Anil Ambani-led firm failed delivery of vessels to Navy in time, yet contract not cancelled

The Anil Ambani-led firm Reliance Naval Engineering (RNEL) is four years behind its schedule to supply five offshore patrol vessels (OPVs) to the Indian Navy. But, the Modi government has still not cancelled the contract. This delay has led the naval authorities to encash the bank guarantees given by Reliance Naval Engineering.

Navy chief Admiral Sunil Lanba was responding to a query on whether action has been taken against the Anil Ambani-promoted company for overshooting the deadline.

However, the question remains as to why the government had not cancelled the contract as it had done with other companies in the past whenever the delivery was delayed.

“For a similar infringement, the navy cancelled an order on ABG Shipyard, leading to its bankruptcy,” pointed out a shipbuilding industry executive, reported the Business Standard.

Admiral Lanba insisted that, “There is no preferential treatment being given to RNEL. Its bank guarantees have been encashed by the Navy, so punitive action has been taken against RNEL.” According to sources, bank guarantees worth over Rs 100 crore were encashed earlier this year.

The Admiral, who was interacting with the media ahead of the Navy Day, said the Anil Ambani-company is facing legal trouble. “RNEL is undergoing corporate debt restructuring. They have been taken to court by their banker, IDBI,” he said.

The navy chief, however, said the contract for naval offshore patrol vessels (OPVs) — worth over ₹2,500 crore — is not being cancelled. “The contract is being examined,” he said.

On the question of RNEL still being in consideration for the ₹20,000-crore landing platform docks (LPDs) project, for which commercial proposals are still to be opened, the navy chief said the matter is still pending.

According to a report by defence analyst Ajai Shukla, warship-building projects worth at least ₹630 billion have ground to a standstill. This is all because the defence ministry has halted tendering as they are waiting for the government to decide whether to allow, or to exclude, Anil Ambani’s shipbuilding firm from those contracts.

In 2014, the navy issued a request for proposal (RFP) to three private shipyards: Larsen & Toubro (L&T), ABG and Reliance’s Pipavav shipyard, later renamed RNEL. The winner was to build two LPDs, with HSL nominated to build the other two. However, with ABG going bankrupt, a fresh RFP was issued in May 2017 to L&T and RNEL for building all four LPDs.

Since then, action has stalled on whether RNEL is eligible. The bids have not been opened.

The contract for OPVs, awarded in 2011, has seen several delays over the years and is currently running four years behind schedule. In July 2017, RNEL had launched the first two patrol vessels at its shipyard in Pipavav, Gujarat. The two vessels are part of the five ships being constructed under the P-21project by RNEL.

According to sources, the debt-ridden company has written to the navy, promising delivery of the first vessel by the middle of next year.

In July 2017, after technical delays, the first two OPVs were handed over and launched from Reliance Naval’s shipyard in Pipavav Gujarat. It is not yet clear when the company plans on handing over the other three patrol vessels.

Over the last few financial quarters, Reliance Naval’s financial stability has been called into question. In April 2018, the company’s independent auditors questioned the Anil Ambani-led firm’s ability to continue, after the company posted a loss of Rs 409 crore for the fourth quarter of FY-18.

In all of this the question remains if the Modi government is serious in equipping the Indian Navy or will it be stalled until the Anil Ambani-led company becomes financially viable?