While Indian yards may find it difficult to compete with Japanese, Korean and Chinese yards for commercial ship orders for a number of reasons, they could convert their expertise in naval shipbuilding into an opportunity by tapping export orders from friendly nations
It’s becoming clear that Indian shipyards, starved of commercial orders, are being thrown a life line by the government in the form of naval contracts. Last week, the defence acquisition council headed by defence minister Arun Jaitley (also India’s finance minister) approved multi-billion-dollar defence projects including constructing six submarines in India worth a combined Rs.50,000 crore. India’s shipbuilders—both state-owned and private—did not foresee a crisis when they rapidly added new capacities and expanded existing facilities during the shipping super boom of 2004-2007. But the collapse of Lehman Brothers Holdings Inc. in September 2008 changed their fortunes. Local shipyards quickly changed tracks to focus on naval orders. With commercial ship orders in the doldrums, yards have been surviving on government-funded naval contracts such as fast patrol vessels and interceptor boats. That’s how state-owned Cochin Shipyard Ltd was given the mandate to build India’s first home-made aircraft carrier.
The six submarines cleared by the defence acquisition council will be air independent propulsion-capable, enabling them to stay under water longer than a conventional submarine, besides having enhanced stealth features. While Indian yards may find it difficult to compete with Japanese, Korean and Chinese yards for commercial ship orders for a number of reasons, they could convert their expertise in naval shipbuilding into an opportunity by tapping export orders from friendly nations. In early August, the government raised the limit for foreign direct investment (FDI) in the defence sector to 49% from 26% in a bid to cut imports by indigenizing defence production.
India is one of the world’s largest arms importers. This is also an area where technological collaboration with an overseas naval shipbuilding specialist could be relatively easy to come by, given the sheer size of India’s naval ship market, unlike other specialized shipbuilding segments such as liquefied natural gas (LNG) carriers. The government did play a role, as part of the “Make in India” campaign, by mandating that three of the nine new LNG ships to be hired by state-owned natural gas firm GAIL (India) Ltd from fleet owners for 20 years for shipping gas from the US be built in India. But Indian yards are struggling to get technological tie-ups to be able to take up the contracts.
The stiff qualification criteria for shipyards set forth by GAIL will make only a tiny number of well entrenched yards in South Korea eligible to build these carriers. And these are the yards that have the least incentive to share technology with Indian yards. Rightly so, perhaps, because they don’t want to create competition for themselves from Indian yards. Local shipbuilders have started lobbying the government to help put technological tie-ups in place without which India will miss an opportunity to get started in the LNG shipbuilding business and open new frontiers. Nations having control/ownership of large volumes of cargo such as LNG are seen leveraging that strength to build their own national fleet. The just concluded tender floated by Korea Gas Corp. (KOGAS), the world’s biggest LNG buyer, for hiring six LNG carriers for 20 years is a case in point.
The tender was open only to South Korean companies and the ships must be South Korean-flagged and built domestically. On the defence shipbuilding side, it would be interesting to see how the Narendra Modi government tackles the stalled joint ventures of state-owned Mazagon Dock Ltd with Larsen and Toubro Ltd (L&T) and Pipavav Defence and Offshore Engineering Co. Ltd. In order to enhance self-reliance in defence shipbuilding and for improving the throughput of defence public sector units in producing state-of-the-art naval vessels within the timelines and price lines that are globally competitive, the Manmohan Singh-led government framed norms in 2012 for formation of such joint ventures. Pursuant to this policy, Mazagon Dock, India’s biggest warship-builder, signed shareholder agreements (SHA) for setting up joint ventures (JVs) with private shipyards—for warships with Pipavav Defence and for submarines with L&T. After the completion of the selection of partners based on these guidelines, the United Progressive Alliance (UPA) government, however, said that the JVs would have to bid on a competitive basis for taking a portion of the state-run firm’s huge order book, stalling the operation of the ventures.
The JVs, if operated as per the original plan, could potentially have given Pipavav and L&T access to some portion of the Rs.1 trillion order book currently under execution by Mumbai-based Mazagon Dock without going through a public tender, while significantly accelerating the execution of the orders. A decision on the JVs is critical to India’s plan to build the six submarines locally, given the infrastructure constraints at Mazagon Dock. The direction of Indian shipbuilding will also depend a lot on what the government has to offer shipbuilders in the policy for promoting the industry assured by Jaitley in the budget.
