RITES: The Torchbearer for India's Strategic Interests

Image: Lakruwan Wanniaracchi/ AFP for Forbes India

TRACK II DIPLOMACY A RITES team at work on Galle-Matara railway line in Sri Lanka

V.K. Agarwal is not a diplomat though he has perhaps met more presidents and prime ministers than the average mandarin at the country’s elite Foreign Service. As the managing director and CEO of RITES, the government-run infrastructure consultancy, the 59-year-old railway engineer is one of India’s bridge-builders to the world.

In the last two years, over 40 ministers from Africa have met this quintessential bureaucrat during their India visits.  He was also the only representative from a public sector undertaking to be invited to a meeting with Bangladesh President Sheikh Haseena when she met a business delegation in June. That meeting was preceded by a similar one with Sri Lankan President Mahinda Rajapakse.

RITES is a key part of India’s ambitions to deepen relationships with countries in Africa, Latin America and South East Asia. RITES, which was set up in 1974 under Indian Railways, has amassed a wealth of knowledge on infrastructure development throughout the developing world. As China woos the same countries with massive aid and infrastructure investments, the 62-nation presence of RITES will give India a fighting chance to spread its own influence. This also gives him a front-row view of the drama that unfolds everyday in the complex world of diplomacy.

Over the years, RITES has invested in building a goodwill among India’s neighbours that is now translating into business opportunities. Within a few months after Agarwal took over the top job at the public sector company, Sri Lanka was looking for help in restoring a railways line between Colombo and Matara that had been destroyed in the Indian Ocean tsunami in 2004. RITES rushed in quickly even though the Chinese had also tried to move in to provide the assistance.

More than five years later, during his visit to India, Lankan President Rajapakse chose RITES to build railway lines in northern Sri Lanka, which had seen three decades of devastation in a bloody civil war with Liberation Tigers of Tamil Eelam (LTTE). Rajapakse proposed to repair the old lines and build new ones as part of rebuilding efforts in the region.

But RITES’ role as a flag-bearer for India’s strategic interests abroad doesn’t stop with the neighbourhood. Since 2004, the public sector company has been consolidating its position in Africa, the key battleground between India and China for economic partnerships and strategic influence. One of the earliest strategic moves made by Agarwal was to buy stake in railway projects in Mozambique and Tanzania. “The World Bank had decided to give assistance to the Third World countries for their infrastructure requirements. There were very few companies in Africa with the relevant expertise in the railways sector. So when the opportunities came in Mozambique and Tanzania, we decided to move in.” The idea behind investing in these projects was that these lines cater to mines in the region. “We now hold the keys to these mines and we will be the dedicated logistics operator in any mining project in these parts,” said Agarwal.

There is, of course, immense competition from China in Africa. The Chinese come with a lot more money than Indians and are lightening fast in execution. On the other hand, RITES has to go through the complex procedural requirements, being an Indian government-run company. Despite this disadvantage, Agarwal finds a warm welcome across Africa. “The Africans also understand that in order to get the best deals they need to engage both India as well as China,” he says.

Some countries have evolved their own method of handling the India-Africa rivalry. “Most African leaders visiting India, go straight to China from here and vice-versa. It’s a balancing act of some sort,” says Agarwal in a measured meter that goes with his rather sedate personality.  Some have made it a practice to award a rail project to one and then hand over a port project to the other.

An official in the ministry of external affairs acknowledges the role of RITES in building a number of partnerships across Africa. “They have built several lines in Ghana, Senegal, Burkina Faso and several other places. African countries come back to India for assistance precisely because they know they can depend on RITES for the quality of work,” says this officer who has served in the region.

The order pipeline is growing. Among the company’s significant projects in Africa are the construction supervision of the 79-km Nazareth-Assela road project in Ethiopia and the design and construction of the Maun airport in Botswana.

Earning the Trust
Along the way, RITES has also learnt the nuances of doing business in developing countries, where things could quickly turn unpredictable. For instance, in the Mozambique railway line project, RITES had to wait for several agonising months, even after signing the concession agreement, to get the project moving. Under the original terms, RITES took a 26 percent stake in the project aimed at setting up a line to a mine operated by Brazilian company Vale. But the counter-parties started demanding more favourable terms. “In Africa, it happens quite often that there would be repeated negotiations after the signing of the concession agreement. They had even contacted our external affairs ministry seeking better terms.”

 Illustration: Sameer Pawar, Hemal Seth

Several months of tough negotiations ensued. “ We never gave up on the project and kept talking to them and convinced them to stick to the agreement. We gave the Mozambique government the full rights to negotiate the tariff with the client. Finally, they saw the quality of work and agreed to stick to the concession agreement,” said Agarwal. “In  the end, they played fair and we also played fair.”

While RITES has several project management successes to show across Africa, critics still say that is not enough to claim India is doing well there. “India has been present in Africa and the middle-east for several decades and we should have consolidated our position further. I am not sure if we have done enough,” says Partha Mukhopadhyay an infrastructure expert with the Centre for Policy Research.

Mukhopadhyay also asks whether RITES has been a model knowledge centre. “Has the institution shared its knowledge with the private sector in India so that they can also perform better to win contracts abroad? And even within the organisation, is knowledge disseminated to all or is it held in the hands of few?” he asks.

In developed countries it is often the government-owned institutions that are at the forefront of developing know-how. However, such knowledge is often transferred for commercial exploitation by the private sector. The technological expertise for several equipment and even mundane applications such as water-purification systems and scratch-proof lenses were originally developed in the research labs of American space agency NASA.

Since RITES has not been able to achieve large-scale transfer of knowledge to the private sector, it has indeed lost some of its talent to rivals. RITES became an easy target for poaching of top talent especially in 2008. There was an exodus of engineers from RITES making it one of the most challenging years for the company.

“Some of the key officers who literally knew every client that the organisation handled and had tremendous amount of inside knowledge left the organisation,” says an insider. “The problem became all the more acute because these senior officers had not shared their resources and knowledge down the line.”

That was two years ago. Last year, over 50 engineers who had left the organisation returned to the mother ship. That is because RITES won a huge number of works despite the slowdown (as demand in the domestic government sector continued to be strong). In the past five years, the number of projects executed by RITES has also doubled from around 500 in 2005.  Some of the countries RITES has gone into are strategically crucial for India. RITES has also been in studies for some crucial maiden transport links between Nepal and India. In Afghanistan, it advises the government on procurement contracts for infrastructure works. “RITES has been in the business for decades. This definitely helps our diplomatic efforts in these countries, says former ambassador G. Parthasarathy.

With 600 ongoing projects in India and 30 abroad, RITES is now looking to expand its footprint to newer businesses such as financing infrastructure, last-mile rail connectivity for private and government enterprises and construction of government and university buildings. The company plans to end 2009-2010 with revenue of Rs. 672 crore and has cash reserves of about Rs. 600 crore. At some point, it may also come out with an IPO, a move that had been postponed in 2009 due to bad market conditions. Once it raises money, RITES may enter into more highway concession projects.