July 4, 2012

Mazagon Dock may split order among 4

The need to hasten implementation and avoid any further confrontation with other shipbuilding companies may see Mazagon Dock, India’s largest defence shipyard, split its ambitious Rs 1-lakh-crore naval order book among four major Indian private shipbuilders. After Pipapav Defence, Mazagon is considering similar joint ventures with L&T, ABG Shipyard and Bharati Shipyard, say people in the know.
Pipavav and Mazagon have already agreed on collaboration, but the agreement between the two does not have any exclusivity clause. “Pipavav is the preferred partner, but Mazagon may also explore roping in others, considering the strategic nature of national security,” said a senior official from one of these shipbuilding companies, on condition of anonymity.
 So far, however, no written communication has been issued to this effect.
Last year, Mazagon had invited private shipbuilders to partner it in executing the mega warship orders, already delayed by seven-eight years. It had Mazagon had shortlisted four of the eight companies interested, before choosing Pipavav as the partner. The three companies that lost out complained to the defence ministry, alleging opaqueness in Pipavav’s selection. The ministry put the joint venture on hold, saying fresh guidelines would be issued in this regard. However, in May, the ministry gave its approval to the Pipavav-Mazagon joint venture.
However, considering the enormity of the contract, it may be difficult for just one vendor, Pipavav, to carry out the Navy warships projects of Rs 1 lakh crore. Therefore, Mazagon Dock is considering forming joint ventures with each of the four companies approved by the ministry to carry out the defence orders and expressions of interest for these would be invited soon. A Mazagon Dock official, on condition of anonymity, told Business Standard, “The plan is very fluid at the moment, but details are being worked out.”
Mazagon Dock did not reply to a query sent to it.
The procedure being considered is now possible, after the government had removed the ‘exclusivity’ norm, making such joint ventures open for all government-approved defence shipbuilders—BG Shipyard, Bharati Shipyard, L&T and Pipavav.
An official from one of the shipbuilders said, “This is definitely a good opportunity for us to get a share of this large order. It’s impossible for a joint venture to complete the order in the given timeframe. With multiple ventures and the work being split, the process would gain speed.”
As on March 31, ABG Shipyard had an order book of Rs 16,000 crore, to be executed over three-five years. Pipavav has an order book of about Rs 7,000 crore, while Bharati Shipyard’s order book stands at Rs 6,500 crore. With the Mazagon order book of Rs 1 lakh crore being split between the four companies, the revenue and profitability of these companies would get a boost, albeit over a long period of time.
The Mazagon projects would also help private shipbuilders boost revenue, aiding the shipping sector, which is recording a scarcity in new orders. The ministry’s nod to the Mazagon-Pipavav joint venture has also cleared the path for other government-owned defence shipyards like Hindustan Shipyard, Cochin Shipyard and Garden Reach Works in Kolkata to seek similar joint ventures for defence orders. The overall defence order book is estimated at a whopping Rs 1,60,000 crore, to be delivered over four-five years.

Business Standard

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