Saturday, 19 December 2009

Scorpene project snagged in government web, because contract with Armaris was manipulated to convey impression of greater indigenisation


The first Scorpene hull being fabricated in 2007. Today, that hull is complete but the MoD is still negotiating with DCNS to bring down the prices of critical systems for the submarine.

Minister of State for Defence, Pallam Raju: “French government is shirking their responsibility”


by Ajai Shukla
Business Standard, 19th Dec 09

An air of resignation hangs over the East Yard, a giant workshop shed in Mumbai’s Mazagon Dock Limited (MDL), where six Scorpene submarines are to be fabricated for the Indian Navy. Two years ago, when Business Standard visited this facility, it hummed with activity as welders assembled the hull of the first Scorpene, which was to join the Indian Navy in 2012.

Since then rumours of delay, of as much as two years, have swirled around Project 75, under which the Scorpenes have been acquired. Now, Business Standard has learned that work on the first Scorpene submarine has ground to a halt, and it is unlikely to be ready before 2015. And, most disquietingly, that delay is due to a contracting blunder, stemming from the MoD’s propagation of a myth that significant parts of the submarine were being built from Indian components.

This led the MoD to create a special category called Mazagon Procured Materials, or MPM. Of the total project cost of Rs 18,798 crores, some Rs 2700 crores (Euro 400 million) were set aside for MDL to contract directly for submarine materials. But the impression created --- by giving MDL a budget for locally procuring materials and systems from multiple vendors --- was false. The bulk of the MPM budget, as the MoD knew, would go straight to a single vendor: French company, Armaris, with whom India signed the Scorpene contract. This would pay for critical submarine systems, including the engine, the generators and special submarine steels.

There was no question of competitive bidding for these items. Since they affected crucial aspects of the Scorpene’s performance, such as noise levels, they had to be bought from the original vendor, Armaris, for performance guarantees to be valid.

It is not clear why the MoD left these crucial Scorpene systems unpriced. What is clear is that French company DCNS, which took over Armaris in 2007, is now demanding close to Rs 4700 crores (Euro 700 million) for these items, almost twice what was budgeted.

Minister of State for Defence, Pallam Raju, has told Business Standard that DCNS is basing its higher demand on cost inflation since the contract was signed in October 2005. The MoD is asking the French government to intercede with DCNS, but Paris is unwilling to help.

Mr Raju says, “We expect the French government to play a role in ensuring that it (the MPM items) is not priced abnormally high. We understand their need to make a profit, but the price should not be abnormally high. But we feel that the French government is shirking their responsibility.”

The MoD has pleaded its case with a range of French officials, but in vain. Says Pallam Raju, “I visited Paris (in June 09) and I had a meeting with DCNS. They assured us that they will hold our hand, but we are not getting that comfort level. I projected [the case] to the French defence minister as well. [In November] we had a senior French MoD bureaucrat… come [to Delhi] and I reflected it to him as well.

The MoD blames DCNS’ takeover of Armaris for further complicating negotiations. But that does not answer why a contract that took nine years to finalise failed to fix prices for materials worth Rs 2700 crores.

Senior naval officers who are familiar with the negotiations point out, “The inclusion of so many crucial systems in the MPM package --- systems that everyone knew had to be bought from Armaris/DCNS --- was a grave contracting mistake. This was done to give the impression of greater indigenisation… since these would apparently be items that MDL was procuring. But this scheme has backfired badly.”

Naval planners are struggling to deal with a situation where the induction of Scorpene submarines remains far away. Only after the MoD and DCNS agree on a price will production begin in France of the engines, generators and other systems that are included in the MPM category. Technicians working on Project 75 estimate that, once a price is fixed and a contract signed, it will be 33-36 months before the items are delivered to MDL and fitted on the first Scorpene. Then will start the painstaking process of outfitting the rest of the vessel, fitting weapons and sensors and carrying out lengthy trials before handing over the submarine to the navy.

But work in the East Yard has not entirely stopped. Having completed the first hull, MDL is going ahead with fabricating the second and the third. Officials involved in Project 75 say this will allow submarines to be delivered at 9-month intervals, rather than the planned 12 months.

But until the MPM contract is signed, and the systems delivered, MDL’s East Yard will not be producing submarines, but 200-foot-long metal tubes for a project that began two decades ago, and has gradually become a symbol of ineffective defence planning.

