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Tata-LT consortium shortlisted for mega defence project

Closing Bell

Excerpts from Closing Bell on CNBC-TV18 Watch the full show »

In order to give a push to government’s defence programme, the ministry has awarded battlefield management system (BMS) development contracts to two consortiums. According to sources, one comprises of  Tata Power SED and L&T Defence and the other consortium includes  BEL and Rolta .

The government will fund 80 percent of the prototype cost and partners will be expected to fork out the remaining 20 percent. The two consortiums are required to develop the prototype in 18-24 months.

Speaking exclusively to CNBC-TV18, MV Kotwal of  L&T said share of Tata Power and L&T is same in the consortium. He also added that the final order win will be between one of the two consortiums.

Below is the transcript of MV Kotwal’s interview with Menaka Doshi, Anuj Singhal and Varinder Bansal on CNBC-TV18.

Menaka: We have some preliminary details on this big defence order of the size of Rs 50,000 crore which we understand has been bagged by two different consortia. Around 70 percent of that order has gone to a consortium between BEL and Rolta and 30 percent of that order has come to you and Tata Power as the second consortia. What details can you share with us on this front?

A: Actually, this needs a lot of clarification. First of all this is not an order, it is a programme called Battlefield Management System (BMS) which is part of a ‘Make India’ programme. The part of the scheme is that they call companies interested in this which they did in last April and we submitted expression of interest and they have now shortlisted the top two.

The scheme is that the top two companies or consortia will be given the chance to produce prototype systems which they would have to field and after they are fielded they would to go through a set of tests and then the chosen party will get the majority of this business.

Today, there has been a short listing of the top two and that includes one, the consortia which you talked about between BEL and Rolta and a second is the consortium, which is between Tata Power SED and L&T; in this particular case led by Tatas. The share of both partners is almost equal and this is the consortium which is announced.

The process of development of the prototype will then commence and 80 percent of the funding for development will be provided by the government of India where 20 percent would be provided by the concerned consortium. This is a normal process of the Make India programme where out of the interested parties the top two are selected, two parties are given 80 percent funding by the government to develop prototype systems and then finally after the due testing then the selected party gets the majority of business.   

Menaka: Is it like a prototype beauty pageant, if you win the beauty pageant you get the order, if you don’t, you don’t get the order?

A: No it is not like that, for example there will be two systems developed and at the end of the development process which may itself take a few years and after that the one that is selected normally would get a larger portion of that business.

Therefore, the total business as envisaged today is between Rs 40-50,000 crore. But it is not yet an order, this is like a selection for the development partner and there will be two selected partners.

Menaka: Is the Swayamvar down to two?

A: Yes.

Menaka: Now you’ll compete, if you win you stand to gain from an order that sort of represents the majority of that Rs 30-40,000 crore business. It could be an order to the tune of Rs 20,000 crore or Rs 25,000 crore executable over 5-10 years.

A: Yes, after the development process is over. And during the development process, 80 percent funding is provided by the government.

Menaka: Only 20 percent comes out of your pocket over the period of time. Is that 20 percent material in any way that we should know about, will it show up in your financial earnings suddenly as a blip in some quarter in the next two years?

A: The teams will now get together with the user agencies and then we will chalk out what exactly the details are involved in the development process and then we will get a better picture.

The sums involved will be little more than Rs 500 crore for the development process itself but how much they will be, they will come out a little later.

Menaka: It isn’t time yet to congratulate you in any fashion?

A: First of all it is a very tough thing to get short listed among the top two. We similarly got short listed in the tactical communications system which was a first one and in that again the consortium that time was led by L&T and part of it is Tata Power.

We got selected so in both these very major programmes of very great tactical communication systems and the BMS, both part have got involved and that is something which is really very difficulty to get as 14 parties were y called for the BMS and that is how the selection was done.

Varinder: I wanted to know that 70-30 ratio which is being talked in the market, is it right to understand that going ahead after two years or 18 months, that will be the proportion which will be divided between two consortiums or is it too early to even discuss about that?

A: It is a bit premature; the reason is very simple that these systems are very complex. It is not something which you just buy off what is available and so, the two parties will independently develop systems which meet customers or the end users requirement.

The user will then get to test both of them and then pick and choose which are the features of which they would want in the final system. So, the composition of how much each consortium will share is rather premature to talk about.

Menaka: Exactly what is it that this BMS entails? Can you talk about what it is that you are building as a prototype or is that classified?

A: In short it is a command and control system. What happens in today’s warfare, the digitalised warfare as you call it, you need communication between the command centre and finally the soldier. So, it is a part of the whole process which is called OODA which is Observe, Orient, Decide and Act. That is the kind of loop which is normally used.

This will be a unique system which will place the Indian army on a much higher pedestal because right from the command centre to the soldier who is on the field there will be a complete system which will gather information on what is happening and get back to the final decision on actual actions to be taken.

It is a very complex encrypted system and therefore it will really place us amongst the top forces in the world once such a scheme is implemented.

Varinder: What are the chances that after 18 or 24 months, even after developing the prototype, will it be final that these two consortiums will bag the final order or there could be a slip between the cup and the lip?

A: No, that is absolutely certain. The whole foundation of ‘Make India’ programme – first of all why such a thing was required is because we are talking about systems which do not exist as readymade system hence have to be absolutely designed to suit our own requirements.

It is a very secure system and is really good that apart from the traditional organisations like BEL other now organisations have also been given a chance. To even qualify or be selected we have to have a track record of having supplied various equipments over the years which have given confidence to the MoD that we can meet the requirements.

Menaka: Will it be down to these two consortia to bag proportions of that order?

A: Absolutely.

Menaka: You keep referring to Make in India or Make India rather. That is the defence programme, right? You are not referring to the Modi government’s programme because you said you were called in April and at that point the government hadn’t even been elected.

A: No, it is good you brought out this because there is often confusion. Make India is a categorisation of the procurement policy of the Government of India which has been announced sometime back.

The first programme in that category was the tactical communication system which for some years back it has been done because there were some formalities because of which it has not yet got activated but it will soon get activated now we expect.

The second programme is the Battlefield Management and there are several more major programmes which major programmes that are coming into this category. This is quite different from the Make in India which is a general term applicable across.

So, Make India is basically a defence procurement category and this is exclusively meant for systems or equipments which do not readily exist. They have to be developed, designed and built and so there is lot of development, R&D involved. That is why it is quite exciting for us.         

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