Another Setback For Abg Shipyard: Defence Ministry Cancels All Contracts

Close on the heels of the Reserve Bank of India (RBI) selecting 12 large non-performing asset (NPA) accounts, including that of ABG Shipyard, for fast resolution under the insolvency law, the defence ministry has informed the company of termination of contracts with it. Sources told FE, “Keeping in mind the poor financial health of the shipyard, the MoD has written to ABG Shipyard (ABGSL) that their old contracts are terminated. Due to poor financials, the shipyard last year had itself withdrawn from a $2.6-billion Indian Navy contract for Landing Platforms Docks (LPD).” “The MoD through a letter to ABG Shipyard has cancelled contracts including Cadet Training ship; Coast Guard Training Ship and Naval vessels. This is through a letter dated May 16, 2017, under Article of the Main & Option Clause contract,” said sources. As reported by FE earlier, ABG was out of the race for $2.6-billion (Rs20, 000 crore) four LPDs as it had failed the corporate debt restructuring (CDR) carried out by ICICI. The MoD is keen to indigenously build four such warships, which will be the biggest-ever made in the country other than the under-construction 40,000-tonne sea-borne aircraft carrier INS Vikrant.

According to MoD sources, “Once in two years the Indian Navy carries out assessment of the shipyards to see whether they have the financial and technical capability to handle big contracts for the construction of ships for the Indian Navy.” The construction of the LPDs is under Prime Minister Narendra Modi’s ‘Make in India’ initiative. While the yard along with L&T, Reliance Defence and Engineering (formerly Pipavav Defence and Offshore Engineering), had been shortlisted by the Indian Navy. However, ABG had not got approval from the Controller of Warship, Production & Acquisition, Integrated Headquarter,MoD, in 2016. According to the Indian Navy, construction of two LPDs will be carried out by private yards at their facilities and would assist defence-owned Hindustan Shipyard (HSL) to construct the remaining two. The vessel must be able to house combat vehicles (including main battle tanks, infantry combat vehicles and heavy trucks on one or more vehicle deck) and the vessel should be able to undertake all-weather operations involving heavy lift helicopters up to 35 tonnes.

In December 2013, the Indian Navy floated a $2.6-bn domestic tender for construction of four LPDs and bids were sent to domestic shipyards, Larsen & Toubro (L&T), Reliance Defence and Engineering and ABG Shipyard. With the exit of ABG, only L&T and RDEL are left in the race. Each of these will approximately cost Rs6,000 crore and are expected to be delivered over the next 10 years. These ships will be between 35,000 and 40,000 tonnes. Indian shipyards have been asked to locate their own foreign collaborator. Foreign shipbuilders offering such ships include DCNS of France, Germany’s ThyssenKrupp Marine Systems, Fincantieri of Italy, South Korea’s Hanjin Heavy Industries & Constructions and Navantia of Spain.


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