Tuesday, 9 May 2017

What “Make in India”? MoD penalises Tata Power (SED) for using indigenous parts

This after Tata Power (SED) won global tender for airfields upgrade (Above: Rahul Chaudhry explains project)

By Ajai Shukla
Business Standard, 10th May 17

The prime minister’s office and ministry of defence (MoD) claim indigenisation – or replacing foreign-procured equipment with kit built in India – is a key priority. Yet, an Indian company that indigenised components faces heavy financial losses after the MoD blocked its payments.

Tata Power (Strategic Engineering Division), one of India’s most capable defence electronics innovators, beat out global competition in 2011 to bag a Rs 1,219 crore contract to modernise 30 Indian Air Force (IAF) and one Indian Navy airfields. But now, even as Tata Power (SED) continues work, the MoD has blocked payments worth Rs 275 crore after the company replaced an Australian component worth just Rs 84 lakhs with a component developed in India.

The component, called a “Runway Visual Range” (RVR), was to be sourced from an Australian firm, MTECH Systems, according to the initial contract with Tata Power (SED). However, after MTECH Systems presented delivery problems, Tata Power (SED) – in consultation with the IAF – replaced it with the Drishti RVR, built in India by National Aerospace Laboratory, which falls under the Council of Scientific & Industrial Research.

Drishti was already installed in several civilian airfields under the Airports Authority of India, including Bengaluru International Airport. It was also displayed in the Republic Day Parade this year, as a showpiece of “Make in India”.

Yet, the MoD has used Drishti’s induction as grounds to stop payments to Tata Power (SED). Each IAF airfield costs Rs 37.5 crore to modernise. The MoD has blocked that entire amount because of the RVR, which costs just Rs 84 lakhs; less than 2.5 per cent of the cost per airfield.

Despite dues piling up to Rs 275 crore, Tata Power (SED) has continued to work without payment on almost 11-12 airfields. The company calculates it has additionally lost Rs 12.56 crore in interest on the outstanding dues. With each passing day, interest charges lose Tata Power (SED) another Rs 10.6 lakhs.

Rahul Chaudhry, Tata Power (SED) chief, laments: “We proposed the IAF could withhold Rs 94 lakh for each RVR, and pay us the remaining amount. But this arrangement was not acceptable to MoD (Finance) and our payments since then are stuck, leading to a large working capital interest burden of Rs 10.6 lakhs per day.”

Business Standard learns that this will cause Tata Power (SED) – a division of Tata Power – to post a loss for the first time in 15 years.

Contacted for comments, MoD officials, speaking anonymously, tell Business Standard the ministry has decided to pay Tata Power (SED). “The proposal to replace the foreign RVR with an indigenous one had been agreed to several weeks ago. However, the case has been held up on account of costing implications in the contract. But agreement has been reached and [the IAF] will make the payment soon.”

However, Tata Power (SED) says the MoD has not communicated any decision to make payment, or when it would be made. “We are waiting for our due payment (of Rs 275 crore) and requesting an immediate release. We are also requesting that our cost (of Rs 12.56 crore) on account of blocked working capital may be reimbursed”, says Chaudhry.

Under the so-called Modernisation of Airfield Infrastructure (MAFI) contract, Tata Power (SED) is required to supply, install, test, integrate and commission a range of radar, airspace control and communications equipment, procured from various foreign and Indian vendors at 31 specified IAF/navy airfields.


Negotiations are under way with Tata Power (SED) for a second phase of this project, termed MAFI-2, to modernise another 37 military airfields for an assessed Rs 1,600 – 1,800 crore.

14 comments:

sudhir virulkar said...

No wonder foreign firms are reluctant to do business with Govt when they learn how baboos behave with Indian Cos. No one to tame these baboos. Govt only doing publicity.

Anonymous said...

Typical bumbling MoD ! TATA needs to lodge a protest with Raksha Mantri and pradhan Mantri

Rahul Chaudhry said...

Dear Ajai,
Thanks for bring out this story in open. However as already sent earlier,
having taken a “Make in India” In-Service NAV AID with AAI (Airport Authority of India), designed & produced by National Aerospace Laboratory (NAL) that was displayed as a proud achievement of CISR in the Republic Day Parade, we never anticipated paying such a high price in tens of Crs with funds stuck. This unfortunate situation has happened despite highest levels in IAF and MoD Acquisition Wing trying to find a solution but it seems “MoD Procedures” override. For the greater Good and in the Interest of “Make in India” urge Govt of India & MoD to issue a simple change in their procedures – If a suitable “Make in India” Sub System is technically found suitable by the Services/ End User, all other procedure will deemed to be completed for payment purpose and within 28 days an appropriate contract amendment will be issued by the contracting authority.

regards

Rahul Chaudhry CEO Tata Power SED

Anonymous said...

