Saturday, 30 August 2014

Govt clears defence deals worth Rs 17,000 crore

Also opens doors for US choppers (the AH-64E Apache above, and the CH-47 Chinook) worth Rs 15,000 crore

By Ajai Shukla
Business Standard, 29th Aug 14

The Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government has made its first big decisions on equipping the forces, clearing acquisitions and renewals worth Rs 17,000 crore on Friday.

The apex Defence Acquisition Council (DAC), which met at New Delhi to clear the purchases, emphatically favoured manufacturing in India, even when clearing the procurement of foreign equipment. A long-running tender for buying 197 light utility helicopters (LuH) from the global market has been scrapped, and will be re-issued in the “Buy & Make (Indian)” category. This requires Indian companies to build the LuH in India, in collaboration, if necessary, with foreign partners.

“In accordance with the government’s policy, this will create manufacturing jobs, benefiting Indian industry to the tune of Rs 40,000 crore”, said a senior MoD official who briefed Business Standard on the outcome of the DAC meeting.

Immediately benefiting from this decision will be public sector aerospace behemoth, Hindustan Aeronautics Ltd (HAL), which has already worked for four years on developing an indigenous LuH. In 2010, the ministry of defence (MoD) had split the military’s requirement of 384 LuHs into two --- with 197 being procured over-the-counter (now cancelled); and HAL assured an order for 187 helicopters, provided this was developed by 2017.

“We appreciate this decision by the government. It is an important step towards indigenising aerospace capabilities,” says RK Tyagi, the HAL chief.

HAL’s progress on the LuH has been slowed by difficulties in selecting an engine for the helicopter, Defence Minister Arun Jaitley told the Rajya Sabha on Aug 12.

The emphasis on indigenisation is evident also in the decision to overhaul and refit six of the navy’s 13 submarines. The so-called Medium Refit and Life Certificate (MRLC) programme is a two-year process that involves stripping down the submarine, repairing its hull extensively, and replacing worn parts.

The Rs 4,800 crore sanction clears the overhaul of four Russian-origin, Kilo-class, and two German-origin HDW submarines. Of the Kilo-class vessels, two will be refitted in Russia, and the other two in the naval dockyard in Mumbai. Mazagon Dock Ltd, Mumbai, will overhaul both HDW submarines.

Support to the indigenous Arjun main battle tank (MBT) continues, with the DAC renewing a Rs 6,600 crore clearance for 118 Arjun Mark II tanks. This will equip two army tank regiments, adding to an earlier order for 124 Arjun Mark I tanks.

The United Progressive Alliance government had already cleared 118 Arjun Mark IIs. That clearance had expired since the army has been evaluating the prototype tank for two years. Today’s renewal allows the army to order the tanks from Heavy Vehicles Factory, Avadi, when trials are completed.

Further support was extended to the Arjun tank project through the clearance of 40 self-propelled artillery guns, worth Rs 820 crore. This gun system, termed a “catapult”, consists of a 130-millimetre gun mounted on a Arjun tank chassis, allowing it to keep up with tank columns and provide them fire support in battle.

The catapult will be developed by the Central Vehicle R&D Establishment in Chennai, and then offered to the army for trials.

In a decision that will please Washington in the run-up to Prime Minister Narendra Modi’s visit next month, the DAC cleared offset proposals relating to the purchase of two Boeing helicopters --- 22 AH-64E Apache attack helicopters; and 15 Chinook heavy lift helicopters. This removes the last hurdle to signing the two contracts, together estimated to be worth Rs 15,000 crore.

Boeing has declined to comment, but company sources say this is a key step that could allow the contract to be signed by the year-end.

In a clearance critical for the navy’s operational readiness, the DAC approved the Rs 1,770 crore purchase of Integrated Anti-Submarine Warfare Suites (IADS) for 11 warships --- seven frigates being built under Project 17A, and four destroyers being built under Project 15B. As Business Standard first reported (May 16, 2014 “Warships in peril as defence ministry blocks sonar purchase”) the MoD had blocked the import of crucial sonars since the late 1990s, rendering 25 major Indian warships --- including the INS Kolkata and INS Kamorta, commissioned this month by the prime minister and defence minister respectively --- extremely vulnerable to attack by enemy submarines.

The navy will also get relief with the DAC permitting commercial bids to be opened in the Rs 1,800 crore tender for 16 naval multi-role helicopters, which fly from warships and detect enemy submarines. With one of the two vendors --- NHIndustries, part-owned by Finmeccanica --- now banned, this has the potential for the other vendor, US company, Sikorsky, to win the contract.