22 comments:

joydeep ghosh said...

Ajai Sir

thanx for update on Scorpene project
remembr what I posted some time back

INS Sindhukirti is laying in the Vizag docks for the last 5 yrs n is expected to remain there 4r next 5 yrs. (talk abt wastage of resources n tax payers money)

Q1 What abt the allegations of kickacks in the Scorpene deal (I small a rat here with haggling 4r cost going up 2times, talk abt wastage of resources n tax payers money)

Q2. Preparing a sub hull in advance is ok. as negotiations r on cant we focus on putting in other systems till these materails arrive.

Q3. Is there a chance 2 c the 1st Scorpene inducted b4r 2018. (by that time only 6-7 subs will be operational)

Q4. The next group of 75I subs will have AIP (any news on that), will these b based on Scorpenes or will b a amalgamation of Scorpene with Kilo subs.

Anonymous said...

Do these guys do anything right ?? Same problems with the Hawk deal...............God know what will happen to the MMRCA deal...............

Anonymous said...

Ajai ji,

This will continue to happen till we depend on others. Just the fact that you are paying, alone does not seems to guarantee you the goodies.

One more question....any updates on the MMRCA...there seems to a pin drop silence even in media...

Anonymous said...

Looks like Malaysians don't have so much problems with their Scorpene subs. According to the net, they bought two in 2002 for 3.4 billion ringgit ($961 million) including extensive training, the first delivered on 2008, second this year. That leads to $400/450 million a piece built in France. In our case the subs are built at Mazagon, therefore there is a major ToT and final price should be (much) more higher. I aslo red recently an interview from top manager of MDL saying that the ToT from French company DCNS was quite good. So, what's the way forward ?

Anonymous said...

"It is not clear why the MoD left these crucial Scorpene systems unpriced"

Would a private institution have waited 2 years before forcing this issue?

Can Socialism (Mazagon Docks) coexist within a democracy?

Rahul Singh said...

After putting our feet in almost all dimensions of defence hardware including SSBNs. I wonder why, we are still not talking about developing our own SSKs?

Anonymous said...

Shuklaji,
"Mazagon Procured Materials, or MPM. Of the total project cost of Rs 18,798 crores, some Rs 2700 crores (Euro 400 million) were set aside for MDL to contract directly for submarine materials."....

"This would pay for critical submarine systems, including the engine, the generators and special submarine steels"

Qn:
Did MDL forget to place the orders for the parts in 2005/6?

Where was the hiccup? Were the french raising the prices from 2005/6 onwards and MDL was stuck in deer-in-headlight syndrome?

Indian said...

the best way to go is........Indigenous manufacturing.
even though the product fall behind the world class and contemporary blah blah,its work the money and knowledge base and experience

These days,everyone is becoming greedy.and French are the grandfathers of greediness.

Atleast MOD should realise and show some balls in drafting a contract.

Karupaswamy said...

MoD should not be allowed for doing such negotiations, What experience do these pathetic politicians have.

There should be a dedicated purchase department setup - one for each of the 3 services and each one should have an army of lawyers familiar with international law and it should also hire attorneys from other vendor countries as contractors to write iron clad contracts for penalty clause for delays and breach of contract terms.

The only role of MoD should be to approve. They should not be allowed to touch our tax money.

What did that fellow palladam raju do in france? Does he have even the basic layman's knowledge about the contract that he is going to negotiate. Does he even know what he is going there for? He sure would have had a fun trip in our tax money sightseeing the Eiffel tower and enjoying the french girls.

I wish there is a Military coup in our country just for once so that these corrupt politicians are punished brutally for their deeds. Unfortunately such things never happen in a democracy.

Anonymous said...

hahaha.......

Ajai good article!

What exactly they do sitting in the South Block? Every defence project is delayed by at least one decade! At the time those technologies become obsolete! Even a small company management can run that better than them.

I know that for every defence deal they need huge amount of money in their pocket (Swiss Bank), but take the money as much you want but at least give the arms to the forces in time.


How many submarines do we have forget China (64 submarine) even Pakistan have more advanced submarine than India! They got 3 advanced Agosta-90B with AIP and now they are getting more advanced fuel-cell based U-214. Now what we have? Out of 10 old Kilo class submarines, two only upgraded by Russia and they failed in the tests! Half of the rests are sitting ducks in the harbors.

