L&T opposes plan to give submarine project to Mazagon Dock

New Delhi: With the government considering a proposal to move a Rs 60,000-crore project to build submarines to the public sector on a nomination basis, India’s top shipbuilder Larsen and Toubro has sought the Niti Aayog’s intervention, asking that it be reserved for the private industry as per the original plans.

The mega 'Make in India' project — named P75I — is for the construction of six conventional submarines with advanced abilities to stay underwater for extended periods with Air Independent Propulsion (AIP). The project was picked up as the biggest under an ambitious strategic partnership policy in 2016 to promote private sector involvement in defence.

However, there have been recent moves by the Navy to nominate the government-owned Mazagon Dock Shipbuilders (MDSL) for the project, based on the argument that it’s the only shipyard in the country that has experience in constructing a conventional submarine. The matter is expected to be taken up at a defence acquisition meeting shortly.


An alarmed L&T has shot off a representation to the Niti Aayog for intervention.

The letter, which ET has seen, asks that the project be kept reserved for the private sector as the industry is “best prepared for this segment” under the strategic partnership model. Pointing to its successes on the nuclear submarine programme, the company made the point that it has considerable expertise to take on the project.

L&T is India’s most experienced submarine builder in the private sector that has worked extensively on the nuclear submarine project as well. The project would not only create thousands of highly skilled jobs but also augment falling force levels of the submarine arm of the Navy, L&T said.

The letter also raised the issue of a level playing field between the private sector and defence ministry owned shipyards.

NITI AAYOG TO TAKE UP ISSUE
Sources said the Niti Aayog is considering the matter in detail. It is also taking up the larger issue of stopping the blind nomination of government-owned entities for defence contracts and batting for a more competitive process that involves private industry.

Industry experts point out that on an average, government-owned defence units undertake less than 15% of real value addition on projects they are awarded, with the rest being imports. For this, they charge a profit of over 17%. In contrast, Indian private sector programmes have demonstrated up to 65% value addition on defence systems, which has even gone up to 85% in some cases.

Officials said that the Navy’s drift towards MDSL is due to a growing concern that the submarine fleet is dipping and needs replacements at the earliest. With MDSL already constructing the Scorpene class of submarines with the French Naval Group, the argument is that the yard is best suited to take on a new project with its trained manpower and existing infrastructure. The shipyard has also made representations to the government that it will shortly be out of orders after the Scorpene submarine are put to sea by 2020 and that it needs continued work to retain manpower.

STRATEGIC PARTNERS LOGJAM
In 2016, the defence ministry announced that it will prioritise high-value contracts — ranging from ammunition for the army, submarines for the navy and aircraft for the air force — under the strategic partnership (SP) model that will select private companies for long-term manufacturing projects.

The much-talked-about SP model is however yet to fully take off, with the ministry trying to firm up the modalities to select companies and award contracts. Foreign vendors have been sent a request for information for the submarine project, with responses coming from Russia, France, Germany and Sweden. However, formal tenders have not been issued yet, nor has the process to identify Indian companies for the project begun.