ANNEXURE-G
Reliance Naval’s eligibility question holds up warship orders worth Rs 63,000
crore (Rs 630 billion)
By Ajai Shukla
Business Standard, 27th Sept 18
On Wednesday, the defence ministry announced a contract for building two diving
support vessels (DSVs) awarded to the defence public sector undertaking (DPSU),
Hindustan Shipyard Ltd (HSL) for an estimated Rs 2,000 crore (Rs 20 billion).
Obscured by the fanfare around this relatively small order, warship building projects
worth at least Rs 63,000 crore (Rs 630 billion) have ground to a standstill. In all
these cases, the defence ministry has halted tendering in wait for a government
decision on whether to allow, or to exclude, Anil Ambani’s shipbuilding firm -
Reliance Naval and Engineering Ltd (RNAVAL) - from those contracts
The navy has a major grouse with RNAVAL, which has failed to deliver five Naval
Offshore Patrol Vessels (NOPVs), an order that Pipavav Shipyard won in 2011. It
was to deliver the first NOPV in November 2014 and all five before November 2016.
But, four years after the delivery date, not even the first NOPV has been handed
over.
“For a similar infringement, the navy cancelled an order on ABG Shipyard, leading
to its bankruptcy,” points out a shipbuilding industry executive.
The defence ministry is also undecided on allowing RNAVAL to bid in warship
tenders because IDBI Bank - one of its biggest lenders -- has taken RNAVAL to the
National Company Law Tribunal (NCLT), seeking debt resolution. An 18-member
consortium of lenders has reportedly declined RNAVAL's settlement offer for at least
Rs 9,000 crore (Rs 90 billion) in outstanding loans. The NCLT is understood to have
granted time till October 10 for resolution,
At least one lender - Vijaya Bank - has classifed its loan to RNAVAL as 2 non-
performing asset. The company’s auditors, Pathak HD & Associates, have noted
that cash losses, erosion of net worth, recalled loans and other adverse indicators
“may cast significant doubt on the company’s ability to continue as a going
concern.”
In the circumstances, RNAVAL's presence has stalled a tender, worth an estimated
Rs 20,000 crore (Rs 200 billion), for building four Landing Platform Docks (LPDs) in
India - large vessels that carry helicopters, tanks and vehicles for amphibious
landings, or for disaster relief.
In 2014, the navy issued a “request for proposals” (RFP) to three private shipyards:
Larsen & Toubro (L&T), ABG and Reliance’s Pipavav shipyard, later renamed
RNAVAL. The winner was to build two LPDs, with HSL nominated to build the other
two. However, with ABG going bankrupt, a fresh RFP was issued in May 2017 toL&T and RNAVAL for building all four LPDs. Since then, action has stalled on the of
whether RNAVAL is eligible. The bids still remain unopened.
“The LPD provides us an important capability. It will take minimum two years from
REP to contract signature and another three years to build the LPDs. So 2023 is the
earliest we can get this capability”, says a senior navy admiral.
Worse, at least 42 vessels, urgently needed by the navy and coast guard, are
facing similar or longer delays because the final list of eligible bidders is not
finalised. There are no questions over the eligibility of the four DPSU shipyards ~
Mazagon Dock Ltd, Mumbai; Garden Reach Shipbuilders & Engineers, Kolkata; Goa
Shipyard and HSL ~ and private shipbuilder L&T has demonstrated both engineering
capability and shipyard capacity. However, one question is holding up the
tendering: Is RNAVAL also eligible, given its building record and financial condition?
Sources in the navy say the 42 vessels lined up for tendering are: seven next-
generation corvettes, six next generation missile vessels, six next generation OPVs,
four multi-purpose support ships, three cadet training ships, five survey vessels and
one survey training vessel. The coast guard is waiting to tender two pollution
control vessels and eight fast patrol vessels.
Industry sources say the total value of the navy’s contracts would be at least
60,000 crore (Rs 600 billion). The coast guard vessels would require another 3,000
crore (Rs 30 billion).
Finally, the decision on RNAVAL's eligibility will be crucial for the execution of
Project 751, to build six conventional submarines in India. The government is
working on’ guidelines for choosing “strategic partners” for submarine building,
based on technology transferred by a chosen foreign vendor.
The defence ministry and Reliance Defence did not respond to requests for
comments on these issues.
On Tuesday, after clearing changes to the Defence Procurement Procedure (DPP),
the defence ministry stated: “These measures will go a long way in obviating
procedural delays and will hasten activities besides shrinking the procurement
timelines giving due preference to indigenization.
However, private shipyards that have invested heavily in creating capacity for
warship building, say their financial viability depends upon whether the order
bottleneck can be resolved quickly. Central to that is a decision on RNAVAL's
eligibility.
SOURCE: http://ajaishukla.blogspot.com/2018/09/reliance-navals-eligibility-question.htm!