceptance testing for components procured by the Indian Railways.
If RITES were to be disinvested, Indian Railways would have
to create a new organization for this.
- Many of the projects undertaken abroad for construction
and for operation of railway system are given to the PSUs
on the strength of Indian Railways backing, e.g. the Letter
of Intent given by the Malaysian Government for construction
of US$ 1.5 billion Ipoh-Padang Besar doubling project on single
tender without going through the process of formal tendering
is only on the strength of the backing of Ministry of Railways,
Government of India. Similarly, the contracts for operation
management of Railway System in Colombia and Zambia have been
secured by RITES based on the Railway operating experience
of Indian Railways.
Disinvestments of IRCON International Ltd., is under examination
by Disinvestment Commission, who have yet to make their recommendations.
For Disinvestment in RITES, Commission has recommended that:
- A minimum of 51% of the Government equity may
be given to employees (both present and past) of RITES. Government
may retain 25% of the equity. Balance equity may be distributed
among reputed infrastructure consultancy organization and infrastructure
leasing and financing organizations after suitable pre-qualification;
- The Railways should have an agreement with RITES
under which continuous induction of talented railway personnel
would be guaranteed for a period of 5 years.
In addition, the Disinvestments Commission
has also suggested:
- The Railways should develop consultancy expertise
outside railway area with a view to increase non-railway consultancy
business.
- Export of rolling stock handled by the RITES can
be handled directly by the Railways.
- Inspection work related to quality assurance of
purchased items presently entrusted to RITES may be handled
by the Ministry of Railways.
Ministry of Railways have not agreed to the recommendations
and suggestions of Disinvestments Commission for disinvestments
of RITES as listed above for the following reasons:
- The present net worth of RITES is Rs.158 crores
and the share capital is Rs.2 crores. For sale of 51% of shares
to employees, the Government should be able to realize 51%
of the net worth i.e. Rs.80 crores approximately. Thus the
hundred rupee share would have to be sold for approximately
Rs.7800/-. Also the expected annual dividend of Rs. 3 crores,
would yield an average return of only 1.9% to the employees.
To realize Rs.80 crores through employees as recommended by
Disinvestments Commission, on the average investment of the
present employees of the RITES would be in the range of Rs.3.5
lakhs per employee if all the present employees opt for it.
This may not be possible.
- Deputation of railway personnel to RITES, after
disinvestments, would not be possible.
- Disinvestment Commission’s suggestion that RITES
may develop expertise in non-railway business, after disinvestments,
would defeat the very purpose for which RITES was initially
set up. Indian Railways requirement of consultancy expertise
in railway area would get diluted and may not be available
after sometime as availability of railway expertise in RITES
dwindles.
- The export of rolling stock was delegated to
RITES only because Indian Railways was unable to handle it
directly through government departmental setup. The recommendation
if accepted would immediately affect export of Railway rolling
stock and Indian Railways efforts to utilize spare capacity
available in workshops.
- The work of quality assurance for purchase items
was hived off as a non-core activity to RITES as an independent
third party. If Ministry of Railways were to carry out inspection
work, they would need to create an organization for the same
at a time when Indian Railways are making every efforts to
contain growth of manpower.
This information was given by
Shri Nitish Kumar Minister for Railways in a written reply to
a question by Shri Subodh Mohite in the Lok Sabha today.
