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Strategic Partnership and DPSU

The “Strategic Partnership Model” was meant for creating capacity in the private sector over and above the capacity and infrastructure that exists in the DPSUs. However subsequent tweaking of the SP provisions made gateway for DPSU entry, despite their overloaded order books and poor delivery record.

The Strategic Partnership policy laying down the qualification criteria with the financial and technical parameters for selection of OEM and Indian Partners was approved on 31 May 2107. The policy targets to create an ecosystem of Indian system integrator with other stakeholders.  To build a formidable indigenous defence industry, it is imperative to develop an ecosystem of indigenous sourcing. In the path to progress with great emphasis laid on “Make in India,” it is highly likely that the cost of design, development, supply chain management and production may be higher than a foreign made product. However, since the development, ecosystem and production will take place within the geography of the country, the taxpayers' money so billed against the Indian manufactured system under consideration is circulated within the same geography many times.

The government identified four segments under Strategic Partnership Model, P75 (I) Submarine, Naval Multi-Role Helicopters (NMRH), Naval Utility Helicopters, Future Ready Combat Vehicle, and Fighter aircraft. Global RFI for Naval Utility Helicopters (NUH) and Naval Multi-Role Helicopters (NMRH) Proj 75(I) and Fighter Aircraft were issued, and a number of responses received are analysed for selection of Foreign OEM.The analysis of the response to RFI are being utilized to draw the minimum QR and depth and range of technology transfer.

Fighter Jets

Earlier 400 single-and double-engine combat aircraft procurement was progressing in separate projects under the 'Make in India' initiative to build single-engine and twin-engine planes in the country. The procurement of about 114 single-engine fighter planes worth about $15 billion, while Navy seeking for the 57 planes could be worth about $10 billion. Now under SP Model out of the 110 aircraft, about 85 percent of the plane will have to be made in India while 15 percent of them can be in a flyaway condition. The flyaway state from the OEM are expected to commence within 36 months, and the entire delivery will have to be completed within 60 months from contract signing. The IAF is likely to procure 82-83 (75 percent) single-seat fighter jets and 27-28 twin-seat variants (25 percent).

The companies responded to the RFI, includes  Boeing’s F/A-18E/F Super Hornet Block III, Lockheed Martin’s F-16 Fighting Falcon Block 70, Dassault’s Rafale F3R, Eurofighter Typhoon, Saab’s Gripen E, the Russian United Aircraft Corporation’s MiG-35 and Sukhoi Corporation’s Su-35.Issuing the RFI is just the initial stage of lengthy procurement procedure with chances of being derailing at each step. As some of the platforms have already been trial evaluated, to reduce the time for User trials only it is likely that aspects which were not tested or met the standard may be re-evaluated or combat record be analyzed. As per the Strategic Partnership model the IAF to down select the aircraft and the MoD may approve the "strategic partner." Today, if we sign up for a programme with a different OEM on SP Model after selection of partners, the earliest the arrival of the first platform into the Armed Forces will not be before 5 years. Post selection of a contract could potentially be signed within the next 2 to 3 years. Then the production facilities will need to be set up. However, it may well be possible that the first lot of platforms come in a fully finished condition from abroad, while the facilities are being set up here.

 Naval Utility Helicopters

A Request for Information (RFI) issued on August 22, 2017, for the Naval Utility Helicopter (NUH)  and 123 Naval Multi-Role Helicopters (NMRH).The  Defence Acquisition Council (DAC) accorded approval for the 111 NUH program worth INR 217.38 billion (USD 3.5 billion)on August 25, 2018, under the Strategic Partnership (SP) model. These helicopters are to replace Chetak Helicopters for SAR, CASEVAC, LIMO, passenger roles, and torpedo drops. The Navy issued Expression of Interest February 12, 2019, for NUH for short listing potential Indian Strategic Partners and foreign OEMs. Ninety-five helicopters out of 111 will be manufactured in India by the selected Indian Strategic Partner. The navy has listed out six “must-have” technologies that the OEMs must transfer as part of the contract with 60 per cent indigenization and 95 helicopters to be manufactured in India. An RFP is expected to be issued to selected Indian companies by the end of the third quarter of 2019.

Three original equipment manufacturers (OEMs) said to havesubmitted the responses to an Express of Interest (EoI) floated by the defence ministry on 12 February19 for Rs 21,738 crore procurement of 111 light Naval Utility Helicopters (NUH).

  • Airbus has offered two platforms – the H 145M and the Panther AS565 – on offer for manufacturing in partnership with Mahindra Defence.
  • The American side has offered the Sikorsky S 76D
  • Russia has offered the Kamov Ka 226T for the mega project.
  • US helicopter manufacturer Bell and Korean aviation company KAI also did not respond,
  • Hindustan Aeronautics Ltd (HAL) is separately pushing for the naval version of its Advanced Light Helicopter (ALH) for the contract.

