Local shipbuilders are increasingly eyeing government-funded defence contracts to stay afloat as orders for constructing commercial ships dry up in the wake of an oversupply of vessels and stagnation in the tanker markets globally.
This year alone, Indian shipbuilders have won defence contracts worth at least Rs.37,000 crore.
The biggest of these came last week, when Mumbai-listed Pipavav Shipyard Ltd announced it had signed a protocol with Rosoboronexport State Corporation for constructing four stealth frigates at its yard for the Indian Navy under Russian collaboration, technology and supervision.
The protocol also covers mid-life updates, dry docking, repairs and modernization of submarines of Russian origin in use by the navy, the company said in a statement.
Russia has delivered three stealth frigates to India and has to supply four more under an agreement signed between the two countries. Rosoboronexport is a federal state enterprise acting as the sole Russian state intermediary agency for export and import of military and dual-purpose products, technologies and services.
“This protocol will help the company develop state-of-the-art technology to build front-line warships on a cost-effective, time-bound basis,” said Pipavav Shipyard, which has a government licence to build warships. The navy would benefit in terms of cost and foreign exchange savings in addition to the strategic advantage, it added.
Pipavav has been struggling with cancellations of commercial shipbuilding contracts signed with global fleet owners during the shipbuilding boom of 2005-08, as well as due to delays in executing some of these contracts.
“This is a significant development for Pipavav,” said an executive at Larsen and Toubro Ltd (L&T), which is erecting a shipyard at Kattupalli in Tamil Nadu. “Each stealth frigate costs about Rs.8,000-9,000 crore. This will give business to Pipavav for the next 10 years if not more,” he said requesting anonymity.
L&T, India’s biggest engineering and construction firm, which began work on the Rs.3,375 crore Kattupalli yard during the boom, had to shift gears after the global slowdown of 2008-09 and decided to focus on defence orders.
“We are concentrating on defence shipbuilding contracts till the market for commercial ships revive,” the L&T executive said.
In March, L&T won a Rs.977 crore contract for the design and construction of 36 high- speed interceptor boats for the Indian Coast Guard. It is bidding for more such contracts.
Last week, Bharati Shipyard Ltd, emerged the lowest bidder for constructing six offshore patrol vessels for the coast guard valued at around Rs.1,100 crore, a person briefed on the tendering process, said on condition of anonymity.
And ABG Shipyard Ltd, India’s biggest shipbuilder outside state control, is awaiting a formal communication from the navy for constructing two cadet training ships, each costing about Rs.450 crore, a spokesman for the company said.
A spokesman for the navy declined to comment ahead of a formal announcement of the award of contracts.
In June, Pipavav Shipyard won a Rs.2,500 crore order from the navy for constructing five gun boats or so-called offshore patrol vessels. Later in October, state-run Cochin Shipyard Ltd won a contract from the coast guard for constructing 20 fast patrol vessels valued at Rs.1,500 crore.
Construction of fast patrol vessels are among the initiatives taken by the government to strengthen coastal security after the November 2008 terror attacks by 10 gunmen who entered Mumbai by sea.
The navy and coast guard have lined up projects worth over Rs.50,000 crore over the next 10-15 years to patrol the country’s coastline stretching over 7,400km and check infiltration.
“New shipbuilding contracts are hard to come by for local shipyards at least on the commercial side,” said Revati Kasture, general manager and head of research at CARE Ratings. “Defence contracts are keeping them afloat.”
Indian yards have nothing to rave about in terms of prestigious commercial orders in 2010 except for a Rs.2,000 crore order for ABG Shipyard in November for constructing two oil drilling rigs and that too came from one of its affiliates based in Singapore.
“India’s defence shipbuilding market is huge,” said P.C. Kapoor, managing director of Bharati Shipyard, which is executing defence orders worth about Rs.300 crore. “India need(s) to ramp up its navy and coast guard capabilities. Getting ships from abroad is not the solution.”
Earlier, only state-run yards such as Cochin Shipyard, Hindustan Shipyard Ltd, Goa Shipyard Ltd and Mazagon Dock Ltd were able to undertake defence contracts.
“This was because defence agencies were not comfortable placing orders with private yards because of a lack of evaluation of their facilities, capabilities and financial position,” Kasture said.
In May, the defence ministry issued an order requiring Indian private shipyards to obtain financial strength grading from empanelled rating agencies—a prerequisite to facilitate their capacity assessment. This was done to give thrust to indigenous ship building capability and encourage participation of private shipyards in naval projects.