Also cleared was a Rs 900 crore dedicated mobile communications system for army troops deployed in Ladakh and the eastern command. Since border areas are poorly covered by commercial mobile service providers, the army intends to establish its own mobile network all along the borders.

Financial effect

197 Light Utility Helicopters
Tender scrapped
6 submarines
Refit part in India
Rs 4,800 crore
118 Arjun Mark II tanks
Build in India
Rs 6,600 crore
40 Catapult SP guns
Build in India
Rs 820 crore
22 Apache and 15 Chinooks
Buy overseas
Rs 15,000 crore
Sonars for 11 warships
Buy overseas
Rs 1,770 crore
Naval multi-role helicopters
Buy overseas
Rs 1,800 crore
Army mobile network
Build in India
Rs 900 crore

Wednesday, 27 August 2014

New naval base for nuclear subs, aircraft carrier, coming up near Visakhapatnam

By Ajai Shukla
Business Standard, 27th Aug 14

The navy has lifted the shroud of secrecy over a major new sea base being built on India’s eastern coast, which will be home to the first indigenous aircraft carrier, INS Vikrant, and an armada of warships under the Eastern Naval Command.

The new base, on the Bay of Bengal, will also house India’s nuclear ballistic missile submarine (SSBN) force. Current plans involve building six SSBNs, to form the underwater leg of the country’s nuclear triad. The first, INS Arihant, will soon be operational; the second and the third are currently being built.

For years, the ministry of defence (MoD) has refused to even acknowledge the existence of the secret new base, which will come up around the coastal hamlet of Rambilli, 50 kilometres south-west of Visakhapatnam. The plan is code named “Project Varsha”.

Divulging that the new base will house conventional as well as nuclear warships, Vice Admiral Satish Soni, the head of Eastern Naval Command, told Business Standard, “We don’t talk about it much for obvious reasons. There are plans for a new base, and we hope to see one in a matter of 7-8 years.”

India’s eastern seaboard on the Bay of Bengal, with deep water and harbours with over 10 metres depth of water, is far better suited as a nuclear submarine and aircraft carrier base than the western seaboard, where the shallower Arabian Sea is barely 4 metres deep along the coast.

Like China’s massive nuclear submarine base at Hainan Island, the depth of water at Rambilli will allow submarines to enter and leave the base without being detected by satellites. This secrecy is crucial for SSBNs, which must remain undetected when they leave for months-long patrols, carrying nuclear tipped ballistic missiles.

China’s rapid naval build-up, and its belligerent handling of maritime disputes with smaller neighbours in the South China Sea and East China Sea, has caused New Delhi to focus keenly on enhancing the operational posture of the eastern fleet, which must counter any threat from China.

The same concerns had, in 2001, led to the creation of the tri-service Andaman & Nicobar Command (ANC), 1,225 kilometres from Visakhapatnam in the Bay of Bengal. The ANC dominates the Malacca Strait, and the shipping routes between West Asia and South-East Asia.

Visakhapatnam is home to the eastern fleet, India’s biggest, with 50 warships. The new base at Rambilli will decongest Visakhapatnam --- also a major commercial hub --- and provide a secure base that is removed from population centres.

Western Naval Command already has such a base, INS Kadamba, built in 2005 to decongest Mumbai. Located at Karwar, near Goa, it is home to the aircraft carrier, INS Vikramaditya, and much of the western fleet. Being built in several phases, that project is code named “Project Seabird”.

With INS Vikrant harboured in Rambilli after the aircraft carrier is commissioned in 2018, the naval air base at Visakhapatnam --- INS Dega --- is being expanded to house the Vikrant’s MiG-29K and Tejas fighters and its helicopters, when the aircraft carrier is not at sea.

Soni says the government has approved Rs 200 crore for infrastructure at INS Dega for the Vikrant’s MiG-29K fighters; and another Rs 200 crore for the navy’s Hawk trainers that will be based at Visakhapatnam.

Visakhapatnam’s importance as a naval aviation centre has been boosted by the recent identification of a secondary airfield, to which aircraft can be diverted in case of emergencies or bad weather at Visakhapatnam. Soni says land acquisition has begun, and the state government has provided an NOC to the navy.

“We are looking at Bobilli, a disused, World War II airfield about 45 nautical miles from here (Visakhapatnam). We will have fighters flying from here so we will need an alternative base, to which flights can be diverted. Bobilli is north west of Visakhapatnam towards Vijaywada”, said Soni.

Currently, the diversionary airfields around Visakhapatnam are: Vijaywada (157 nautical miles); Bhubaneshwar (212 nautical miles); and Shamshabad (279 nautical miles). 