The likely Indian SPs are to be chosen from amongst Tata Advanced Systems Ltd, Mahindra Defence, Adani Defence, Larsen & Toubro, Kalyani Group and Reliance. A joint venture set up by HAL, Russian Helicopters and Rosoboronexport to manufacture the Kamov 226T light helicopter in India under an Indo-Russian inter-governmental agreement (IGA) – have also applied to be SPs.

 Future Ready Combat Vehicle (FRCV)

Procurement of approximately 1770 Armoured Fighting Vehicles (AFV) in a phased manner, to include transfer of technology, engineering support package, training aggregates, spares package and 10 years performance based logistics etc. DGMF had issued an RFI (Request for Information) in November 2017, for Future-Ready Combat Vehicle (FRCV) under ‘Strategic Partnership’ model to replace 2,414 Soviet-origin T-72 tanks. The Original Equipment Manufacturer (OEM) is required to offer technology transfer, with 40 percent indigenous content, and create ecosystems, life cycle costs and upgrade plans to build.

The OEMs responded to RFI include BAE Systems, General Dynamics, Krauss-Maffei Wegmann, Nexter, Polski Holding Obronny, Rosoboronexport,HyundaiRotem and Ukrainexport of Ukraine.Indian companies interested in the project include Mahindra Group, Bharat Forge, Punj Lloyd, TATA Power SED, TATA Motors, Reliance Defence and Engineering Limited, Titagarh Wagons, and Tractors India.

 P75 (I) Submarine

The draft requirements for Rs 40,000 crore project to construct six new submarines one of the largest ‘Make in India’ project caters for Indian systems to be fitted on the submarines with at least 45% indigenous contents mainly such as   Indian steel, missiles, torpedoes, and an indigenously developed air-independent propulsion system.Four ship-builders - Naval Group-DCNS (France), ThyssenKrupp Marine Systems (Germany), Rosoboronexport Rubin Design Bureau (Russia) and Saab Kockums (Sweden) have responded to the request for Information (RFI) issued for the "Project-75 India" in July 2017. The Rs 70,000 crore ($10.9 billion) deal once inked will take another seven to eight years for the first submarine to roll out.

The Indian Navy has issued Expression of Interest to foreign vendors to acquire six lethal submarines under Project-75 India likely to cost over Rs 50,000 crore. The submarines are to be equipped with at least 12 Land Attack Cruise Missiles (LACM) along with Anti-Ship cruise missiles (ASCM) besides being able to carry and launch 18 heavyweight torpedoes in the sea.

An empowered project committee has been formed with the Navy's Controller of Warship Production and Acquisition as the head of the panel and several members.

Public Sector Response to SP Projects

Although the “Strategic Partnership Model” was meant for creating capacity in the private sector over and above the capacity and infrastructure that exists in the DPSUs.   However there is a rider “MoD may consider the role of DPSUs/OFB at the appropriate stage(s) keeping in view the order book position, capacity and price competitiveness. Now DPSU like HAL are also being considered, and the DRDO which had no role is likely to enter in SP model, hindering Make in India.  DPSU are jumping in fray despite their overloaded order books and poor delivery record in segments detailed below:-

Hindustan Aeronautics Ltd (HAL) has submitted two separate responses to the navy’s Expression of Interest (EoI) in identifying an Indian strategic partner (SP) to build 111 Naval Utility Helicopters (NUHs) for an estimated Rs 21,738 crore. The two responses include one proposal to participate as a DPSU; and, a second proposal from the HAL-led joint venture, Indo-Russian Helicopters Ltd (IRHL), which was set up to manufacture the Kamov 226T helicopter for the air force in India.IRHL is currently a public sector firm, with HAL holding 50.5 per cent of its equity, while Russian Helicopters (42 per cent) and Rosoboronexport (7.5 per cent) hold the rest.

Hindustan Shipyard Limited (HSL), Bharat Heavy Electricals Limited (BHEL) and Mishra Dhatu Nigam Limited (Midhani) have joined hands to form a consortium for building six conventional submarines under Project 75(I) under the strategic partnership model. The consortium will jointly stake claim with the Ministry of Defence for being considered a prospective bidder for the proposed P-75 (I) project of the Navy.

The MoD is yet to finalise the Indian companies which could be enlisted as potential strategic partners under the SP model.  The entry of DPSU will give unfair advantage to the already loaded DPSU in SP projects as is clear indication of their clout and there are doubts that the Process may take RUR route.It will be a tough call but taking the SP model back to its original purpose to kick-start the private sector into a global league would go a long way in the success of Make in India as far as the defence sector goes.

It is known that Private sector need to gear up to deliver the desired strategic system within the timeframe and conforming to the highest quality standards while dealing with restricted availability of military grade raw materials will challenge their supply chain. Corporate must map the existing industry in terms of their preparedness, quality and capacity. Many corporate have made investments in multi disciplinary sub-sectors of defence. It is time now to build on the supply chain for the segments and develop an aerospace and defence manufacturing ecosystem.

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