Indigenous submarine project of India has come a long way.
The Government of India (GoI), in August 2020, announced a ‘negative list’ of defence equipment. The 101 equipment on the Ministry of Defence’s (MoD) ‘negative list’, can no longer be imported and, would henceforth, need to be procured only from domestic manufacturers – private sector defence firms and the Defence Public Sector Undertaking (DPSUs).
This latest policy announcement is an adjunct to earlier policy initiatives – rolled out over the past several years by the GoI. Collectively, the policies aim to accelerate India’s objective of attaining self-reliance in defence needs. While the policy announcements have succeeded in creating an air of expectation & optimism in the DPSUs and the private sector defence firms, very little actual headway has been made on the ground by way of an award of any significant breakthrough contract(s).
‘Conventional submarines’ are listed at serial 80 of the negative list. The GoI/MoD is prepping, to soon issue a Request For Proposal (RFP) for the long-anticipated, USD 7 billion contracts for the construction of six, new-generation conventional submarines at an Indian shipyard – in collaboration with an overseas Original Equipment manufacturer (OEM). The project has been christened – Project 75 (India) – P-75(I). The RFP for the project will be issued to two Indian shipyards already selected as ‘Strategic Partners’ for the construction of conventional submarines – the DPSU Mazagon Docks Ltd (MDL) and the private sector shipbuilder L&T.
Once the RFP for P-75(I) is issued, it could be the first project to be undertaken under the ‘Strategic Partnership (SP)’ policy promulgated by the GoI in 2016.
The Strategic Partnership policy envisages, for now, the selection of Strategic Partners (SPs) only in the following segments: 1. Fighter aircraft 2. Helicopters 3. Submarines 4. Armoured Fighting Vehicles (AFVs) & Main Battle Tanks(MBTs) 5.
The Indian firm selected as the Strategic Partner will be required to tie-up with one of the shortlisted foreign OEMs for the manufacture of equipment belonging to one of the above segments.
The SP model is intended to catalyse indigenous capability in the manufacture of major defence equipment. The DPP, therefore, stipulates that the designated SP should be an Indian company owned & controlled by resident Indian citizens. The majority in the SP’s board of directors, including the CEO, should be resident Indians and a minimum of 51% of the SP’s equity must be held with resident Indians. This cap of 49% FDI in the SP could now be relaxed, consistent with the GoI’s recent revision in the policy to allow higher FDI in the defence sector.
The principal criteria for the selection of OEMs would be the conformity of their products’ capabilities with the Services’ Staff Qualitative Requirements (SQRs) and the OEM’s commitment to providing transfer of technology together with an initial period of hand-holding to enable technology assimilation by the SP with a view to maximising indigenisation. To maintain transparency of the process, the selection of the SP and the foreign OEM partner would be undertaken in parallel, through a competitive bidding process. The Indian SP would need to meet minimum requirements related to infrastructure, technical capabilities and financial strength. The shortlisted candidate Indian SPs, would be issued RFPs along with a list of potential OEMs. The candidate Indian SPs would be required to coordinate with the OEMs and submit a response.
Field trials would then be undertaken for the equipment that meet the technical requirements of the RFP. The commercial bids of the firms, whose equipment qualify field trials, would then be examined to identify the lowest (L1) bidder – who would then qualify to be designated as Strategic Partner’ for that particular segment.
The Strategic Partners selected for P-75(I) – Mazagon Docks Limited (MDL) and Larsen & Toubro (L&T) can choose to collaborate with any of the five overseas OEMs shortlisted for P-75(I) – Rubin Design Bureau of Russia, Naval Group (NG) of France (formerly DCNS, France), Navantia of Spain, ThyssenKrupp Marine Systems(TKMS/HDW) of Germany and Daewoo Shipbuilding & Marine Engineering of South Korea.
The Rubin Design Bureau is offering the Amur 1650 submarine, NG, France is offering the Scorpene AM-2000, Navantia the S-80-class submarine, TKMS its HDW class 214 and Daewoo the KSS-III.
After the RFP is issued and the responses have been received – the MoD/Indian Navy is likely to be presented with some tough choices and difficult questions in selecting the most suitable SP – OEM combination from among the available options.
MDL – Strategic Partner of Choice?
MDL has, over at least the last three decades, invested heavily in building infrastructure and expertise for the construction of conventional submarines. It has previously built, for the Indian Navy, two conventional submarines -Type-209 design of HDW, Germany.
