Part 2: L&T shows private shipbuilders can deliver on time: an analysis of previous Offshore Patrol Vessel contracts - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Friday 9 August 2019

Part 2: L&T shows private shipbuilders can deliver on time: an analysis of previous Offshore Patrol Vessel contracts

ICGS Vikram, which L&T delivered on schedule in April 2018

By Ajai Shukla
Business Standard, 7th Aug 19

When L&T delivered Indian Coast Guard Ship (ICGS) Vikram in April 2018, the first of seven offshore patrol vessels (OPVs) ordered by the Coast Guard, the event was remarkable for two reasons: First, the delivery was on schedule, pleasantly surprising the services that have long complained about lengthy time overruns by defence public sector undertaking (DPSU) shipyards.

Second, L&T’s Kattupalli shipyard took just 36 months to build and deliver that OPV, even though this was the first OPV it had ever built. 

In contrast, when Goa Shipyard Ltd (GSL), the public sector’s premier OPV builder, got an order in April 1990 for four OPVs, it took twice as long to deliver the first. The delay in delivering those four OPVs ranged from two years to eight and a half years.

Over the next 25 years, GSL delayed delivery in six consecutive OPV orders. It was only in 2015-17 that GSL managed to deliver six Coast Guard OPVs on schedule.

L&T, however, is on course to deliver all seven Coast Guard OPVs ahead of time. Coast Guard officials, speaking off the record, pronounced the build quality as “excellent”.

Below: (corrected heading): OPVs built by PRIVATE SECTOR

The confidence generated from this demonstrated capability has led the Federation of Indian Chambers of Commerce and Industry (Ficci) to petition Defence Minister Rajnath Singh to allow private sector shipyards, including L&T and Reliance Naval and Engineering (RNaval), to compete on equal terms with defence public sector undertaking (DPSU) shipyards for warship orders.

Ficci’s petition points out that, over the last two decades, the four DPSU shipyards – Mazagon Dock Ltd, Mumbai (MDL), Garden Reach Shipbuilders & Engineers (GRSE), Goa Shipyard Ltd (GSL) and Hindustan Shipyard Ltd, Visakhapatnam (HSL) – along with Kerala state’s Cochin Shipyard Ltd (CSL), were handed 85-95 per cent of warship building orders (by value) through “nomination” – which means without competitive tendering.

During this period, the only orders the defence ministry placed on private sector shipyards were for low-value auxiliary vessels that did not require advanced engineering skills.

This bias continues, despite L&T’s success with the Coast Guard OPV order, and in building sophisticated hulls and systems for India’s nuclear submarine programme. Ignoring the claims of private shipyards, the defence ministry “nominated” GSL to build two Krivak III frigates with technology from Russia. 

Defence ministry officials argue that L&T has never built a frigate earlier. Neither has GSL.

Ficci has pointed out that the defence ministry’s practice of “nominating” PSU yards for warship orders has starved private shipbuilders, leading to the closure of two private shipyards – ABG and Bharati Shipyards. The remaining two – L&T and RNaval’s Pipavav Shipyard – are grappling with mounting losses.

The defence ministry argues that private shipyards too have failed to deliver. They point to on-going difficulties with RNaval, which is over four years late in delivering an order for five OPVs for the navy.

The navy, as well as private industry bodies, feel a line must be drawn under failures of previous years and a healthy competition encouraged between PSU shipyards and those in the private sector.

Ficci has requested a “level playing field” competition in building the next generation of warships over the coming years: the eponymous “next-generation OPVs”, next-generation missile boats”, “next-generation frigates” and “next-generation destroyers”. All these are currently being designed by the navy’s design directorate.

Ficci has further requested that on-going warship procurements in which PSU yards have been “nominated”, but actual contracts not yet been awarded; must be re-categorized and re-bid, with private shipyards participating.

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