Larsen & Toubro’s whole-time director and senior executive vice president (defence and smart technologies) J. D. Patil, in this exclusive interview, tells Defence.Capital editor N. C. Bipindra that lack of warship building orders is killing India’s private sector shipyards.
Ques. Please provide our readers with an overview of the L&T’s capabilities that make it one of the best positioned private sector shipbuilding companies in India? What are the capabilities that L&T possesses in the Float, Move, and Fight sections of shipbuilding? How has this capability grown over the years and where do you see this going in the next five years?
Ans. L&T has been a trusted partner and associated with India’s strategic submarine programme for over three decades. L&T’s maturity encompasses detailed design and engineering, development of technologies, processes and tooling for hull construction, outfitting and system integration, as well as development and delivery of platform specific equipment and systems.
L&T began associating with the Indian Navy’s indigenisation pursuits concurrent to engaging with Defence Research and Development Organisation (DRDO) since the mid-eighties by developing warship equipment through its corporate Research and Development, as well as few engineering systems through Transfer of Technology from Foreign Original Equipment Manufacturers driven by the navy.
Over time, this relationship grew into a trusted partnership to encompass development of a wide range of weapon systems, engineering equipment, life support systems, sensors, power generation and distribution equipment and systems, integrated power management systems, degaussing systems, integrated bridge system, and integrated platform management systems, secure communication systems.
The weapon system (fight) development was enabled, as several old platforms needed replacement of weapon systems, as well as new shipbuilding programmes utilising existing weapons, already in the naval inventory.
This enabled design and development of modern weapon systems from concept to realisation, testing and platform integration, including fire control systems capable of interfacing with the weapon inventory.
This relationship leveraged integration of indigenous weapons on naval platforms through tripartite teaming among the navy, DRDO and L&T. Series of successes in this domain leveraged ab-initio development of complete engineering systems (Move) and the rest of hull equipment (Float). Today, L&T equipment and systems are operating aboard over 80 per cent of naval operational fleet.
Opening of the defence production sector for the private Industries through licensing and release of the Defence Procurement Procedure-2005 in public domain enabled us to participate in acquisition programmes of the Ministry of Defence.
Besides deeper engagement in the underwater programme, and in line with all segments of L&T’s presence, we set up a warship design centre, leveraging the submarine design centre created earlier.
We, on our own, began developing basic design including new hull forms and engineering design of four classes of platforms such as the Offshore Patrol Vessels, Corvette, Fast Attack Craft, and the high-speed interceptors over the first two years of its creation.
Armed with this capability and the shipyard at Hazira in Gujarat, we began addressing warship Request for Proposals since 2008 and won a ‘Buy Global’ programme in the beginning of 2010 for design and construction of 36 interceptor boats, a need for the same was realised by the Indian Coast Guard after the 26/11 terrorist attack on Mumbai.
Investment in Kattupalli yard followed in 2011-12 in line with the defence ministry (then defence minister’s) assertions to stop nomination of shipbuilding programmes and enabling private yards to compete for major shipbuilding programmes well after a decade of opening of the sector.
The Kattupalli yard came up in two years as a green field mega shipyard, designed and built in-house by bench-marking with global best yards, as also processes and systems across the value chain.
The yard was built with a large in-house developed ship-lift, currently class certified to lift capacity of 21,050 ton, with path breaking technologies harnessed from within L&T’s R&D and product development centres.
With the end-to-end capabilities within the company from basic design to construct platforms (Float) as well as weapon systems (Fight) and equipment and systems (Move) made in-house, as also integrate BNE/BFE/Bought-Out equipment and systems into the platform, L&T built unique offerings in the warship and submarine building sector.
With our engagement with DRDO in development of a wide range of Indian weapon systems, as well as recent L&T-MBDA joint venture, we look forward to not only integrate indigenous weapons but also globally known best of class weapons in the L&T built platforms.
All vessels constructed by L&T thus far are designed in-house by our in-house design centre. This dedicated centre undertakes basic design, detailed design, and engineering in digital domain.