MDL is currently building six Scorpene-class submarines under Project P-75 with assistance from Naval Group (NG), France ( Status: of the six submarines contracted, two have been delivered). The project is running behind schedule and the delivery of the sixth & the last submarine of the series, originally to have been delivered by 2016, is now expected to be delivered by 2022. Even if the delivery of the sixth & final submarine is delayed beyond 2022, it is almost certain that it will still be completed before the award of the contract for the new P-75(I) project. On average, it takes two and a half to three years after the issue of a RFP for a contract to be awarded. For contracts of the value envisaged for P-75(I), it takes longer (case in point – the time taken for the award of the order for MMRCAs for the Indian Air Force).
MDL and NG, France have tied-up/are expected to tie-up and jointly bid for the P-75(I). Awarding the P-75(I) contract to the MDL-NG pairing will enable the most effective utilisation of the infrastructure and expertise developed for the ongoing construction of six Scorpene submarines. MDL-NG, by the end of the Scorpene construction program, will also have developed a good working relationship and that will only facilitate increased efficiency of performance during the execution of the P-75(I) project.
In the event that the MDL – NG partnership fails to win the P-75(I) contract, the infrastructure and expertise developed during the Scorpene construction will essentially be, for the most part, left to lie idle. Undoubtedly, Scorpene submarines will need to sail to MDL for repairs, refits and modernisations – however, it will still be sub-optimal utilisation of the physical infrastructure and specialised technical expertise acquired by MDL at great cost.
‘Nomination’ – Prudent Practice?
The private sector defence firms have, for long, railed against the GoI’s practice of arbitrarily awarding contracts to the DPSUs through nomination. This, real or perceived bias, to privilege the interests of the DPSUs over those of the private sector, has engendered within the private sector, a hesitation to commit large investments in capital-intensive defence manufacturing.
In a welcome & laudable departure from this mindset, L&T nearly a decade ago commenced investments in the raising of modern shipbuilding and ship repair yard at Katupalli near Chennai. The construction of this shipyard is planned to be completed in two phases. When fully complete, the shipyard will be capable of designing, building, repairing and modernising large warships, submarines, specialised ships for the merchant marine (tankers, container ships, car carriers etc) and offshore rigs/installations for the oil industry. L&T has already executed some shipbuilding orders for the Indian Navy, the Coast Guard and the commercial shipping industry. Even so, the facilities at the L&T shipyard lie under-utilised and the yard is eager for more orders.
It is understood that L&T has inked/is likely to soon ink an understanding with the Rubin Design Bureau, Russia to jointly bid for the P-75(I) order.
L&T built India’s first nuclear submarine (INS Arihant) and is currently building the follow-on submarines of the class. These submarines were designed with substantial Russian assistance and also contain a large number of Russian origin equipment. Although many of the competencies required for the construction of nuclear submarines & conventional submarines are vastly different, a majority of the fundamental design & construction principles are identical. Adapting the skills acquired while building nuclear submarines, to build conventional submarines will not pose any challenge to L&T. L&T’s familiarity with Russian submarine design & construction philosophy will be decidedly beneficial to the L&T – Rubin combination if it is awarded the P-75(I) contract.
What if the HDW/Navantia/Daewoo Design Wins? If the SPs – tie-up, bid and then go on to win the P-75(I) order with one of the other three shortlisted OEMs (Navantia, Thyssen Krupp/HDW, Daewoo), it will throw up an entirely different set of knotty challenges.
An MDL-HDW pairing will be able to leverage the capabilities & infrastructure already existing at MDL after necessary up-gradation/modernisation at a minimal cost.
An L&T-HDW arrangement would require the establishment of a production line at L&T, for HDW submarines, ab-initio – requiring fresh investment.
On the other hand, in the event that one of the possible, MDL/L&T – Navantia/Daewoo pairings, go on to win the contract, the Navy will then be required to operate an entirely new class of submarines of unfamiliar design & operating philosophy.
In such a scenario, the Navy will end up operating 4 different classes of conventional submarines (EKMs, HDW, Scorpene, Navantia/Daewoo) and will have to deal with the many problems associated with operating & maintaining a very diverse fleet. The Indian Navy barely copes with having to operate the current three classes (EKMs, HDW, Scorpenes) of conventional submarines. Its dockyards and materials organisations are stretched to near breaking in providing repair & logistics support. In fact, owing to inadequate domestic repair capacity, many of the EKMs over the last two decades, have been sent to Russian shipyards for major refits – at exorbitant cost – to enable the maintenance of required force levels.
