Key defence projects still stuck over strategic partnership chapter

The Ministry of Defence (MoD) has constituted an internal committee of nine members to work on the chapter on strategic partnerships (SPs) under the new Defence Procurement Procedure (DPP).

With the government yet to finalise one of the most important chapters in the DPP, large-scale defence projects are facing delays. The committee was set up last month after the MoD held several deliberations with the defence industry, armed forces and experts, sources told BusinessLine .

The committee has met five to six times so far and it seems that the matter is far from over. According to sources, the MoD is deeply divided over the issue of allowing one company in one category or allowing more foreign players to forge alliance with domestic companies in more than one category such as aircraft, warships, armoured vehicles, ammunitions, target acquisition and reconnaissance and critical materials.

While some in the MoD believe that allowing only one or two SPs in one category can lead to monopolistic forces with least options of price discovery, there are others who believe that only one or two SPs can enter into collaborations for a specific category.

“The industry wants competition. The proposal to allow one or two SPs in one category is going to kill competition and there will be no price discoveries. Moreover, defence projects are largely long-term projects, what if a SP fails to execute the deal within 8-10 years into the deal, then who will suffer? Unless the SP chapter is finalised, no company will put in money because these are big investments,” said a top industry representative requesting anonymity. The MoD has also not been able to finalise what role the foreign firms will play in SPs. Apparently, the committee is of the view that a particular foreign firm which enters into partnerships in any one category will not be allowed to forge an alliance in another.

For example if a foreign defence firm becomes a strategic partner that is engaged in making helicopters, it will not be allowed to be a SP in manufacturing submarines.

Speaking on conditions of anonymity, a spokesperson for a US-based defence firm said: “Foreign players should have the liberty to choose which category they want to enter and with which company. These are business decisions and there should be transparency and stability in the policies.”So far five sub-groups from the domestic defence industry and business chambers have made their presentations to the MoD on the DPP.

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