Indian Navy, private shipyards collapse as government gives preference to state-owned companies



NEW DELHI – The Indian Navy is unlikely to meet its target of having a fleet of 175 vessels over the next five years due to a lack of funds and the government’s preference to award contracts to shipyards. State rather than private companies, officials said. Defense News.

The target, set in December 2019, had already been lowered by 200 ships after the government allocated less funds than the Navy had planned.

Serving and retired Navy officials have expressed concern that the domestic shipbuilding industry cannot thrive in an environment where the government favors state-owned shipyards for platform construction. essential naval forms, including aircraft carriers, destroyers, frigates and anti-submarine warfare corvettes – projects that are already fraught with delays or additional costs.

The Navy operates a fleet of 130 ships, and 39 ships are currently on order or under construction. The service spends around $ 1.5 billion a year on shipbuilding programs, but officials say that’s not enough and should be tripled to fill the capacity gap.

“In the past, the Defense Ministry has always favored public shipyards by appointing them for all high-cost shipbuilding programs, and private shipbuilders continue to suffer from the lack of orders,” said an official of the Navy to Defense News.

A source at the Department of Defense said the government has allocated around $ 15.28 billion over 10 years to build 50 ships (39 are on order or under construction and 11 have already been delivered).

Some sources spoke to Defense News on condition of anonymity because they were not authorized to speak to the media.

Only three naval contracts with a total value of $ 71.42 million were awarded to private actors, the defense official added, with the remaining 47 projects being awarded to public shipyards.

Of the 50 ships, 40 are for the Navy and 10 for the Indian Coast Guard.

“The construction of warships as an industry in the country has been on the decline for more than a decade now,” former Indian Navy chief Admiral Sunil Lanba told Defense News.

The shipbuilding division of the private company Larsen & Toubro carried out a floating docks program for the Navy and built offshore patrol vessels and interceptor boats for the Coast Guard. But financial problems led to the cancellation of other maritime projects, including one to build training ships by Bharati Shipyard and another to build offshore patrol vessels by Reliance Naval (formerly Pipavav Shipyard).

Reliance Naval ceased production operations in December 2018. Asset management firm Hazel Mercantile Limited was declared the highest bidder last month with $ 385.71 million for the financially troubled shipyard.

The government-backed National Asset Reconstruction Company Limited made the announcement on December 13, although Indian business tycoon Nikhil Merchant’s offer was not approved by the press. It has a liquefied natural gas terminal at the port of Jafrabad, near the R-Naval facility, and it is unclear what it would do with the newly acquired facility.

United Shipbuilding Corporation of Russia had expressed interest in repurchasing the assets of R-Naval, but withdrew from the process in mid-2021, citing the unsustainability of shipbuilding activities in India.

Private players ABG Shipyard and Bharati Shipyard were also forced to shut down after declaring bankruptcy. However, L&T and Shoft Shipyard – the latter of which mainly serves as a subcontractor to public shipyards – survived.

Private shipbuilders have successfully delivered 101 vessels to the Indian Coast Guard over the past 20 years. During this period, only 62 small auxiliary vessels were delivered by state-owned shipyards.

In contrast, state shipyards have delivered 59 large ships to the Navy over the past two decades; private shipyards have not received any expensive large vessel programs since 2001.

“The continued nominations and extremely aggressive tendering for competitive programs by public shipyards are cause for concern,” Jayant Damodar Patil, L&T board member and chief operating officer, told Defense News. defense.

Patil said that public funds are available to establish or upgrade facilities for public worksites, while private ones must use their own capital. Also, he said, private yards need to include the cost of investing in new shipbuilding efforts in their bids, but public yards don’t need to.

“Public shipyards continue to enjoy government preference and continue to secure competitive ship projects at undervalued costs to eliminate private players from the competition. This has resulted in dismal fulfillment of existing warship orders, ”said Mukesh Bhargava, retired industry analyst and naval commodore.

The Defense Ministry source said that for the next five years, the government will spend $ 13.85 billion on new shipbuilding projects. Of that total, $ 7.85 billion is earmarked for state-owned shipyards, the defense official said, while the remaining $ 6 billion will likely be sought in open competition in the framework of the public-private partnership model.

This model allows public shipyards to offload production work to private shipyards.

But even public shipyards are in technological difficulty. Naval industrial bases in China, Japan and South Korea have seen the introduction of advanced technologies, such as 3D printing, machine learning systems, and cyber capabilities. However, Indian counterparts are not on a level playing field, according to Bhargava.

“Although Indian industry is also at the forefront of most of these technologies, public shipyards have not been able to embrace these disruptive and revolutionary digitalization processes,” he said.

Another Defense Ministry official said the government plans to implement new shipbuilding practices and technologies for state shipyards based on the requirements of current and future projects to “increase efficiency. [and] productivity, reduce construction times and avoid cost overruns.

Vivek Raghuvanshi is Defense News India correspondent.


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