Wednesday, 22 July 2015

Anil Ambani signs splashy Russian joint venture for submarine overhaul

Projects Rs 31,000 crore of business from Indian and regional navies

By Ajai Shukla
Business Standard, 22nd July 15

In a first for a private Indian defence company, Pipavav Defence & Offshore Engineering Co. Ltd. (PDOC) announced on Tuesday a joint venture (JV) with Russia’s Zvyozdochka submarine overhaul yard. This positions PDOC nicely for overhauling India’s nine Russian-origin Kilo-class submarines, and several identical submarines operated by other regional navies.

In an official announcement in Mumbai today, PDOC stated: “The indicative value of work proposed to be undertaken by the proposed JV is approx. (sic) Rs 11,000 crore.”

PDOC also mentioned “potential additional revenues of approx. Rs 20,000 crore” from the navies of Iran, Algeria and Vietnam.

A submarine undergoes an overhaul or refit --- termed “medium refit and life certification” (MRLC) --- every 10-15 years in its 30-year service life. This involves upgrading weapons, sensors and communications systems; and inspecting, repairing and replacing worn out parts of a submarine’s two hulls (an inner “pressure hull” and an outer hull).

Refitting a Kilo-class (or 877 EKM) submarine in India offers advantages like cheaper labour costs and saving on transportation to Russia and back. It also provides opportunities for indigenizing sub-systems in the submarine, and develops expertise.

PDOC’s statement says that Zvyozdochka will “provide complete technical assistance and support to the JV, including inter alia for enhancement of infrastructure at the PDOC facilities, training of engineers, etc. PDOC technicians will also be closely associated with the first Refit to be carried out in Russia.”

On August 29, 2014, the defence ministry had cleared a Rs 4,800 crore refit for six submarines. Mazagon Dock Ltd, Mumbai, was to refit two German-origin HDW submarines. Meanwhile Zvyozdochka and Naval Dockyard, Mumbai would each refit two Kilo-class submarines.

It is unclear whether the defence ministry is committed to the new JV between PDOC and Zvyozdochka; and, if so, whether it would change the arrangement it has already cleared.

It is also unclear whether the defence ministry would disregard the experience already developed in two Indian shipyards --- Naval Dockyard, Visakhapatnam, and Hindustan Shipyard Ltd, Visakhapatnam (HSL) --- which have refitted one Kilo-class submarine each.

Furthermore, other Indian shipyards, including Larsen & Toubro, are competing for a chunk of the submarine overhaul business.

HSL, especially, has had a bitter experience with Zvyozdochka, reported by this newspaper (September 2, 2014, “Russia delayed sub refit to weaken shipyard?”), in which the overhaul of a Kilo-class vessel, INS Sindhukirti, dragged on for nine years. Senior HSL officials made a strong case to suggest that Zvyozdochka experts deliberately prolonged the refit by ordering unnecessary work, to eliminate HSL from future Indian submarine refits.

Now officials from HSL and other shipyards allege that Zvyozdochka has chosen to partner PDOC, a new player in the market, in order to comprehensively control the refit programme, which the Russians would be unable to do with a more experienced Indian shipyard.

Rivals point out that PDOC has never produced a single naval combat vessel of any complexity. It is true that the shipyard is long overdue on delivering a Rs 2,500-crore order for five Naval Offshore Patrol Vessels.

Even so, Anil Ambani’s Reliance Infrastructure has recently thrown its weight behind the shipyard, acquiring it in March from Nikhil Gandhi of Sea King Infrastructure Ltd. Ambani paid Rs 819 crore for an 18 per cent stake, and is committed to making a public offer for another 26 per cent of the shipyard.

Ambani is gung-ho about PDOC’s prospects. At a seminar in Delhi on July 16, he spelled out an expansive vision of Pipavav Shipyard as a “Global Centre of Excellence” that would build warships of all kinds, from aircraft carriers to frigates to submarines.

Claiming that Pipavav Shipyard had assets worth over Rs 10,000 crore, Ambani played up its impressive shipbuilding facilities, including “the largest dry dock in the country and second-largest in the world”, Ambani said he would invest another Rs 5,000 crore in the shipyard.

If Ambani’s PDOC lacks experience, Zvyozdochka has that aplenty. Established in 1954, it has overhauled or refurbished more than 120 submarines and 90 warships. It remains to be seen how much of that experience and hold over the market it is willing to transfer to PDOC.

5 comments:

ashok said...

GOOD TO HAVE HSL , NAVAL DOCKYARD , L$T, PIPAVA DEFENCE AS SUB BUILDING AND REPAIR YARDS AS
COMPETETION WILL HAMMER DOWN THE PRICES OF NEW BUILDS AND REFITS . INDIAN DEFENCE SHIPBUILDING IS A MILCH COW WHERE NETAS BABUS , BUSINESSMEN COMBINE WITH CONNIVING SERVICE RANKS DIP THEIR FINGERS IN BRIBES AND SUGAR COAT THE PRICES . WITH NO INBUILT COST ACCOUNTING BY PROFESSIONAL CAS OR CHARTERED COST ACCOUNTANTS SHIP AND SUB PROJECTS OVERSHOOT THE BUDGET AND BUILD TIMELINES AND MASSIVE COST ESCALATION IS THERE. QUALITY AND BUILD IS SUBSTANDARD COMPARED TO WESTERN ASIAN OR EVEN RUSSIAN SHIPYARDS .

Anonymous said...

Under a future sanctions regime against russia, Mr. Ambani would be a front to channel funds back to russia (after a handsome commission) and keep the russian military complex running ... in India.. Still an interesting development.. Hope our workers manage to gain some experience and successive indian governments use leverage this experience...

Anonymous said...

"Even so, Anil Ambani’s Reliance Infrastructure has recently thrown its weight behind the shipyard, acquiring it in March from Nikhil Gandhi of Sea King Infrastructure Ltd". Reliance Infra has not yet acquired Pipavav Defence.

Anonymous said...

As on 13 Aug 2015, Gujarat Government has not approved the open offer that is to be made by Reliance Infra. Pse see Reliance Infra website (Investors Relations - Investor Communications - Con Calls). Even the first tranche of 18% shares has not been acquired. How-come everybody says that Reliance Infra has acquired Pipavav Defence? Hard to understand!

Anonymous said...

Now Gujarat Govt has not agreed to extend the land lease for Pipavav Defence (till 2038). If this gets confirmed, Reliance will not go ahead with the acquisition!!!!! What is happening??