This year alone, Indian shipbuilders have won defence contracts worth at least Rs.37,000 crore.
The biggest of these came last week, when Mumbai-listed Pipavav Shipyard Ltd announced it had signed a protocol with Rosoboronexport State Corporation for constructing four stealth frigates at its yard for the Indian Navy under Russian collaboration, technology and supervision.
The protocol also covers mid-life updates, dry docking, repairs and modernization of submarines of Russian origin in use by the navy, the company said in a statement.
Russia has delivered three stealth frigates to India and has to supply four more under an agreement signed between the two countries. Rosoboronexport is a federal state enterprise acting as the sole Russian state intermediary agency for export and import of military and dual-purpose products, technologies and services.
“This protocol will help the company develop state-of-the-art technology to build front-line warships on a cost-effective, time-bound basis,” said Pipavav Shipyard, which has a government licence to build warships. The navy would benefit in terms of cost and foreign exchange savings in addition to the strategic advantage, it added.
Pipavav has been struggling with cancellations of commercial shipbuilding contracts signed with global fleet owners during the shipbuilding boom of 2005-08, as well as due to delays in executing some of these contracts.
“This is a significant development for Pipavav,” said an executive at Larsen and Toubro Ltd (L&T), which is erecting a shipyard at Kattupalli in Tamil Nadu. “Each stealth frigate costs about Rs.8,000-9,000 crore. This will give business to Pipavav for the next 10 years if not more,” he said requesting anonymity.
L&T, India’s biggest engineering and construction firm, which began work on the Rs.3,375 crore Kattupalli yard during the boom, had to shift gears after the global slowdown of 2008-09 and decided to focus on defence orders.
“We are concentrating on defence shipbuilding contracts till the market for commercial ships revive,” the L&T executive said.
In March, L&T won a Rs.977 crore contract for the design and construction of 36 high- speed interceptor boats for the Indian Coast Guard. It is bidding for more such contracts.
Last week, Bharati Shipyard Ltd, emerged the lowest bidder for constructing six offshore patrol vessels for the coast guard valued at around Rs.1,100 crore, a person briefed on the tendering process, said on condition of anonymity.
And ABG Shipyard Ltd, India’s biggest shipbuilder outside state control, is awaiting a formal communication from the navy for constructing two cadet training ships, each costing about Rs.450 crore, a spokesman for the company said.
A spokesman for the navy declined to comment ahead of a formal announcement of the award of contracts.
In June, Pipavav Shipyard won a Rs.2,500 crore order from the navy for constructing five gun boats or so-called offshore patrol vessels. Later in October, state-run Cochin Shipyard Ltd won a contract from the coast guard for constructing 20 fast patrol vessels valued at Rs.1,500 crore.
Construction of fast patrol vessels are among the initiatives taken by the government to strengthen coastal security after the November 2008 terror attacks by 10 gunmen who entered Mumbai by sea.
The navy and coast guard have lined up projects worth over Rs.50,000 crore over the next 10-15 years to patrol the country’s coastline stretching over 7,400km and check infiltration.
“New shipbuilding contracts are hard to come by for local shipyards at least on the commercial side,” said Revati Kasture, general manager and head of research at CARE Ratings. “Defence contracts are keeping them afloat.”
Indian yards have nothing to rave about in terms of prestigious commercial orders in 2010 except for a Rs.2,000 crore order for ABG Shipyard in November for constructing two oil drilling rigs and that too came from one of its affiliates based in Singapore.
“India’s defence shipbuilding market is huge,” said P.C. Kapoor, managing director of Bharati Shipyard, which is executing defence orders worth about Rs.300 crore. “India need(s) to ramp up its navy and coast guard capabilities. Getting ships from abroad is not the solution.”
Earlier, only state-run yards such as Cochin Shipyard, Hindustan Shipyard Ltd, Goa Shipyard Ltd and Mazagon Dock Ltd were able to undertake defence contracts.
“This was because defence agencies were not comfortable placing orders with private yards because of a lack of evaluation of their facilities, capabilities and financial position,” Kasture said.
In May, the defence ministry issued an order requiring Indian private shipyards to obtain financial strength grading from empanelled rating agencies—a prerequisite to facilitate their capacity assessment. This was done to give thrust to indigenous ship building capability and encourage participation of private shipyards in naval projects.
The Shipbuilding Supervision business provides a wide range of services: proposals on hull design based on logistics needs and trends in the market, development of plans for new ships and decisions on spec, drawings approval, negotiations with shipyards and the preparation of contracts.Nice post!
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