Tuesday, 26 May 2015

Nurturing shipyards: the case of HSL




By Ajai Shukla
Business Standard, 26th May 15

Notwithstanding the National Democratic Alliance (NDA) government’s declared commitment to “Make in India”, its procurement decisions adhere to this only sporadically. The decision to buy 36 “Made in France” Rafale fighters is only the latest violation of “Make in India”. Much earlier, then defence minister Arun Jaitley had, in his first procurement meeting on October 29, ruled that Moscow would benefit from a Rs 1,800 crore order to refit two Kilo-class submarines in Russia, even though such refits have been --- and must continue to be --- done in India.

Mr Jaitley’s poor decision relates to the Rs 4,800 crore overhaul of six submarines. It allocates the refitting (which involves modernisation-cum-overhaul) of two Kilo-class boats (as submariners refer to their vessels) to Naval Dockyard, Mumbai, and two HDW-origin submarines to Mazagon Dock, Mumbai (MDL). Two more Kilo-class vessels, inexplicably, are to be sent to Russia for refit. Left out in the cold is the defence ministry’s recently acquired Hindustan Shipyard Ltd (HSL) in Visakhapatnam, which successfully completed refitting a Kilo-class submarine, INS Sindhukirti, last week. Also excluded was Naval Dockyard Visakhapatnam, which had earlier refitted two submarines ---INS Sindhudhvaj and Sindhuvir --- and is presently refitting INS Sindhushastra.

Leave aside the rhetoric of “Make in India”, which is proving increasingly hollow. Leave aside the need to build capability in India for repairing and refitting the Kilo-class, which might prove invaluable in wartime. Leave aside the fact that refits in Russia would be more expensive than in India, given that a crew of about 50 officers, sailors and their families would need to be stationed in Russia for two or three years (the duration of the refit), paying out living, education and medical expenses and a handsome deputation allowance. Besides all this, there is the fact that the defence ministry – at the navy’s urging – took over HSL from the Ministry of Shipping specifically to use it as a submarine yard. HSL was to be an alternative to Mazagon Dock Ltd, Mumbai (MDL), which was already burdened with building six Scorpenes (under Project 75) and is also a strong contender for building another six submarines under Project 75I, which is soon to be tendered.

Another twelve indigenous submarines will follow these twelve, according to the 30-Year Submarine Building Plan of 1999. Besides this, the navy’s existing 13 boats --- nine Russian Kilo-class and four German HDW Type 209 --- require periodic refits. All this can be done in India by nurturing Indian shipyards rather than a dependency on Russia. True, HSL took an unacceptably long nine years to refit INS Sindhukirti. But HSL provides figures to suggest that Russian experts cynically prolonged the refit to rule the Indian yard out of future refits. The defence ministry has apparently fallen into the trap, without considering that starving HSL of further refit orders would snuff out invaluable expertise built whilst refitting the Sindhukirti.

Another reason for entrusting HSL with Kilo-class refits is that the defence ministry’s logic for taking over HSL from the ministry of shipping in 2010 no longer holds good. Amongst other uses, HSL was to build nuclear submarines, which are currently assembled next door at the Special Boat Centre (SBC), a small Defence R&D Organisation (DRDO) facility. While MDL built conventional submarines, HSL’s protected location on the eastern coast and its deep-water harbour made it ideal for building larger nuclear submarines that are needed in growing numbers. The first nuclear ballistic missile submarine (SSBN), INS Arihant, will be followed by at least three more SSBNs. A line of nuclear attack submarines (SSNs) is likely, though not yet sanctioned. But a defence ministry committee recently determined that HSL cannot build nuclear submarines, because of nuclear hazard --- its workers live too close to the shipyard.

With HSL’s central logic undermined, if not entirely destroyed, the defence ministry seemingly lost interest in this shipyard. Three other defence shipyards --- Garden Reach Shipbuilders & Engineers, Kolkata (GRSE); the smaller Goa Shipyard Ltd (GSL); and the crown jewel, MDL --- are rich with orders that assure business for a decade to come. MDL has an order book of Rs 60,000 crore; GRSE has Rs 30,000 crore; even tiny GSL has Rs 30,000 crore in orders. HSL, in comparison has just Rs 1,885 crore in orders. With 10 per cent paid up front, MDL has mopped up Rs 6,000 crore in advances, which Rs 500 crore in interest each year. HSL, with almost no cash in hand and a negative net worth that makes accessing funds costly, is forced to bid cautiously in tenders, placing it at a disadvantage against yards with financial muscle.