Read more at: All above board | Naval shipbuilding hopes get a boost - Livemint
It’s becoming clear that Indian shipyards, starved of commercial orders, are being thrown a life line by the government in the form of naval contracts. Last week, the defence acquisition council headed by defence minister Arun Jaitley (also India’s finance minister) approved multi-billion-dollar defence projects including constructing six submarines in India worth a combined Rs.50,000 crore. India’s shipbuilders—both state-owned and private—did not foresee a crisis when they rapidly added new capacities and expanded existing facilities during the shipping super boom of 2004-2007. But the collapse of Lehman Brothers Holdings Inc. in September 2008 changed their fortunes. Local shipyards quickly changed tracks to focus on naval orders. With commercial ship orders in the doldrums, yards have been surviving on government-funded naval contracts such as fast patrol vessels and interceptor boats. That’s how state-owned Cochin Shipyard Ltd was given the mandate to build India’s first home-made aircraft carrier.
The six submarines cleared by the defence acquisition council will be air independent propulsion-capable, enabling them to stay under water longer than a conventional submarine, besides having enhanced stealth features. While Indian yards may find it difficult to compete with Japanese, Korean and Chinese yards for commercial ship orders for a number of reasons, they could convert their expertise in naval shipbuilding into an opportunity by tapping export orders from friendly nations. In early August, the government raised the limit for foreign direct investment (FDI) in the defence sector to 49% from 26% in a bid to cut imports by indigenizing defence production.
India is one of the world’s largest arms importers. This is also an area where technological collaboration with an overseas naval shipbuilding specialist could be relatively easy to come by, given the sheer size of India’s naval ship market, unlike other specialized shipbuilding segments such as liquefied natural gas (LNG) carriers. The government did play a role, as part of the “Make in India” campaign, by mandating that three of the nine new LNG ships to be hired by state-owned natural gas firm GAIL (India) Ltd from fleet owners for 20 years for shipping gas from the US be built in India. But Indian yards are struggling to get technological tie-ups to be able to take up the contracts.
The stiff qualification criteria for shipyards set forth by GAIL will make only a tiny number of well entrenched yards in South Korea eligible to build these carriers. And these are the yards that have the least incentive to share technology with Indian yards. Rightly so, perhaps, because they don’t want to create competition for themselves from Indian yards. Local shipbuilders have started lobbying the government to help put technological tie-ups in place without which India will miss an opportunity to get started in the LNG shipbuilding business and open new frontiers. Nations having control/ownership of large volumes of cargo such as LNG are seen leveraging that strength to build their own national fleet. The just concluded tender floated by Korea Gas Corp. (KOGAS), the world’s biggest LNG buyer, for hiring six LNG carriers for 20 years is a case in point.
The tender was open only to South Korean companies and the ships must be South Korean-flagged and built domestically. On the defence shipbuilding side, it would be interesting to see how the Narendra Modi government tackles the stalled joint ventures of state-owned Mazagon Dock Ltd with Larsen and Toubro Ltd (L&T) and Pipavav Defence and Offshore Engineering Co. Ltd. In order to enhance self-reliance in defence shipbuilding and for improving the throughput of defence public sector units in producing state-of-the-art naval vessels within the timelines and price lines that are globally competitive, the Manmohan Singh-led government framed norms in 2012 for formation of such joint ventures. Pursuant to this policy, Mazagon Dock, India’s biggest warship-builder, signed shareholder agreements (SHA) for setting up joint ventures (JVs) with private shipyards—for warships with Pipavav Defence and for submarines with L&T. After the completion of the selection of partners based on these guidelines, the United Progressive Alliance (UPA) government, however, said that the JVs would have to bid on a competitive basis for taking a portion of the state-run firm’s huge order book, stalling the operation of the ventures.
The JVs, if operated as per the original plan, could potentially have given Pipavav and L&T access to some portion of the Rs.1 trillion order book currently under execution by Mumbai-based Mazagon Dock without going through a public tender, while significantly accelerating the execution of the orders. A decision on the JVs is critical to India’s plan to build the six submarines locally, given the infrastructure constraints at Mazagon Dock. The direction of Indian shipbuilding will also depend a lot on what the government has to offer shipbuilders in the policy for promoting the industry assured by Jaitley in the budget.
Read more at: All above board | Naval shipbuilding hopes get a boost - Livemint
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