MoD nails Finmeccanica, protects current contracts

By Ajai Shukla
Business Standard, 27th Aug 14

Three days ago, Defence Minister Arun Jaitley promised a new policy that would punish dishonest vendor companies without blocking Indian acquisitions and the flow of spares. On Tuesday, the ministry of defence (MoD) issued a directive on how it will deal with group companies of Italian defence giant, Finmeccanica, whose chief executive, Giuseppe Orsi, was arrested in Italy last year on charges of bribing Indian officials to facilitate the sale of VIP helicopters to India.

The Finmeccanica group companies that are covered under this policy include marine specialist, Whitehead Alenia Sistemi Subacquel (WASS); radar and communications specialist Selex Electronics Systems (ES); aerospace giant, Alenia Aeromacchi; armaments major, Otomelara; and AgustaWestland itself.

While the MoD’s directive on the Finmeccanica group does not constitute policy, it suggests a more flexible approach than the rigid blacklisting and banning that the previous defence minister, AK Antony, followed. The new approach attempts to ensure that ongoing contracts and acquisitions be minimally affected or delayed.

The directive prescribes six differentiated MoD responses, depending upon the stage that a procurement contract is at.

First, where a Finmeccanica company is executing a signed contract, it should be proceeded with. This will ensure that work continues on the radar systems that Selex ES is fitting on the indigenous aircraft carrier, INS Vikrant.

Second, where a contract has been fully executed, but spares and upgrades are required regularly, that can continue. This will ensure the continued supply of equipment like the 76 millimetre naval gun, which Bharat Heavy Electricals Ltd (BHEL) builds under licence from Otomelara.

Third, where the vendor has been declared as L-1 (cheapest bidder) after tendering, “all such procurement/acquisition cases shall be put on hold until further orders.” This is the most far-reaching decision the MoD has taken, given that WASS has been declared the L-1 bidder in the tender for 98 Black Shark torpedoes for India’s six Scorpene submarines being built in Mumbai. German company, Atlas Elektronik, had hotly contested the decision. Now, the Seahake torpedo, offered by Atlas, emerges as a frontrunner in the $300 million contract.

Fourth, where the tender process is under way, but no L-1 has yet been declared, Finmeccanica companies will be eliminated from consideration, provided there are alternatives. This relates to tenders like the procurement of multi-role helicopters (MRH) for the navy, where two companies are in contention --- US company, Sikorsky; and European consortium, NHIndustries, which is part owned by AgustaWestland. If NHIndustries is eliminated, Sikorsky emerges as the single vendor --- a situation potentially fraught with other difficulties.

Fifth, Finmeccanica companies are to be eliminated from all acquisitions where tendering is yet to commence, provided there are valid alternatives.

This knocks out Alenia Aeromacchi, and its C-27J aircraft, from the $2.5 billion tender to partner an Indian private company in building 56 transport aircraft in India, to replace the ageing Avro-748 transport aircraft.

Sixth and final, where a Finmeccanica group company is a sub-contractor to another foreign vendor, that contract would continue. This covers upgrades that Selex ES is reportedly handling as a sub-contractor to a Russian company.

Interestingly, the new policy does not cover the procurement of AW-101 VIP helicopters, which is at the root of the current situation. While India has taken delivery of three of the contracted 12 helicopters, it has also recovered most of the money it paid, by encashing AgustaWestland’s bank guarantees worth Euro 228 million. MoD sources say New Delhi is no longer interested in the AW-101, and is looking to sell those.

The MoD directive on dealing with Finmeccanica has already been issued to relevant departments within the ministry. Top ministry sources say delay was caused by the change in government, since the new Attorney General had to be consulted before issuing the directive.

The MoD spokesperson says a copy of the letter has been issued to Finmeccanica. However, Finmeccanica officials tell Business Standard that they have not received the new directive.

Italian prosecutors have alleged that AgustaWestland paid some euro 51 million to middlemen, Guido Haschke, Christian Michel and Carlo Gerosa, to seal the deal for VIP helicopters, funnelling the money through software companies, Mohali-based IDS Infotech and Chandigarh-based Aeromatrix Info Solutions Pvt Ltd. After Orsi was arrested on February 12, 2013, the MoD froze the contract, suspended payment to AgustaWestland, and initiated a Central Bureau of Investigation (CBI) enquiry.

The CBI has filed First Information Reports against 15 people, including former IAF boss, Air Chief Marshal S P Tyagi. However no charges have been filed against Finmeccanica or AgustaWestland, which has invoked arbitration over the termination of the contract.