While private shipyards must be supported, HSL cannot be thrown to the market wolves. Its geographical advantages are priceless. Visakhapatnam port is ten metres deep, far better for launching big ships than the four-metre-deep MDL and GSL, or GRSE, which is on a riverfront. Visakhapatnam harbour requires little dredging because no river flows into it, and a narrow harbour mouth prevents the sea from bringing in sand. HSL owns a full kilometre of water frontage in Visakhapatnam, including a massive 560-metre outfitting jetty that would please any shipbuilder. It is the MoD’s largest shipyard with a work area of 117.55 acres and living accommodation of 142 acres, significantly larger than metro-based dockyards like MDL (75.5 acres). HSL’s shipbuilding facilities include an 80,000 DWT (dead weight tonnes) covered dry dock that can take in an aircraft carrier, and three slipways, including two with capacities of 33,000 DWT and one of 15,000 DWT. 

Given the volume of shipbuilding needed for meeting the navy’s Maritime Capability Perspective Plan (MCPP), the defence ministry has business enough for HSL, as well as every warship-building shipyard. The MCPP envisages the growth of today’s 137-ship navy, with barely 50 capital warships, into a 160-ship navy with 90 capital warships. Even as new warships are built, the existing fleet requires maintenance and refit, necessarily in country. 

A quick survey of the load on defence shipyards shows how badly HSL is needed. Cochin Shipyard Ltd is occupied building India’s aircraft carriers. MDL and GRSE, which together cannot meet the requirement of capital warships like destroyers, frigates, corvettes and submarines, can be supplemented by Larsen & Toubro (L&T), which has valuable technical expertise and a new, 900-acre shipyard at Katupalli, Tamil Nadu. There is good infrastructure in other private sector shipyards, like ABG and Pipavav, but neither has ever built capital warships or submarines. Even so, there are adequate navy and Coast Guard orders for patrol vessels, survey ships, floating docks and diving support vessels. These are required not just for Indian maritime agencies but also for export to Indian Ocean countries as a part of naval diplomacy.

HSL, therefore, must be deliberately developed into a capital warship yard, given its location, infrastructure and recent expertise in refitting submarines. The defence ministry decision to send two Kilo-class submarines to Russia must be changed in favour of HSL. It must also be nominated to build the navy’s requirement of five fleet support ships, large vessels that HSL has experience in building. Perhaps most importantly, the defence ministry must alter HSL’s mindset as a sick shipyard, inherited from the Ministry of Shipping. Its accumulated losses and negative net worth must be made good and a stable cash flow ensured to allow HSL to operate like a corporation. The ministry’s fourth shipyard has the potential to come good; it cannot be allowed to fail.

16 comments:

Anonymous said...

Well you must have forgotten that HSL is selected for Multi role Support Vessel Program, no matter which shipyard wins the contract, HSL will build 2 ships.
Furthermore, I absolutely don't agree to your idea of having kilo's refurbished in HSL, India is in a dire situation regarding its submarine fleet and it needs super quick turnaround in refurbishing the kilo fleet.

Your post appears hollow in logic and substance, ministry of defense cannot and shouldn't nurture dying shipyards. Rather it should be seen if it can be sold off to some private player, who can make use of it in a better way. This idea of government nurturing assets on death bed is archaic, if India wants to create first class ships at a low cost and time then private yards is the only option.

Nikhil said...

Great article Col Shukla. I don't understand how such decisions are taken. Why did the Navy - our most indigenous service - press HSL's case or vice-versa Russia's case? It surely cannot be oblivious to the fact that Russian experts screwed the sub refit in India. Something is missing in the story - wish you'd carried some quotes from serving naval or MOD officers.

tony said...

