Unions stall private sector entry into warship building - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Sunday 7 October 2012

Unions stall private sector entry into warship building

INS Teg, the fourth of six Talwar-class frigates that the Indian Navy is buying from Russia. Indian defence shipyards have the capability, but not the capacity, to meet the navy's warship requirements.

By Ajai Shukla
Business Standard, 8th Oct 12

The Defence Ministry’s (MoD’s) belated move to speed up warship building by bringing in the private sector has been delayed, apparently due to pressure from workers’ unions in the MoD shipyards.

In July, defence shipyard Mazagon Dock Ltd (MDL) --- snowed under with naval warship orders and running years behind schedule --- formed joint venture companies (JVs) with two private sector warship builders, Pipavav and L&T, to speed up the building of surface warships and submarines respectively. This would marry MDL’s expertise with the private sector’s new capacities.

Two months later, not a single order has been placed on the JVs, apparently for fear of angering MDL’s powerful workers’ unions. Instead, MDL has engaged a consultant, IDBI Capital, to advise the shipyard on what work to transfer to the JVs.

Top MoD officials say that MDL workers’ unions would resist the transfer of work to the two JVs, despite the public sector yard’s unmanageable order book, and its inability to deliver warships on time.

“MDL’s unions will have to be satisfied that there is a case for taking work away from MDL and giving it to the JV. They will have to be convinced that they will not suffer,” says the MoD official.

Ironically, this roadblock comes at a time when the navy desperately requires more warships, operating with 134 vessels against an assessed requirement of 160. In 2010, a Comptroller and Auditor General (CAG) audit found that the navy has just 61, 44 and 20 per cent respectively of the frigates, destroyers and corvettes that are its minimum requirement. The CAG report notes that “The lead ship in all projects is delivered or expected to be delivered after a delay ranging from four to five years from the original delivery date.”

The JVs with Pipavav and L&T were to end these delays, by outsourcing work on surface warships to Pipavav’s Rs 3,000 crore shipyard near Dahej; and L&T’s submarine yard at Hazira and its 3,500 crore shipyard at Kathupally, near Ennore.

“After signing the Share Holders Agreement, we are waiting for MDL to decided the scope of work to be allotted to the JV,” says MV Kotwal, who heads L&T’s heavy engineering division and oversees its defence initiatives.

But MDL says that engaging a consultant is inescapable, since guidelines specify that the JVs can only be given work that is beyond the public sector’s capacity and capabilities.

“An assessment of what work can be transferred to the JVs is best done by a third party, which can provide an objective assessment that is based on our existing order book, seen in the light of our performance in the past,” says Rear Admiral (Retired) Rahul Shrawat, the MDL chief.

Shrawat says that IDBI Capital, the selected consultant, would also identify the minimum quantum of work --- called Minimum Economic Order Quantity, or MEOQ --- that would have to be placed on the JV. This assured business would be necessary to make the JV economically viable and nurture it through is initial days.

Pipavav and L&T worry that their JVs are now at the mercy of a consultant, IDBI Capital, which has no experience in warship manufacture. MDL officials, however, say that the company is experienced in infrastructure-related consultancy.

Besides the issue of work share, the MDL-L&T JV also faces a problem of intellectual property rights (IPR). This relates to the technology that MDL has obtained from French submarine builder, DCNS, for building six Scorpene submarines under Project 75. According to Admiral Shrawat, “we will have to take our collaborators, DCNS, into confidence before we can transfer Scorpene work to a partner.”

Project 75 is already running more than three years late. The first Scorpene, which MDL was to deliver in 2012, will not be joining the navy before 2015. But MDL officials say that the JV is not likely to substantially speed up work, since it cannot be given any substantial outfitting work for at least the first two or three Scorpenes.


  1. @Ajai sir

    except for the L&T effort to fabricate nuke sub hulls for SBC i dont see much private sector participation.

    P75 Scorpene is done deal with MDL doing all 6. As per the 6 P75I first 2 will be built in foreign shipyard whoever is chosen as per 2010 policy, meaning that the last 4 may well be made by MDL.

    Pertaining to these i have a few question, hope you reply

    1. Is there a chance that no. of subs under P75 will go up to 9, (some reports say) if so then only there is a chance for pvt builders to come in with substantial work?

    2. Is there a chance that no. of subs under P75I will go up to 9, as that s the only way to compensate for depleting sub fleet?

    3. Will the P75I be a Super Scorpene (most likely) bigger than S-BR design of Brazil or similar to S-80 design

    4. As is known AIP is useful only in increasing patrol days of sub, whats the benefit of AIP in tactical or strategic terms?

    hope to get reply


    Joydeep Ghosh

  2. oh and why not... karo unionbazi!!
    then let the excess work go to russia or somewhere else, this will be good for you?

    India is plagued with idiots!! same idiots who could get more employment opportunity with other private companies will now loose to foreign workers when they cannot deliver!! wow nice stupid pressure tactics, meant to burn your own home!

  3. All these union jokers should be told if they oppose work being given to pvt shipyards when they themselves cannot handle ALL the work load then their act will be considered anti national. And should be ready for the consequences. I bet they are all left wing unions.

  4. Strikes or blackmailing by DPSU workers union should be considered as anti national act as it severely affects our preparedness and leaves us vulnerable. The work should be either sourced to private companies or Shipyards such as MDL be sold to Larsen and tuobro. Lakh dukho ki ek dava...Pvt Sector....expert and capable and delivering........apartfrom that @ajai sir are these unions are really powerful to bend the desicion making of south block...?

  5. You can consider this union leaders as jokers and idiots at your own peril, there are union leaders in this country who are worth crores. These are no less corrupt than our politicos.

  6. Concerned unions should learn also to do something in favor of the national defense as well.

  7. Why are we going for Pilatus PC-7 MK II? And not for Pilatus PC-21 trainer.

  8. Never ever... has a union build/constructed anything... always destroyed... they are scavengers like vultures... feeding on the dead...

  9. Hi Ajai,

    Shiv Aroor writes in his blog "http://livefist.blogspot.ca/" that the problems with INS Vikramaditya" are more serious than Russian had mentioned earlier". My curiosity is, what are those serious problems and if DoD n IN know these problems, how are they addressing these. If you know the answers, could you give me your opinion.



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