Larsen and Toubro’s Kattupalli facility in Tamil Nadu (in picture) and Reliance Naval and Engineering’s shipyard in Pipavav, Gujarat, were the only two shipyards that are eligible to participate in the P-75 (I) program

by P Manoj

Reliance Infra, Pipavav Defence founders’ arbitration issue is yet another setback

A ₹5,440-crore arbitration claim filed by Anil Ambani-led Reliance Naval and Engineering Ltd against the former promoters of the yard located at Pipavav in Gujarat poses a big challenge to India’s ambitious plan to build warships locally with billions of dollars.

With state-owned defence yards strapped for capacity and bandwidth to execute orders on time, the government evaluated and approved some private yards a few years ago for building warships, the first of which was Pipavav.

It also gave Indian commercial shipbuilding yards a much-needed breathing space after the global meltdown of 2008 roiled the shipbuilding industry from which they are yet to recover.

Very soon, the permits given to private yards to build warships became a huge attraction for corporates such as Anil Ambani’s Reliance Group that were looking to tap the sunrise sector.

The cheque for ₹2,082 crore that Reliance wrote in 2015 to buy Pipavav from the Gandhi brothers was considered a steal when viewed from the point of the view of the business potential and the infrastructure created.

It’s a different issue that the Gandhis, known for building infrastructure projects, were looking to cash out on the strength of the warship licence since staying the course was not their forte. Financially and operationally, the Gandhis were back to the wall, hit by working capital crunch, delayed execution of orders and mounting debt.

For Anil Ambani, it was just what the doctor ordered. But, it didn’t take much time either for the deal to turn sour.

If the fall of ABG Shipyard Ltd and Bharati Defence and Infrastructure Ltd was bad enough, the trouble facing Reliance Naval and Engineering could potentially cut capacity for building warships in India significantly.

Financial solvency plays a critical role in qualifying yards on tenders issued by the Indian Coast Guard, Indian Navy and the Ministries of Defence and Home Affairs. Reliance Naval has slipped on delivery schedules by a long way on building five naval offshore patrol vessels for the Navy and is struggling to adhere to the time lines on the 14 fast patrol vessels and a cadet training ship.

Larsen & Toubro Ltd, which has a licence to build war ships, is the lone private yard that looks to be insulated from the kind of troubles that its once formidable rivals are facing.

The capacity cuts emanating from the collapse of ABG and Bharati and the troubles at Reliance could nudge the government to look overseas yet again for building warships negating its own agenda of ‘Make in India’.

While this could be a missed opportunity for many local private yards to win some good and steady business, it could throw up fresh opportunities for some other big Indian business groups that are looking to test the waters in defence shipbuilding provided they have the right strategies in place backed by operational and management bandwidth.

For India’s defence establishment and for the government’s ‘Make in India’ programme, it is imperative to make a fresh start.