These Babus and Netas think that they can do what ever they want! They are playing with national security just like young children. They don't bother about India's people and her security or deterrence.

Hail the Babus.

Anonymous said...

great article...now we really know what going on inside MDL.
Thanks

KR said...

Seems like there's more to it. Why are they avoiding paying the money and instead opting to delay the project? The blame game can be sorted out later.

Jigish Parikh said...

Since when did we anticipate our politicians to do one thing right when it comes to Defense?...My only wish is that this previous generation of politicians either retire or die gracefully at the earliest OR stop poking their heads into matters Greek and Latin to them. It's super-duper-frustrating to see India's military ambitions clipped due to this knuckle-heads. Every passing day our enemies are strengthening their partnership,offense and defense. What are we doing ? Haggling to save few greens ! Way to become Super-power :)

Anonymous said...

http://china-arsenal.blogspot.com/2009/12/carrier-based-j-10c-fighter.html

Anonymous said...

Hi,

1) Is Official in MoD is capable enough for the Job? Are they Qualified / Fit for the Job?

2) One thing i have learned is that , The Defence Forces need wepons in 2050 , should tell the Babus and MInisters now, by 2050 they able to deliver it.

3) The Aircraft contract will not happen by 2015 becasue babus dont able to ready english and it take one year time to figure out how and who will take money home for their famy to buy car / luxery.

4)Why not MoD officials salary also get late by 2-3 years. why not this happened?

5) Why not bullets for PM body guards arrive late by 2-3 years ? why not home allocated to babus should not take 4-5 years to allocations?

Those babu's are not capable enough, even class 10th Student more capable in planning then not old uneducated mens.

AK said...

2015 for the first sub. Add another few years for induction, sea trials etc etc. So India is staring at 2020 and beyond for the rest of the subs.
Bloody expensive piece of junk by then I must say.

Congrats to the incorruptible spirit of Shri Anthony and his very able side kick Raju. They are in the wrong business I believe.

joydeep ghosh said...

Ajai sir, can I get answer to my querries

Q1 What abt the allegations of kickacks in the Scorpene deal (I small a rat here with haggling 4r cost going up 2times, talk abt wastage of resources n tax payers money)

Q2. Preparing a sub hull in advance is ok. as negotiations r on cant we focus on putting in other systems till these materails arrive.

Q3. Is there a chance 2 c the 1st Scorpene inducted b4r 2018. (by that time only 6-7 subs will be operational)

Q4. The next group of 75I subs will have AIP (any news on that), will these b based on Scorpenes or will b a amalgamation of Scorpene with Kilo subs.

Also in reply to my querry on Project 28 warship, u said there is need for single role warships.

What abt F22P frigates of PAK navy.

These are said to be multi role warships. How India can tackle these ships that can operate standalone.

Anonymous said...

Thanks for the piece it made me lol, Ajai. I know I can count on your blog to make me smile.

Karupaswamy said...

Ajai would you please give us an insight about the the thermonuclear fizzle fiasco and about the context of MRCA possibly being used as a delivery platform of these N-Devices.

http://www.stratpost.com/top-experts-warn-indias-h-bomb-a-dud

Broadsword said...

Just to clarify a couple of points raised:

1. I don't think MDL can be blamed for this delay. It is largely due to sloppy contracting by the MoD and the ministry's intention to dupe the Indian public.

2. The first Scorpene could well be delivered by 2015. If the contract is signed in early 2010, it will take 33-36 months for the engines/generators etc to be delivered and fitted, i.e. early 2013. Say another year for the rest of the systems, sensors and weaponry, i.e. 2014. And then a year for trials etc, i.e. 2015. But that means everything going smoothly hereafter.

3. I would not criticise MoS for Defence, Pallam Raju. He has recently been given charge of the defence production department and is travelling furiously to ordnance factories, DPSUs and DRDO labs to learn the ropes. It takes some time, but he is both diligent and honest and will make a good head. Of course, having Antony sitting on your head is not exactly a happy situation.

Anonymous said...

MoS Pallam Raju is very well-informed on defence matters, a rarity for a desi politician.

Anonymous said...

Ajay,

Hope you are having good holidays..

Happy new year and all the best !!!