BackMazagon Dock JV with L&T, Pipavav hits fresh hurdle
Govt says that the companies will have to participate in tenders to get business
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Bangalore: A joint venture between India’s biggest warship builder Mazagon Dock Ltd (MDL) and two private ship makers—Pipavav Defence and Offshore Engineering Co. Ltd and Larsen and Toubro Ltd— has got stuck again after the government said that the companies will have to participate in tenders to get business.
The planned venture had courted controversy earlier.
In September 2011, the defence ministry had put on hold the planned joint venture after rival companies said the exclusive selection of Pipavav Defence and Offshore lacked transparency since the due process had not been completely followed.
The controversy forced the government to frame guidelines for the formation of joint ventures between state-owned defence shipyards and private shipbuilders to meet rising demand for warships from the Indian Navy and the Coast Guard. The joint venture guidelines approved by the cabinet have provisions for ensuring fairness and transparency in the selection of the JV partner, ensuring a well-defined nature and scope of the JV, retaining the affirmative right of defence public sector undertakings for prior approval on key decisions of the JV company such as amendments to the articles of association of the JV company, approval of annual business plan, restructuring of the JV by issue or buy-back of shares or securities and sale of substantial assets.
After completion of the selection of partners based on these guidelines, the government said that the JV would have to bid on a competitive basis for taking a portion of state-run firm’s huge order book, making the JV plan meaningless.
“Our earlier understanding was different," said M.V. Kotwal, whole-time director and president (heavy engineering) at Larsen and Toubro. “If the JV has to bid against other yards to get a portion of Mazagon Dock’s order book, the formation of a JV will not have any advantage at all."
The JVs, if operated according to the original plan, could potentially give Pipavav and L&T access to a portion of the ₹ 1 trillion order-book currently under execution by Mumbai-based Mazagon Dock without going through a public tender, while significantly expediting the execution of the orders.
Larsen and Toubro had signed a shareholder agreement with Mazagon Dock, but the JV company is yet to be registered.
“Basically, we can’t move further unless the government resolves these issues," Kotwalsaid. In any case, Larsen & Toubro participates when there is a competitive bid for naval contracts. “The JV model was designed to operate differently."
Mazagon had issued an advertisement in 2011 seeking expressions of interest from private ship builders for liquidating some portion of the state-run firm’s huge order book.
“The idea was to share some of the work load—in the case of submarines with L&T. If Mazagon is not able to share the load, there is no real purpose for the JV; the objective of formation of the JV does not get fulfilled. The operation of the JV has been held up because of this," Kotwal said.
In order to enhance self-reliance in defence shipbuilding and for improving the throughput of defence PSUs in producing state-of-the-art naval vessels within the timelines and price lines that are globally competitive, the government last year issued guidelines for formation of JVs. Pursuant to this policy, Mazagon Docks signed shareholder agreements for setting up JVs with private shipyards—for warships with Pipavav Defence and Offshore Engineering Co. Ltd and for submarines with Larsen and Toubro.
“No work has come to the JV so far from Mazagon Dock," said Bhavesh Gandhi, executive vice-chairman and managing director of Pipavav Defence. “It is with the ministry of defence". Pipavav Defence had registered the JV company a few months ago, Gandhi said. Mazagon Dock did not respond to a mail seeking comment. Ministry of Defence could not be reached immediately for comment.
The joint ventures were supposed to leverage the strengths of the respective JV partners in the public and private sectors to work out a collaborative strategy for taking the nation towards self-sufficiency in warship and submarine construction.
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