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January 30, 2017

Stealth frigates deal with Russia stumbles on costs


The multi-billion dollar deal between India and Russia for four stealth frigates has run into trouble over pricing and local construction with Transfer of Technology (ToT).
India and Russia had signed an Inter-Governmental Agreement (IGA) for four additional Krivak or Talwar class stealth frigates during bilateral discussions on the sidelines of the BRICS summit in October last year. As per the agreement, two ships are to be procured directly from Russia and two to be built in India with Russian assistance.
In the commercial offer submitted later, Russia has quoted about $990 mn for the two ships to be directly imported. For those to be built in India, the commercial offer quoted about $800 mn for “supply of material to ensure construction of the two ships in India” and $51 mn for “supply of project documentation” to ensure their construction. The cost of construction of the two ships in an Indian yard — yet to be identified — was to be arrived at later.
Defence sources said this would steeply push up the overall cost of the two ships and it was seen as a way to ensure that all four ships were imported from Russia. “It will be a serious setback to the Make-in-India initiative,” one official observed.
The basic structures of the two frigates are already ready at Yantar shipyard in Russia and will be finished once the contract is finalised.
The issue was discussed in detail by the Defence Acquisition Council (DAC) at its meeting on November 7 which “compared the cost differential in the ships to be brought from Russia and those proposed to be built in India,” sources said.
It has been decided that identification of the shipyard to be deferred till the cost for the construction of the ships in India was not cleared.
Officials said the DAC has given approval to initiate cost negotiations for the both parts of the proposal but it was decided that “decision on procurement of two ships from Russia cannot be initiated unless details of ToT, cost etc of balance two ships are found acceptable.”
“The Navy has conveyed its concerns to Russia. They were told that we will either take all four ships or none,” official sources added.
India had earlier procured six frigates of the same class weighing 4,000 tonnes in two different batches.

 thehindu

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