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August 8, 2014

BAE Systems looks to revive contract for supply of 145 guns to India

BAE Systems, which makes M-777 ultra-light howitzer (ULH) guns, is looking to revive a contract for the supply of 145 guns to India by pledging to comply with offset requirements in a letter to the ministry of defence.
The company is also open to reviving its partnership with Mahindra & Mahindra and is discussing possible joint ventures with two public sector companies, following the announcement that India will allow up to 49% overseas investment in the sector.
"We have conveyed to the defence ministry that our company is fully compliant with the offset rules and have written a letter confirming that we would comply with the direct offset rules," Ian King, chief executive officer of BAE Systems, told ET. Offsets pertain to local investment commitments by overseas companies as part of purchase contracts.
The letter was required after defence minister Arun Jaitley informed Parliament that the contract was stuck. "The deal has not progressed due to cost issues and because the vendor has not been able to come up with a proposal fully compliant to the offset requirement," Jaitley said. The Indian government ordered 145 M-777s in 2013 at a cost of aboutRs 3,500 crore but that could increase to as much as Rs 5,000 crore due to various reasons, including reopening of the assembly line. However, King clarified that the cost as cited by the US government last year was the upper end of the price band. "It is a ceiling price, which is subject to negotiations, and the price of the guns will be lesser than this," he said.
The order was a government-togovernment contract between the US and India. BAE was the only shortlisted bidder left after Singapore Kinetics was blacklisted for 10 years by the government over bribery allegations that the company has denied. The US government had issued a Letter of Acceptance, which lapsed on October 15, 2013, and BAE is hopeful that this will be discussed during US defence secretary Chuck Hagel's three-day visit to India starting Thursday.
The acquisition of the ultralight howitzer artillery guns is crucial for the Indian Army since these are to be positioned in mountainous areas bordering China in the northern sector and in the Northeast.
These guns are expected to dramatically boost the firepower of the army since they can be moved easily and are ideal for mountain warfare. King welcomed the move by the government to raise the foreign direct investment (FDI) limit in defence and said that it gives the company enough opportunity to get into more than one programmespecific joint venture. "I am happy with 49% and we will be looking at joint ventures with all industrial companies.
We are in advanced stage of discussions with two public sector companies for joint ventures on communications and guns," said King, adding it was also open to reviving partnership with M&M.

Economic times 

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