Nice article sir, glad to some one writing about this seriously... sad to see the plight of HSL, ironically this is the shipyard which produced the first completely 'Made in India' ship post independence #Jal Usha.... Hope the recent pact of HSL with Hyundai heavy industries,Korea goes well atleast and bring some relief...other than location,city conditions, natural port,space and infrastructural advantages,it has a huge advantageous on local factors...region around vizag has large supply of low cost man power, no.of ITI, diploma and graduate Engg colleges and engineering services and adjacent modern steel industry (vizag steel)... it has Indian maritime university campus in city itself and one of the few University(Andhra University) which offers full time Marine and naval architecture engineering courses with good placements in international ship designing companies(though the student intake in this course is only 20 currently per year)...and with a perfect combination of Naval dockyard, ship building centre (SBC) and HSL, this trio has a huge potential to become the typical Sevmash of "Make in India".All that is lacking is the political will in my opinion... In my recent visit to vizag, i was moved to see the once beautiful old and new staff colonies of HSL desolate...hope MoD gives more attention to HSL and revive it systematically...
(HSL has an benchmarked example from its neighbour PSU Vizag steel pant(VSP/RINL) to learn from....VSP was also called as sick PSU which incurred huge losses in 80's and 90's... systemically making use of natural and local factors,along with strong political and bureaucratic will in a span of decade it has turned from loss making industry to registering a growth of over 200 % to become the most advanced steel producer in India and consequently jumping into the league of Navaratna company status... it is doubling its capacity now and looks solid ahead....though the approach of any defence PSU is different form other manufacturing PSU's, hope special focus will be given by MoD to one of the India's oldest " The Scindia Steam navigation company")

Anonymous said...

hand it over... CSL...

Anonymous said...

It would make sense if the navy asked for the Russians to do the refit. The submarine force is not doing so well, they probably want the refit to be quick. In India it would take longer as not all shipyards have the expertise to refit subs and HSL can't refit all the subs at a time.

Anonymous said...

Repeating a previous commentator, your post appears hollow from a logical point of view. You raise the bogey of the government undermining Make In India and then point out that the other shipyards have large orders from the government.

It took HSL 9 years to do a refit. Anecdotal evidence suggests that the situation in the shipyard is difficult. Endemic trade unionism and poor work quality have destroyed the yard.

The government in its strategic view with much more inputs than you and me have access to, decided that the refit for submarine fleet is a priority. That you haven't considered that policy shows that you wrote the headline first and then wrote the article after that.

Avid reader of your blog and I just realised that my tone is a little confrontational, but the article quality was a little low.

Parthasarathi said...

Sir,
Few years back GRSE.( Garden Reach Ship Builders. Kolkata) was almost on the verge of collapse ! Labor trouble was one of the many reasons but definitely was not the only reason. But workers were very knowledgeable and IT. was used on a big way even those days.(at-least 12 years back !) They were using SAP. for inventory control.
From there they have turned around. And today GRSE. is exporting ships !! Not only that they are now participating in various foreign tenders. (for making high quality ships like frigates) They are also expanding fast. They are now buying smaller shipyards alongside Hooghly river.
If GRSE. can turn around and become very profitable then why can't HSL. ?
Regards.

Anonymous said...

NSR says ---

India must at least give one Kilo class submarine to HSL and then put a condition on Russian upgrade to work with HSL concurrently...

India must promise more upgrades if they work with HSL seamlessly...

I think this way both countries will benefit and the expertise of upgrading submarines will not be lost...

If the Project 75 technology was transferred, then India must order 6 more with AIP to keep the companies warm with work and improvement of processes...

P-75I will take long time and India must not lose the TOT of Scorpene at all...it also helps as they come in for upgrades...

Security threat to India is for real...

Manne said...

Submarine building and repair capability is not easy. Once developed it must not be allowed to wither away. Period!

A great article that shines light where others would not bother to. Thanks Colonel.

Anonymous said...

Why should GOI sink money in a sick shipyard when private equity is willing to do the job. The government needs money for its social commitments, remember? HSL should have been sold to scraps long ago. dont know why MOD acquired it in the first place. We seem to have more shipyards than subs available. Besides HSL still cannot upgrade Kilo subs without Russian help, if you dont give them orders they may be pissed enough to delay upgrades in India again. I think they made their point with INS Sindhukirti.

