The Defence Ministry's decision of put on hold the Mazagon Dock- Pipavav joint venture in many ways vindicates the stand of competing bidders about total lack of transparency in evaluation, besides non-disclosure of the selection criteria.
The Defence Minister, Mr A.K. Antony, while imposing a freeze on the deal, has said, “Joint ventures must compete for contracts and should not get them on nomination basis. We are treading on a new path and we would like to ensure that transparency is maintained at all levels.”
While there is little doubt that MDL has chosen Pipavav Shipyard after evaluating the strengths and capabilities of all the competing bidders, what is baffling is the haste in which the decision was taken within a fortnight, without waiting for the submission of the detailed business plans of all the yards it had sought.
L&T and ABG Shipyard while conveying their displeasure to the MDL authorities also highlighted their individual strengths in their communications.
An L&T official said matters would not have precipitated to such an extent had MDL made the announcement, though the selection process would have been questioned in any case.
Trigger
The trigger apparently was the Pipavav Shipyard Chairman, Mr Nikhil Gandhi's declaration that Pipavav was the ‘partner of choice' of the public sector undertaking that has a Rs 1 lakh crore-order book to build warships.
The Pipavav scrip soared 12 per cent to Rs 91 on BSE on that day, though subsequent developments dragged it down.
On Tuesday, it closed at Rs 77.80.
While the Ministry's intervention is welcome, the observations made by the Defence Minister also raises questions as to why a joint venture policy or framework was not in place before reaching out to the private sector for a strategic alliance in a sensitive sector concerning national security.
Given the absence of a joint venture policy, it could be said that MDL cannot be faulted for keeping the evaluation parameters close to its chest, while negotiating with the shipyards for over six months before deciding in favour of Pipavav Shipyard.
One of the bidders indirectly pointed this out when he said that the presence of a former MDL Chairman and Managing Director on the Pipavav Board could have tilted the scales in its favour as he would have fine-tuned the detailed plan to align with the MDL's requirements.
The domestic ship building industry is at crossroads. Global business is just about looking up after the recession.
The availability of assured business on home turf from the Government was an opportunity that it ill-afford to miss.
Moreover, a joint venture with the State-owned shipyard would open avenues for export, as the yards could showcase their expertise at home.