Pipavav warship joint venture put on hold

Last Updated: Mon, Sep 26, 2011 19:51 hrs

The ministry of defence (MoD) on Monday sent a clear signal that private Indian defence shipyards are to be treated as serious partners in building warships for the Indian Navy.

Responding to written complaints from three private shipbuilders about the allegedly improper selection by government-owned Mazagon Dock Ltd (MDL), Mumbai, of Gujarat-based Pipavav Shipyard as its joint venture (JV) partner, the defence minister has struck down MDL’s decision.

The MoD announced that “the ministry had decided to put on hold the JV of MDL till a policy on JVs is put in place by the government... Antony (defence minister) said the ministry would study the complaints received from some private shipyards regarding the JV. The issue needs to be fully examined and settled before any forward movement takes place on this front. He also said that JVs must compete for contracts and not get them on nomination basis. Shri Antony said we are treading on a new path and we would like to ensure that transparency is maintained at all levels.”

In an apparently stinging reproof to MDL, the public sector shipyard was not informed of this decision till the time of going to press. Antony’s comments were made while addressing the parliamentary consultative committee for defence here on Monday.

Asked for his comments, vice-admiral (retired) H S Malhi, the chairman of MDL, told Business Standard, “The MoD has not yet informed us of this decision. I am hearing of it through this press release. We have no comments to offer.”

Pipavav Shipyard chairman Nikhil Gandhi, in Paris at present, said: “It’s a very sad and disturbing day. But I am sure I will stand vindicated, as we were selected after a transparent process which went on for eight months. We have invested a billion dollars in building the required infrastructure and not waited for orders first to build capacity.”

In contrast, there was jubilation amongst the three private sector shipyards — Larsen & Toubro, ABG Shipyards and Bharati Shipyard — that had protested about MDL’s “hasty” decision to form a JV with Pipavav. L&T chairman A M Naik told Business Standard, “The MoD has taken an appropriate decision. The entire process (of selecting a JV partner) had been rushed through without a transparent evaluation process. Now, we hope there will be a proper evaluation, based on a points system, awarded for each shipyard’s infrastructure, capability, board structure and ownership structure.”

Naik says with 32 per cent of his company held by financial institutions, and the government being his largest shareholder, L&T is as much a government-owned company as a private sector one.

The controversy began when the MDL board, on September 9, decided that Pipavav was the private company with which MDL would form a JV for warship building. Even before the MoD could approve the decision, Pipavav made a public announcement, triggering a fierce counter-attack by L&T, ABG and Bharati.

At the root of this controversy is the question of which shipyards will get the lucrative contracts to build the navy’s requirement of tens of major capital warships in the coming years. The navy’s requirements, which remain classified, are spelt out in the Maritime Capability Perspective Plan 2012-2027. MDL enjoys a premium position as the only shipyard with the capability, capacity and experience of building even the destroyer class of heavy warships (over 7,500 tonnes). However, located as it is in congested Mumbai, MDL has a space constraint that places limits on the number it can build.

Therefore, earlier this year, it set out to identify a private sector shipyard as a JV partner. That aim was to marry MDL’s expertise and experience with the private shipyard’s capacity.

After MDL issued an Expression of Interest (EoI) on March 11 to several private shipyards, four were shortlisted: L&T, ABG, Pipavav; and Bharati. According to executives from these shipyards, they made presentations to the MDL board on August 23, outlining their respective visions of the proposed collaboration. Based on those presentations, MDL sent a letter on August 25 for details of the business plan for the JV. Before any shipyard could reply, the MDL board chose Pipavav as their partner, on September 9.

Sources within the MoD say the process of selection would now be started afresh, with clearly defined parameters once the JV policy was in place.

With additional reporting by Arijit Burman

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