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Level playing field missing in India, says L&T Shipbuilding MD & CEO

T E Narasimhan/Chennai 16 Apr 18 | 03:16 PM

L&T Shipbuilding, part of the engineering conglomerate Larsen & Toubro (L&T), has said its facility, as also those of other private shipyards, is running at a low capacity in the absence of a level playing field.

The company has invested around Rs 40 billion so far to set up a facility at Katuppali, near Chennai, which is capable of manufacturing 10 ships but it making only two at present.

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“...not only us, the private sector utilisation (capacity) is only 20-25 per cent, since we are over-feeding the public sector," B Kannan, managing director and chief executive, L&T Shipbuilding Ltd told Business Standard.

He added, today there was no gap in the technology and infrastructure capability, or financial strength, but it was a gap in regulation and policy that was hurting the private sector.

L&T designed the Vikram-class Ofshore Patrol Vessels (OPV), the first significant warship fully designed and built at a private sector facility, at its warship design centre in Manapakkam, Chennai. Company officials claim the design centre can easily design larger capital warships like corvettes, frigates, and destroyers.

L&T brings an impressive engineering pedigree to shipbuilding. Its Hazira shipyard built the hull of India’s nuclear submarines, INS Arihant, and is supplying hulls to its successor vessels as well.

“We are not a profit-generating commercial ship-builder. We have invested a lot of money, and that should give us some return; getting enough orders is the main requirement, but that is not happening today due to absence of a level playing field. A demarcation on the basis of capability and proven demonstration should emerge, and the government is working on it," said Kannan.

He noted that Navy and Coast Guard would over the next 10 years require around 100 ships, of different sizes, or 10 ships every year, but there are only 5-6 shipyards in India. Today, demand is far exceeding supply. The government should work on channeling the orders till public sector finishes its jobs.

Kannan said over the past 10-12 years, around 90 per cent of the Rs 1,300-billion orders went through 'on nomination'; and PSUs compete for the remaining 10 per cent as well. The infrastructure of these PSUs was built by the government. Hardly 4-5 per cent of the orders come to the private sector.

“There is an anomaly; PSUs will quote less," said Kannan, who pointed out that the NITI Aayog's recommendation that nomination as a procedure should be discouraged and it should be based on competition and technical configuration should be looked at.

“While ‘Make in India’ is a good initiative, we need to practise it," says Kannan, who says L&T is capable of delivering the orders much early.

Public-sector firm Goa Shipyard Ltd earlier took 72 months to build an OPV. Only now has it begun to deliver OPVs in the 36-month timeframe that L&T took for its first vessel.

L&T won the Rs 13.04-billion contract to build seven OPVs in March 2015. After the Vikram, it must deliver the remaining six OPVs at six-month intervals. Company executives earlier said they could speed up that process if the Coast Guard was willing to accept early delivery.

Considering orders from India were low, the company has started looking at export markets, which contribute around Rs 7 billion to the Rs 20-billion order.

Kannan said to break even, L&T Shipbuilding would need to have an order book of at least Rs 200 billion. 

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