Pipavav-Mazagon Dock deal: Rivals raise a stink

Last Updated: Wed, Sep 14, 2011 20:00 hrs

At stake are defence orders worth Rs 1 lakh cr.

A masterstroke has overnight become a mudslinging match. Within 24 hours of Pipavav Shipyard making an announcement of its proposed naval joint venture with Mazagon Dock Ltd (MDL) to build warships, its rivals are crying foul.

Some private shipyards, including Larsen & Toubro (L&T) and ABG Shipyard, will write a letter to the ministry of defence and the National Security Advisor (NSA), alleging “lack of transparency and arbitrary decision-making,” by MDL.

At stake are defence contracts that could go up to a whopping Rs 1 lakh crore.

When contacted, MDL chairman and managing director Vice Admiral S H Malhi said, “I am in London, but what I can tell you is these allegations are baseless and Pipavav was selected after a thorough and fair selection process.”

Nikhil Gandhi, chairman of Pipavav Shipyard, rubbished these claims and told Business Standard “the selection was done after a thorough due diligence process, taking into account our execution capabilities and world class infrastructure.”

L&T, Bharati Shipyard and ABG officials did not want to comment on the issue.

Burdened with capacity bottlenecks, the Indian government had decided to opt for public-private partnerships (PPP) for four government shipyards with their private sector peers.

MDL, being the largest, was the first to go off the block. The three other government yards are Cochin Shipyard, Hindustan Shipyard and Garden Reach Works in Kolkata. In March, MDL issued an expression of interest (EOI), seeking to form a strategic partnership with Indian private sector shipyards to meet the challenging timelines for liquidating their order book.

Eight private yards had submitted the EoI, following which visits were made to these yards by a senior delegation that included MDL’s board members and a working level team of officers, with the aim of evaluating the strengths and capabilities of each of the private yards. After the initial screening, four players —Pipavav, L&T, Bharati and ABG Shipyards —were shorlisted.

Sources in these shipbuilding companies said on August 23, these four shortlisted candidates made detailed presentations to MDL on their manufacturing capabilities. The business plan and joint collaborative strategy proposed by each were also discussed.

Two days later, on August 25, the MDL management through a letter sought further details of the JV and the business plans. But even then, no evaluation criteria for the selection of the partner were either included in the EoI document or discussed with the potential partners at any stage of the selection process, the sources added.

It is being alleged that at the board meeting of MDL on September 9, the decision to form a joint venture with Pipavav was taken, though the formal minutes of the board meeting are yet to be issued and an official clearance from the government given. More, the officer in charge of procurement of warships and defence equipment, a regular invitee member on the board of directors of MDL, was not invited for the board meeting or consulted on the issue.

The war of words intensified over Pipavav’s execution capabilities. "We would like to know on what basis was Pipavav selected," said another executive in a shipyard. “Pipavav has not yet executed a single order and is yet to deliver its first vessel; it lacks design capabilities and manpower,” he said.

To strengthen their case, the aggrieved shipyards highlighted Pipavav was yet to commence an order of 12 ships (OSVs) from ONGC, bagged in January 2009. “Even in 2005-06, Pipavav had suggested a JV with MDL with a Rs 100 crore investment. But the proposal was shot down. Also, the then CMD of MDL is now an executive director of Pipavav,” pointed out another executive.

Gandhi rebuffs each of the allegations. “We have already put in a billion dollars to build a global scale facility, a first in India. Ours is the second  largest dry dock in the world. Our yard is modular and so we can deliver ships at least four to five times faster. We have sufficient land in Pipavav to take care of any expansion in the location. And finally, our infrastructure is new,” he added.

Gandhi also said Pipavav had already delivered two Panamax ships in record time. “If we were so incompetent, why would we get global partners like SAAB, Babcock, Northrope and a host of others? These are large, specialised players,” he said. “After thorough diligence of our capabilities, MDL decided to go with us. Every yard was given ample time to respond to MDL. This is a baseless campaign against us.”

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