Strategic opportunity: Mazagon-CDPLC deal boosts India's maritime influence

The announcement that state-owned Mazagon Dock Shipbuilders Ltd (MDSL) will acquire a controlling stake in Colombo Dockyard PLC (CDPLC) in a deal worth $53 million must be seen as an important milestone in strengthening India’s maritime influence in a key corridor in the Indian Ocean Region. Mumbai-based MDSL, which builds warships and submarines for the Indian Navy and platforms and vessels for offshore oil drilling, is India’s largest defence shipyard and a designated Navratna company. Its proposed acquisition of the loss-making CDPLC, which is Sri Lanka’s leading ship-building and repair facility, will expand MDSL’s portfolio, with the added benefit of the shipyard’s strategic location near the deep-water harbour of Colombo Port, a significant transshipment port. As a state-owned company, this deal does much to enhance India’s prestige in an island nation in which China has been making significant inroads. Beijing already holds 85 per cent of the Hambantota International Port group, and has a 99-year lease on the port, located south of the country.

 

This strategic deal between MDSL and CDPLC was the outcome of extensive discussion between Indian and Sri Lankan officials. The fact that the deal was struck with a major Indian public-sector company rather than a private-sector player must be seen as an important signal. It reflects growing cordiality between the two nations since the election of Anura Dissanayake in September last year. Contrary to expectations given his pro-Chinese reputation, Mr Dissanayake has managed a balancing act between Beijing, Sri Lanka’s biggest creditor, and New Delhi, which extended an emergency credit line to tide over a period of economic turmoil. India was the first foreign country Mr Dissanayake visited in December last year after being elected President.

 

CDPLC has been in deep waters since November last year when its Japanese partner, Onomichi Dockyard Company, which owned 51 per cent, exited after discussion between Colombo and Tokyo for financial relief failed. As CDPLC faced a default and the prospect of closure and layoffs, MDSL was one of the companies shortlisted for its strong credentials. On the face of it, the deal appears to be mutually beneficial. CDPLC has order books of over $300 million and sees access to MDSL’s technology and Indian supply chains and markets as a source of opportunity. MDSL is building three Scorpene submarines and six diesel-electric stealth submarines for the Indian Navy. The acquisition of CDPLC will help the Indian dockyard in expanding its heavy reliance on a single buyer (the Indian Navy) to markets in East Asia, West Asia, Europe, and Africa, where the Sri Lankan company has a presence. 

 

That said, the deal will also be a test of an Indian public-sector company’s ability to manage an overseas venture competently. The state-owned sector’s record in overseas ventures is decidedly mixed. The energy sector, with companies such as ONGC Videsh and Indian Oil Corporation, has established operations overseas. The Rail Indian Technical and Economic Service (RITES) and WAPCOS (a water consultancy) have proved competitive in international consulting programmes. But many others have faced the chronic problems that hinder public-sector efficiency in India — red tape and technological stagnation. MDSL does not suffer from these drawbacks and it has a reputation for efficient management. In a region where Chinese state-owned enterprises dominate, much hinges on its success.