Yesterday, the All India Congress Committee has raised objections about the Strategic Partnership Program of the Ministry of Defence pertaining to the submarine development programme under the Make in India Program. It is important to see the claims in perspective to see if they stand the test of scrutiny or not.
Sequence Of Events:
- In April 2019, the Government of India issued an Expression of Interest to shortlist Indian strategic partners for the construction of six conventional submarines under Project 75 India (P-75I) worth about Rs 45,000 crore.
- In response to the process, five responses were received – Larsen and Toubro (L&T) Limited, Mazgaon Dock Shipbuilders Limited MDSL), Reliance Naval & Engineering Limited (RNEL), Hindustan Shipyards Limited (HSL), and Hindustan Shipyard-Adani Defence (HSL-AD) joint venture.
- Of these, the Empowered Committee of the Indian Navy shortlisted two – MDSL and L&T.
While there is consistency on the statement of facts, hereon the Congress party starts to muddy the waters. The Congress party press statement does not state the reason why the HSL-AD joint venture was not considered. As per the Economic Times story, the HSL-AD JV was not considered because it had not received administrative approval from the Ministry of Defence.
Chapter VII of the Defence Procurement Policy (DPP) 2016 – REVITALISING DEFENCE INDUSTRIAL ECOSYSTEM THROUGH STRATEGIC PARTNERSHIPS- delineates a thirteen-step process to select the strategic partners. Expression of Interest and the shortlisting on minimum qualifying criteria thereof essentially contribute to an initial stage of the entire exercise. At this stage, the concerned authorities have essentially sought responses to its initial queries, to which they received replies in the specific formats from five respondents. Expression of Interest at this stage essentially tests the willingness of parties to execute the work order within a specific price range estimate.
Ensuring Competition In Procurement
DPP 2016, as well as past precedents across all forms of government procurement, clearly mandate that widest possible competition needs to be ensured, to arrive at the most competitive pricing. This is not only restricted to DPP, but has precedence across all government procurements. It is often seen that most government bids, unless stated otherwise, need at least three bidding parties to ensure competition. This is in line with the tendering guidelines of the Central Vigilance Commission. At this stage, the government may choose to take steps for maintaining credibility of the process if it feels that the number of respondents is insufficient, or the nature of response is not to their requirement. Parallels to this can be seen in the solar sector – in 2017, an EOI document to gauge the market’s interest in setting up 20 GW solar PV manufacturing facility in India in a span of three years was floated by the government of India. However, seeing a tepid response, it was modified and changed multiple times so that more industries would come forward.
Even at advanced stages, if the responses received are seen to be less than encouraging, tenders get scrapped. Precedence can be seen in the solar sector tendering of the government – just recently, the Ministry of Power had scrapped auctions to procure 2,500 MW due to lack of interest shown from the beneficiary state distribution companies. Similarly, seeing a poor response from developers, National Highways Authority of India (NHAI) had postponed the deadline for submitting bids for the second bundle of Toll-Operate-Transfer (TOT) projects twice.
With the parallels very obvious between what is going on here and in the P75 EOI case, one can clearly infer that the ongoing discussion is standard procedure and practice.
No Confusion On Joint Venture
With respect to the claim that the joint venture clause has not been duly adhered to, one needs to know that Adani Defence is the junior partner in the HSL-AD joint venture, and HSL has said that it has requisite capability, infrastructure and spare capacity for executing construction/refits of submarines. In the case of joint bids, the experienced partner(s) technical capability statement is acceptable as the overall venture’s technical capability statement. This is often seen in major infrastructure sector related bids like solar power – Softbank-Bharti-Foxconn JV has primarily relied on the capabilities of not the Bharti group but of Foxconn and Softbank to demonstrate their capabilities as required under the Solar Energy Corporation of India (SECI) tenders or NTPC Vidyut Vyapar Nigam (NVVN) procurement tenders, letting them win large number of solar power project bids.
Further, with respect to the legal validity of the Joint Venture’s ability to apply for tenders, it must be noted that usually joint ventures are eligible to apply for tenders even if the legal entity has not been formed. This can also happen through the route of a consortium. For example, in a typical Request for Selection (RfS) Document of the Solar Energy Corporation of India, bidder and bidding consortium are defined as follows:
1.4 “BIDDER” shall mean Bidding Company (including a foreign company) or a Bidding Consortium submitting the Bid. Any reference to the Bidder includes Bidding Company/ Bidding Consortium, Member of a Bidding Consortium including its successors, executors and permitted assigns and Lead Member of the Bidding Consortium jointly and severally, as the context may require; foreign companies participating in the bidding process shall be registered as companies as per the rules of their country of origin;
1.5 “BIDDING CONSORTIUM” or “CONSORTIUM” shall refer to a group of Companies that collectively submit the response in accordance with the provisions of this RfS under a Consortium Agreement;
An undertaking is usually submitted to the party seeking bids that the parties will do the needful for compliance. In this case, applications for clearing the joint venture between state owned HSL and Adani Defence were pending with the Ministry of Defence, which delayed the process.
One must also point out something totally missed in the discussion. During the Rafale fake news fiasco created by the Congress, allegations were made that the Modi government had overlooked public sector enterprises to benefit his private businessmen ‘friends’. In this case, the discussion is for the inclusion of a public sector enterprise into the P-75 program. We wonder why the Congress is crying wolf on the same, given the facts.