The Digital Design captures complete ship/submarine from structures to the minutest of equipment, systems, and range of inventory on-board as well as soft features regarding OMA (Operability, Maintainability and Accessibility) in a full-scale 3-Dimensional Model.
This 3D model forms the basis for all stakeholders right from design team, yard construction team, inspection teams to our customer agencies. The approvals are taken on the 3D model, construction, including automation, is driven by it, and the digital mock-up is updated based on the actual on-board scenario.
Dedicated Virtual Reality facilities enable visualisation of the entire platform digitally before commencement of production, thereby significantly enhancing first-time-right and cutting down on rework unless forced by major changes during construction.
All our dedicated work centres realising equipment and systems as well as shipbuilding yards are ab-initio developed indigenously and matured in Industry 4.0 practices that extend to 3D assisted outfitting, system integration, to system level qualification tests and trials and proven over decades of association in the classified programme.
However, we continued to wait for MoD to issue RFPs for weapon intensive platforms to private sector over the second decade after opening of the defence sector to private industry participation.
We have witnessed continued ordering of warships on nomination in keeping with old Acceptance of Necessity/categorisation. However, over this period, we did see 15 per cent of auxiliary shipbuilding programmes, by value, being allowed to the private sector to compete.
Ques. With several private sector shipbuilders falling by the wayside, what are the challenges that this sector faces today and how can Indian private sector shipbuilding sector overcome these challenges?
Ans. Since defence sector opened for the private sector participation; however, all major warship programmes have been contracted to the Defence Public Sector Undertakings on nomination basis over the last two decades.
However, we have seen a significant change since 2015 and multiple RFPs have been tendered out in competitive mode. But these have been all for auxiliary vessels and one weaponised class (Next Generation Missile Vessel) of ship.
While this is a big positive for the shipbuilding sector as competition drives efficiency and price discovery, an impartial level playing field for fair competition is yet to be accorded to the private sector yards.
Multiple shipyards have gone bankrupt due to lack of orders and consequent idling of capacity leading to non-performance/debt trap, being unable to service the investments in assets created over the past decade.
On the other hand, the government-owned yards have grown and continue to have growing order books that will last them between 11 to 16 times current revenues, except for one, having an assured nominated programme in the pipeline.
With continued non-level environment, three of the four major yards have gone bankrupt and while two are under liquidation, not having found any buyer, the third is going for sale for debt resolution.
Given the experience with performance of private shipyards — having served a mixed bag, with extremes of delight as well as frustration – the navy and the MoD, in line with government’s initiative to enhance private sector participation, have been at work over past two years on evolving norms for shortlisting competent yards, both private and public.
There are significant amendments to DPP-2016, mandated upfront capacity assessment including compliance to both technical and financial parameters of the yards. RFPs are issued only to the technically qualified entities, while clearing the financial assessment is mandatory before commencement of technical evaluation.
Significant features of these amendments stipulate minimum turnover requirement and financial credit ratings that the yard must have to be shortlisted for any RFP. L&T’s shipyard has been technically assessed and graded Category-A, signifying L&T’s ability to bid for all kinds of weapon intensive warships, submarines as well as auxiliary vessels.
Also given that the user mandates a large quantum of ‘Buyer Nominated Equipment’ (BNE), it is experience of the yards that the nominated agencies offer differentiated prices to different yards.
This manipulation to make a yard win has also been addressed by the MoD through removal of BNE values for L1 calculation. Thus, yards bid for their scope of work including integration effort for the BNE, while BNE costs are added to the contract, at actuals.
Thus, the MoD is moving on a firm path for inclusion of private enterprise and implementing corrective measures in the policy to ensure fair competition. These address most of the issues going forward, except the asset servicing costs benefits that government-owned yards enjoy, given the grants provided by the MoD for asset (capacity) creation.
The private yards, on the other hand, must service their own assets created through debt financing and have only to rely on their efficiency, new age digital processes and innovation to achieve better conversion costs, a must to continue to survive.
(To be continued in Part 2 tomorrow)