Japan in driver's seat for Indian bullet train deals

Sumitomo Heavy Industries

18/01/2018 13:19

* Japan to bring in at least 70 pct of core components 
    * Japanese worried about different work cultures-Indian 
official 
    * Japan asks India to introduce more bullet trains, new 
routes 
 
 (Updates with new statement from Indian rail firm, paragraphs 
4,  12) 
    By Neha Dasgupta, Rupam  Jain and Yuka Obayashi 
    NEW DELHI/TOKYO, Jan 18 (Reuters) - Japanese steel and 
engineering companies are in the driver's seat to bag major 
supply contracts for a $17 billion Indian bullet train, several 
sources said, undermining a key component of Prime Minister 
Narendra Modi's economic policy - a push to 'Make in India'. 
    Japan is funding most of the project, and Japanese companies 
are likely to supply at least 70 percent of the core components 
of the rail line, said five sources in New Delhi with direct 
knowledge of the matter. 
    A spokesman for Modi's office declined comment.  
    The Indian company executing the project, National High 
Speed Rail Corporation Ltd (NHSRCL), said in a statement late on 
Thursday that procurement from Japan will be only 18 percent of 
the total project cost. Indian companies will carry out the 
construction of bridges and structures for the elevated rail, 
which will amount to more than half the cost, it said. 
    A Japanese transport ministry official involved in the 
project said the two countries were still working out a strategy 
for the supply of key components, and would unveil a plan for 
procurements around July. The official spoke on condition of 
anonymity.  
    The September 2017 agreement between Japan and India for the 
bullet train project included two clauses - the promotion of 
'Make in India' and 'Transfer of Technology' - through which New 
Delhi had hoped to set up manufacturing facilities in the 
country, generate jobs and get a toehold in Japanese technology. 
   Modi faces a general election in 2019 and is under pressure 
to provide more jobs to millions of unemployed in India. Critics 
also say the bullet train is wasteful and that the money could 
be better used elsewhere. 
    "The Japanese have reservations on certain issues because 
they have a concern that there is a difference in the culture 
and systems of Japan from the culture and systems in India," 
said Achal Khare, the managing director of NHSRCL. 
    "The work culture is very different," he told Reuters.  
    Khare did not elaborate but two Indian railways officials, 
who spoke on condition of anonymity, said their Japanese 
counterparts had raised questions about efficiency in Indian 
companies and their ability to meet timelines. 
    The World Bank currently ranks India 100th out of 190 
nations on the ease of doing business, giving it relatively low 
marks for starting a business, enforcing contracts and dealing 
with construction permits. 
    NHSRCL said that Japan will train more than 300 Indian 
personnel on the high-speed technology as part of efforts to 
build local expertise.  
    Tomoyuki Nakano, director for international engineering 
affairs in the railway bureau at Japan's transport ministry, 
said the issue was that Indian companies had no experience or 
technologies specialising in high-speed railway systems at 
present. 
    "I don't think Japanese are concerned about a difference in 
the work culture," Nakano said. He and other Japanese officials 
said efforts were continuing to fulfil the 'Make in India' 
component of the agreement by promoting collaborations between 
companies from the two countries. 
    Still, several Indian officials said it was by and large 
accepted that Indian companies would not have a major part to 
play in the bullet train project.  
    Japan will get major leeway because the bullet train is 
largely funded by a 50-year loan provided by its government, 
said a close aide of Modi, who spoke on condition of anonymity.  
    "At this stage to expect Indian companies to have a bigger 
share in manufacturing appears to be a little difficult," said a 
senior official at the Indian government's policy think-tank, 
NITI Aayog, who is involved in the negotiations.  
    Modi's flagship 'Make in India' initiative aims to lift the 
share of manufacturing in India's $2 trillion economy to 25 
percent and create 100 million jobs by 2022.  
    However, midway through Modi's five-year term, manufacturing 
was still at 17 percent of India's GDP in the 2016/17 financial 
year from 15 percent previously. 
       
    ONLY ONE JOINT VENTURE 
    Japan's Prime Minister Shinzo Abe laid the foundation stone 
for India's first bullet train in September last year. It will 
link Mumbai with Ahmedabad, the largest commercial city in 
Modi's home state Gujarat. 
    Nippon Steel and Sumitomo Metal Corp  5401.T , Japan's 
biggest steelmaker, and other companies like JFE Holdings Inc 
 5411.T , Kawasaki Heavy Industries Ltd  7012.T , Mitsubishi 
Heavy Industries Ltd  7011.T , Toshiba Corp  6502.T  and Hitachi 
Ltd  6501.T   are likely to bid for various contracts, said 
three senior Indian government officials directly involved in 
the project.     
    Nippon Steel said it would not comment on specific projects. 
    JFE, Hitachi and Toshiba said they were interested in the 
project but had not finalised plans, including any possibilities 
of joint ventures with Indian firms. 
    Mitsubishi Heavy said it had not decided if it wanted to be 
involved. 
    The sole collaboration aimed at the bullet train project is 
between Kawasaki Heavy Industries and India's Bharat Heavy 
Electricals Ltd  BHEL.NS , which aims to win carriage orders. 
    Japanese government officials have asked for more bullet 
train corridors in India before transferring technology, three 
senior Indian officials said. 
    But New Delhi is unlikely to announce any new projects until 
the final cost and commercial feasibility of the 
Mumbai-Ahmedabad link is clear, the officials said. 
    "It's like a chicken and egg situation on technology. The 
Japanese want an economy of scale and business but the Indian 
view is that India is a big market that once this market is 
explored the business will automatically be generated," said 
Khare from NHSRCL. 
    MISSED OPPORTUNITY 
    New Delhi has tried to help Indian steel companies grab a 
slice of the pie. 
    The Indian government last year mediated negotiations 
between Nippon Steel and India's Jindal Steel and Power Ltd 
 JNSP.NS  to set up a joint venture to manufacture rails, but 
the talks fell through after the Japanese major raised quality 
concerns, three sources in New Delhi said. 
    State-owned Steel Authority of India  SAIL.NS  (SAIL), which 
for decades has been the main supplier of rails to Indian 
Railways, was also overlooked by Japanese companies due to 
quality concerns, the sources said. 
    Nippon Steel declined comment and while Jindal and SAIL did 
not reply to e-mails seeking comment.  
    Left with little choice, Indian firms will now largely 
provide raw materials like cement and supply manpower for the 
assembly of rails, the sources said.  
    India's UltraTech Cement Ltd  ULTC.NS , Larsen & Toubro Ltd 
 LART.NS , Bharat Heavy Electricals Ltd  and Ambuja 
Cements Ltd  ABUJ.NS  are among those in the race for the supply 
of construction materials and power, the two Indian railways 
officials said.  
    These companies did not respond to Reuters' requests for 
comment. 
 
 (Editing by Mayank Bhardwaj and Raju Gopalakrishnan) 
 ((neha.dasgupta@tr.com; +91-11-49548058; Reuters Messaging: 
neha.dasgupta.thomsonreuters.com@reuters.net)) 
 
Keywords: JAPAN INDIA/TRAIN