Anonymous said...

This proves that the state owned naval shipyards are starved of Govt orders. Modi sarkar is using taxpayers' money to prop up incompetent family owned companies. If BJP continues on this trajectory, it will meet the same fate of congress.

Anonymous said...

@Anon 9.18

Is it the job of the Govt to rescue loss making Pvt shipyards? Modi's "make in India" has become a scheme to loot the country in the name of defense using shady corrupt unethical Pvt companies. Avro replacement using C295 is one such scheme.

Anonymous said...

It is not the job or responsiblity of the Ministry of defence to give kobs or keep shipyards employed. It is to have a military capable of defending the nation. For that you cant boast of indegenious Shipyards, you need submarines in sea.If Indian shipyards cant deliver them in time then we can and should look outside. I thjink in all this "indinesiation" the country seems to have forgotten the main objective of the armed forces and their equipment should be to be in a state to be deployed, not in shipyards hoping for sarkari babus to eat off them like they do in OFBs and various other "sarkari" PSUs

Anonymous said...

@Anon 13.22 "Is it the job of the Govt to rescue loss making Pvt shipyards? Modi's "make in India" has become a scheme to loot the country in the name of defense using shady corrupt unethical Pvt companies. Avro replacement using C295 is one such scheme."

Please substantiate your allegation - which private shipyards has this government "rescued"? Name one. At a time when private shipyards are sitting idle for more than half a decade and smaller shipyards are being absorbed by larger shipyards - where do you get this asinine rubbish from?

Every single Pvt shipyard is publicly listed or its parent company is publicly listed and they declares their financials as per SEBI guidelines - does HAL declare its financials ? Does HSL ? GSRE ??

Your pathetic attempt to slander the govt by ridiculous allegations of corrupt and "unethical" pvt companies only goes to show that you are just another socialist parasite who wants these failed and lumbering public sector employment agencies to continue indefinitely sucking the tax payer dry with their incompetence, ineptitude and most of all shambolic performance.

Sorry - but not all Indians are ready to have their hard earned tax money flushed down the drain of some failure ridden PSU shipyard that will struggle to make garbage scow!

Anonymous said...

@Anon 10.21

All Pvt shipyards are in the red. These naval shipyards are mean't for making India self reliant wrt defense manufacturing. In a country with more than 800 million below poverty line, defense cannot be an avenue for profit seeking. Whatever profits DPSUs like HAL or MDL generate, goes back to the exchequer, unlike Pvt Cos where the profits go into the accounts of few individuals. Profit from DPSUs can subsidize our enormous defense budget and the reverse will happen if profit seeking Pvt Cos enter this space. Pvt Cos shouldn't be stopped from making defense equipment, but they need to enter into global competition to sell their stuff to Indian defense establishment. Big monopolistic Govt contracts in connivance with corrupt politicians is the secret behind enormous wealth of several big corporates. This is also one of the reason why inspite of Modi's "Make in India" tomtoming nothing has been done to open our market to foreign investments. Doing so will cripple several incompetent Pvt Cos which are basking purely due to political patronage of whichever party that comes to power. The losers are the masses whose fail to get good jobs and the nation at large as it's economy suffers as a consequence.

Anonymous said...

@Anon 19:53
Pvt shipyards are in the red because they live in a competitive world. To survive they must deliver. The profits individuals make is the motivation for them to perform and the basic principle of capitalism that has made first world rich. DPSUs make profit in a monopolistic environment. They dont care how they perform. They often deliver with 3 to 5 times cost overrun and still have profits to show! their profits would disappear if they are put in a competitive environment.
It is naive to believe that corruption happens only in tendering with Pvt sector. Corruption is rampant at every level of functioning in DPSUs. They milk their captive customer(armed forces) as much as possible, fill their individual pockets, fail to deliver on time and cost and are immune to any disciplinary action. Weeding corruption at DPSUs is far more difficult(impossible perhaps) than making sure orders with pvt sector are placed in a transparent manner.