Adding a new class of submarines will also require the addition of concomitant support infrastructure. Creating an additional infrastructure will further raise the already high cost of the project.
Should the Contract be Split between the SPs?
After the identification of the L1 bidder, awarding the contract to either of the two shortlisted SPs will leave the other SP saddled with enormous un-utilised capacity. Might it be advisable, therefore, to split the order equally between the two SPs to ensure that both their capacities are utilised and two production lines established for P-75I? Historically, all warship/submarine construction projects in India have slipped schedules by several years and overrun allocated budgets. It could therefore be argued that introducing competition between the two SPs, by splitting the order, might help improve their performance in adhering to project schedule and project cost. However, this approach adds the risk of receiving submarines of variable quality from the two SPs. EKM submarines currently in operation with the Indian Navy were constructed by two different yards in Russia – to a common design. Despite the established capabilities of the Russian yards, there was a marked variance in the quality of construction and overall performance of the submarines built by the two Russian yards. Before any move to split the contract, a fundamental question will need to be addressed – is splitting the contract between the two SPs even feasible? The policy on Strategic Partnerships, as it exists, does not permit splitting the contract between SPs. For the sake of argument, even if contract splitting were to be permitted – it will cause an unacceptable escalation of the project cost – each OEM will be required to provide ToT to two SPs and each SP, in turn, will need to develop separate sets of Tier-I, II and III partners at two different locations. This will clearly be a wasteful expenditure of effort and resources.
Subjective Considerations – A Reality
The procurement processes stipulated in the DPP & DPM are intended to ensure that procurement contracts are awarded on the basis of fair and objective criteria. However, inevitably, most procurement decisions are influenced by a host of subjective considerations. It is wishful to expect that a contract of this significance and value can ever be fully insulated from subjective influences. Serving officers, depending on their individual operational experience, tend to develop strong opinions (even biases) on what they believe is ‘superior’ design. Like most other projects, P-75(I) to is certain to have opposing camps, each plumping for one of the competing choices – ‘Western’, Russian or Korean design. Similarly, officials in the GoI/MoD develop preferences based on their experience in past interactions with the political/diplomatic/financial systems of the countries where the OEMs are based. Additionally, often the OEMs themselves, bring enormous lobbying power into play through their embassies and even their Heads of state.
The ‘Strategic Partnership’ Policy – Issues
Several foreign firms have flagged concerns with the stringent provisions of the SP policy. The OEMs believe that the provisions of the policy place disproportionate responsibility on the OEMs – of delivering on project performance, without granting them commensurate control. This concern of the OEMs is not without basis. It is reasonable for the OEMs to expect greater agency in the discharge of the contract if they are to be accountable for the final product quality and the project schedule. Swedish firm Saab AB, withdrew from the project, after having initially responded to the GoI’s request for Expression of Interest (EoI) – contending that a rethink was required on certain provisions of the SP policy. Saab AB sought greater clarity on the criteria under which 100% FDI with government approval would be permitted. The domestic and foreign defence firms have often suggested that Indian policymaking could do with a dose of pragmatism. Ambiguities in policy provisions result in avoidable delays arising out of time spent on dispute resolution. Policymaking should aim to elicit willing participation and guarantee mutual benefit. Policies that aim to coerce collaboration are unlikely to succeed. Those that facilitate collaboration will. India’s past record of performance on defence projects has been less than satisfactory. Most defence projects, unfortunately, are poorly planned and inefficiently executed. Poor implementation has been a weakness with many defence projects. To improve on this record, the GoI, the service HQs and the participating firms – Indian & foreign – will need to work in concert – with the GoI playing an enabling role in harnessing the energy and capabilities of the private sector and the DPSUs. Whichever SP-OEM combination is finally awarded the contract, Project P-75(I) will be a test of India’s resolve to streamline processes and develop in-house competencies in the design and manufacture of defence equipment to realise its goal of ‘Make-in-India’ for defence.
Title image courtesy:http://www.bharatdefencekavach.com/news/indian-navy/handing-over-p75-i-submarine-project-to-mazagon
Disclaimer: The views and opinions expressed by the author do not necessarily reflect the views of the Government of India and Defence Research and Studies