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Scorpene tangled in govt web

Ajai Shukla  |  New Delhi 

An air of resignation hangs over the East Yard, a giant workshop shed in Mumbai’s Mazagaon 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, by as much as two years, have swirled around Project 75, under which the Scorpenes have been acquired. Business Standard has learnt that work on the first Scorpene has ground to a halt, and it is unlikely to be ready before 2015.

Most disquietingly, the delay is due to a contracting blunder, stemming from the Ministry of Defence’s propagation of a myth that significant parts of the submarine were being built with Indian components.

This led the defence ministry to create a special category called Mazagaon Procured Materials, or MPM. Of the total project cost of Rs 18,798 crore, Rs 2,700 crore (¤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 MPM budget, as the defence ministry 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 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 defence ministry 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 4,700 crore (¤700 million) for these items, almost twice of what was budgeted.

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

“We expect the French government to play a role to ensure it (the MPM items) is not priced abnormally high. We understand their need to make profit, but the price should not be abnormally high. We feel the French government is shirking its responsibility,” said Raju.

The MoD pleaded its case with a number of French officials, but in vain. “I visited Paris (in June 09) and I had a meeting with DCNS. They assured us they would 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,” said Raju.

The MoD blamed DCNS’ takeover of Armaris for further complicating the negotiations. But that does not answer why a contract that took nine years to finalise failed to fix the price for materials worth Rs 2,700 crore.

Senior naval officers familiar with the negotiations said, “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 a long way off. Only after the MoD and DCNS agree on a price that production would begin in France of the engines, generators and other systems that are included in 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. Thereafter, the painstaking process of outfitting the rest of the vessel, fitting weapons and sensors and carrying out lengthy trials would begin before handing over the submarine to the Navy.

But work at 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 nine-month intervals, rather than the planned 12 months.

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

First Published: Sat, December 19 2009. 00:38 IST