Pipavav,Mazagon Dock JV flags off mega PPP to build warships

However,any reduction in government spending on the defence warship segment and delays in order execution could hamper the growth prospects of the new company.

The private sector has leapfrogged into the vast market for naval vessels in India and overseas. Private shipbuilder Pipavav Defence & Offshore Engineering Company (PDOL) and state-owned Mazagon Dock on Monday formed the countrys first public-private partnership venture to build warships and submarines for the Navy.

The 50:50 joint venture to be named Mazagon Dock Pipavav Ltd will implement part of the existing orders of Mazagon Dock of Rs 1,00,000 crore ($21.69 billion) and also bid for future defence contracts in India. This partnership is formed primarily to fast-forward the process of warships and submarine contracts held currently by the MDL, PDOL chairman Nikhil P Gandhi said.

However,any reduction in government spending on the defence warship segment and delays in order execution could hamper the growth prospects of the new company. Indias defence budget for 2011-12 stands at around Rs 1.64 lakh crore ($37.05 billion),higher by 12 per cent over the last year. The share of defence budget in the GDP is down in 2011-12 to 1.83 per cent from 2.12 per cent last year. Of the total defence budget,the Navys share stands at Rs 25,245 crore under revenue expenditure,while under the capital expenditure,the share is Rs 14,658 crore.

The PDOL board unanimously approved setting up of the joint venture company with Mazagon Dock to be named as Mazagon Dock Pipavav Ltd, Gandhi said. Apart from carrying out work for the Navy,the JV will also look at export orders from friendly countries,Gandhi said. Pipavav has the capacity to carry out work on a dozen submarines and warships each at a given time due to its modular yard.

The JV will also be looking at bidding for future projects of the Navy,Gandhi said. The Navy is estimated to purchase assets worth $30 billion in the near-term,he added. Modalities of the joint venture like the equity to be brought in by the partners,what kind of work to be undertaken,the quantum of work to be undertaken by Pipavav,etc,were not disclosed by Gandhi,saying work on many issues is under progress.

Reacting to the announcement,shares of the firm jumped 11.31 per cent to close at Rs 91 on the BSE,after hitting an intra-day high of Rs 92.

Pipavav will not be investing any new fund for carrying out construction of ships for the Navy,other than the $1 billion which it is already doing for its yard.

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Around $750 million has already been invested,while the company has achieved financial closure for the remaining $250 million which will be utilised for building its second dry-dock. Pipavavs current order book stands at $1.5 billion of which $665 million are from a project for the Navy,bagged three months ago,Gandhi said.