Ha, kill a good company. Let us see then who follows to "Make in India" ... perhaps a fit case for investigation into MoD finances obstruction and imposing interest to be paid by the Babus including Defense Secretary.

Ashok A said...

Very disappointing. Instead of being rewarded for indigenization companies are being punished. Unless systems are in place to encourage indigenization such actions will prevent others from doing any effort for indigenization. Make it a case study and learn from it and insert a clause where such indigenization is rewarded with at least no decrease in price. That will help faster indigenization. Ensure quality checks are in place.

Anonymous said...

Treachery is not just killing an Army-men it is also about pulling the nation down for self-interest...don't need traitors in Kashmir ..do we ??

Anonymous said...

Inspite of all "make in india" hype, we get to see the core technologies is NOT available in this country. No company in India has any core technologies and hence bank on foreign comapanies, who are far ahead.
We are stll working on "build to print" model and call them indigenous.
What is the Indigenous content IN TPSED Project? Why was the Australian firm contacted, when available in India?
Mr Shukla, projected the issue, without giving details.

Alok Asthana said...

Case seems to be presented wrongly here. Hardly anything to do with 'Make in India'. If the initial contract was to have RVR from Australian MTECH, as seems to me thorough this initial reading, it can not be replaced by any other without first seeking sanction. Or, can it? We are changing the whole pitch by presenting it as it suits us.

Anonymous said...

bribe taken... Parrikar... and MoD babus... bribe paid by... MTECH Austrailia

Anonymous said...

Its a simple case of not following the Change request process.

Yes dealing with any finance is always difficult if process is not followed

Prash said...

Rather than crying gung ho, isn't this a simple case of deviating from the agreed terms of delivery?
If the agreement was made based on certain component specifications, it should have been followed. And though TATAs are big names in Indian manufacturing sector, they should not take the specification for granted, and change things suo moto (for profits?).

Rahul Chaudhry said...

Let me first give out information asked.

The MAFI contract was won by Tata Power SED as a Buy (Global) bid. RFP came out in 2009 and order was placed in March 2012 while Court Case by Italian company Selex challenging the award to a Indian company was still on in Delhi High Court.

Indian content of MAFI project is over 60% and under DPP 2016 it could be classified as IDDM project. Systems Integration and Design is indigenous so it is possible to change sub systems ie a navigatinal aid RVR.

When SED bid this project in 2009 no indigenous RVR was avaiable and so was the status in 2012. When the need to replace RVR was felt, Tata Power SED and IAF jointly agreed after due deligence to take a proven Indian RVR that has recently become available. This item is developed and manufechred by Govt entity NAL and meets all possible definitions of "Make in India" . It is operational in AAI's few large International Airports and mets all quality norms.

Under MoD system a Forign OEM works with self certification but an Indian vendor needs approvals of users in this case IAF. This is a Buy ( Global) tender where if a foreigner had won they would be on self certification but an Indian company is not. To meet IAF mordenisation time line, while using a Made in India RVR ( from a Govt entity) and order amendment process was requested thru IAF. Tata Power SED also agreed not to invoice for RVR till order amendment was approved by MOD. We never anticipated that all payments will be denied.

If we were a Forign company with LC probably this situation would not have happened. It is bizarre that we are at the receiving end of procedures in MoD that distrusts Indian vendors and "Make in India" in Defence is a central recurring theme.

Let me now deal with some of the comments in this blog on quality, additional profit and change process.

- Are you implying that CSIR on 26th Jan put out a product on Rajpath that was a fake or not meeting quality norms?

- Although we are loosing money due to this change to a quality Indian product ( It is a new product hence economics of scale are against us ) and MoD finance is penalising us even more but in general whom will you like to benifit an Indian company or a foreigner?

- Sir the Change process we need adopt is mind set. In China or Russia a high tech product successfully introduced and displayed in May Day parade or equivalent will be mandated for all Govt and Private procurements and imports made impossible?

As requested earlier " Make in India " also needs procedural change and a mindset change.

I am glad that story is public and hope lessons learnt will be implemented for India to benifit.

Regards

Rahul Chaudhry






Order amendments takes a long time in MoD. IAF needed their bases taking a pragmatic route

Anonymous said...

Well if Tata's are really wanting to give an Govt product from NAL instead of a Forign one and MoD finance is creating problems they should report this to CAG. How can a Mod object to a Govt item being supplies unless the Australian is bribing them ...
In that case let CBI take over .

Rakesh Mittal said...

The contract has to be followed unless both parties agree to an amendment. There is no idealism involved here. The contract would either specify the make of the components and a particular level of performance. If only performance is specified than the vendor has the freedom to choose the make of the component.