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Interview-Part V

Indian navy’s requirement

Indian navy has to look after 7000 kilometers of our coastline including thousands of islands on either side of the country.

Further our coastline is so close to the International shipping lane which renders them vulnerable. It could be sea piracy or unauthorized presence of foreign naval vessels operating in the area. There is no doubt that this task calls for a very strong maritime force.

The Indian Navy and the Coast Guards have to be more equipped and should have longer legs to cover vast areas. They should be able to mobilize large forces all along the Coast. It should have good surveillance which is the beginning of the game on the Strategic front.

Ship building within our defense budget

Now if this has to happen obviously the capital required for ship building should get due priority. More importantly if you have allocated capital for ship building, we have to ensure that naval asset is realized in good time and within the stipulated cost. This has not been happening in the past.

So there is a need for our planners to think in the manner how can we get what we want within the available budget. Everyone understands that the budget is not unlimited and there is always a limit to the budget you can have, but one should try to get the best out of it.

 

The government should consider implementing structured contracts for ship yards whether it is private or public sector, things should happen. But this has not been the scenario I have seen in the last fifty five years, forty years in the Navy and three years as the head of the L and T ship yard at Kattupalli.

As for L and T ship yard is concerned it meets the time frame requirement of both the navy and the coastguards. It is one of the very shipyards in the country which has both design and construction capability.

 

Brief look-into of the interview of Vice Admiral B Kannan (retd)  Managing director and CEO of Larsen and  Toubro Ship building

(The interview of Vice Admiral B.Kannan (retd) has been quite long taking us through four weeks; it is very informative and no less instructive in the sense that the expert comes out with meaningful ideas about the ship building industry. It will be good that the reader is reminded of what has gone on earlier so that he will have a whole comprehensive idea of the interview.)

The Ship building Industry faced a downward trend following the steep fall in crude prices in the International market a few years ago. As and the Oil and Gas Industry felt the pinch of prices going down, they were not interested in buying new ships. In fact the Industry reversed the orders it had placed with the ship yards during this period. Consequently the inventory of built and unsold ships became a huge problem for the ship yards.

By the time the Oil and Gas industry turn around came to a  point when the demand cannot be reactivated, a large number of ships built and unsold were lying in ship yards. Instead of going in for competitive new ships available in the market, the ship owners preferred to go in for earlier built ships at cheap rates.

This benefitted the Operators of ships as well as the Ship yards. The Ship yards were able to liquidate their stocks but both of them incurred some level of losses. The Industry was definitely under stress.

On the problems affecting the private sector ship yards Vice Admiral Kannan said most of the equipment required for the industry, are not manufactured in the country. All these need to be imported. With the result a significant per cent of the ship’s cost are dependent on imports. This reduces the profit margins since the costs are dependent on foreign exchange fluctuations.

We have not given sufficient emphasis on indigenous development of equipment and machinery for building commercial ships and the electronic system required for them. The second problem the ship-yards face is the need to mobilize skilled manpower. The recruitment system is not institutionalized. We do not have a method by which skill development requirement for ship building are available to the ship yards.

In ship building seventy per cent of the cost of the ship is accounted for by equipment and 10 to 12 per cent by man power. Indian labor may be cheaper but skills are not adequate. Both these issues need to be addressed if the ship yards have to become competitive.

After initial forays into commercial ship building the L and T ship yard management at Katupalli near Chennai took a policy decision to do only defense ship building in 2015,

Defense ship building is a structured process but it is badly running on time. Indian ship building faces the twin challenges of time and cost over runs. Nearly 95 per cent of the war ship building program in the country, are running behind schedule. I do not know why it should happen at all. The delays are due to inadequate planning and execution or due to some technical reason or other. Every case has its own complications. The net result is that there are cost-over runs.

Larsen and Toubro ship yard secured orders for 54 high speed interceptor crafts for the Indian Coastguards..We completed the project two years ahead of schedule. We built it too early for the customer to take possession of the craft. The Coastguards had then faced Resource Crunch. The agency also had another problem. They did not have adequate man power to take charge of the craft once they are manufactured.

On the one hand you tell the industry to Make-in-India, the industry completes the project on time with speed some times ahead of time. Then there is mismatch between the capability of the industry and the resources required for operationalizing the assets.

Floating dry dock

The L and T Ship yard secured an order for a floating dry dock, an important infrastructure for the Indian Navy. The facility was never build in India before. The ship yard designed and built it. We handed it over to the Nay on schedule. From keel laying to the delivery to the customer it took 24 and half month to complete.

Through this order we demonstrated our capability to design and build a floating dock on our own. I am sure this will attract attention from neighboring countries and may result in orders.

The ship yard also received order for seven offshore patrol vessels. The first vessel was delivered in the contractual build time. This has not happened before in India’s fifty five year old history of war ship building.

Vice admiral Kannan attributed the achievement to the company’s engineering capability, work ethos, detailed planning and high amount of digitalization of the industrial process.

Ultimately our ship yard has the capability to design construct and deliver ships in time to meet the defense requirements, .which is what Make in India is required for. That is being met by our ship yard. We have been delivering ships ahead of schedule and hence there is no time or cost over runs, there is export market for our products which need to be tapped.

We have recently received an order from Vietnamese border guards to build twelve ships for them at a cost of Rs 660 crores. We will demonstrate our capability to the foreign vendor as well very soon.

There may be genuine reasons for defense orders given to public sector undertakings. But the orders should not be at the cost of private ship yards which are performing better and are more economical to the government both in terms of time and cost. The orders should  not be given to the PSUS on a nomination basis.

On Indian Navy’s requirement for assets he said our vast coastline is so close to the International Shipping Lane which renders them vulnerable. It could be sea piracy or unauthorized presence of foreign naval vessels operating in the Indian Ocean region.

Indian navy and coastguards need to be more equipped and should have longer legs to cover vast areas. They should be able to mobilize large forces all along the coast. It should have a good surveillance network which is the beginning of the game on the strategic front.

If this to happen, the capital requirements for ship building should get due priority. With the allocation of capital, we have to ensure that Naval Assets are realized in good time and within the stipulated cost. This has not been happening in the past.

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