$5.7 Bn Indian Submarine Tender Threatened By Possible German Pull Out

A veiled hint of pull out by a key bidder threatens to stall India’s $5.7 Billion programme to acquire a new line of six attack submarines under Project 75 (I). This is the world’s largest tender for diesel-electric submarines and the first procurement programme under India’s ambitious Strategic Partnership model intended to push the Make in India agenda and rid India of import dependency. 

German contender ThyssenKrupp Marine Systems (TKMS) has expressed inability to be fully compliant with the existing technical and commercial terms of the Indian Navy’s Request for Proposal (RFP), which seeks deep transfer of technology (ToT) to create submarine design capability in India. 

TKMS has reportedly sought dilution and flexibility in the techno-commercial terms which are meant to ensure that India does not require foreign collaboration to build submarines in the future.

The German company’s move threatens to reduce the original field of five international competitors for technology partnership to just one. The foreign OEMs shortlisted for technical collaboration in the RFP issued on July 20 are Naval Group of France, Rosboronexport of Russia Daewoo Shipbuilding and Marine Engineering Company of South Korea and Navantia of Spain, besides TKMS of Germany. The RFP was issued to Mazagon Dock Limited (MDL) and L&T, the two Indian companies shortlisted as Strategic Partner hopefuls, which are meant to bid for the contract for building the six submarines in India in partnership with any one of these foreign OEMs engaged as a technology provider.


“These OEMs would enable setting up of dedicated manufacturing lines for these submarines in India by providing ToT for submarine design and other technologies and make India the global hub for submarine design and production,” the Ministry of Defence had declared in a statement while announcing issuance of the tender. 

Of this field of foreign OEMs, the only two which meet the key tender requirement for a proven fuel cell-based Air Independent Propulsion (AIP) system are TKMS and Daewoo. An AIP plug enables a conventional submarine to stay submerged for a significantly longer duration, giving it greater stealth and lethality. If the German company pulls out of the competition, it leaves only Daewoo in the fray. 

This situation would compel both the shortlisted Indian companies MDL and L&T to submit rival bids by tying up with the same partner – Daewoo. Observers reckon that this eventuality largely defeats the Indian Navy’s purpose of leveraging competition for getting the best deal. 

The Indian Navy, which has high stakes in the programme, has responded by tentatively extending the last date of submission of tender bids beyond November2021 to give it time to attempt arriving at a modus vivendi to rescue the programme.

An Indian Navy source, while confirming this development, insisted that this “does not constitute a single vendor situation”. A single vendor situation is unacceptable under the Defence Acquisition Procedure (DAP) in a procurement through competition. 

“The RFP has been issued to the Indian companies and not the foreign OEMs. Even in the eventuality of just one foreign technology provider being in the fray, there will be two bids by the shortlisted Indian Strategic Partner hopefuls. Hence, this does not constitute a single vendor situation. Each shipyard will have different costing, even in a hypothetical situation of each tying up with the same technology partner,” he reasoned. 

But the larger concern is whether foreign OEMs will accept India’s new Strategic Partnership Model and collaborate sincerely in projects which are aimed at ending the market for foreign military wares in India. In the Scorpene deal of 2005, the foreign collaborator only parted with manufacturing ToT and did not impart any design capability for the submarines manufactured at MDL. The absence of meaningful ToT in the 2005 deal leaves India dependent on foreign suppliers. 

Sweden’s Saab declined an invitation to participate in Project 75 (I) in 2019 while expressing its inability to comply with the terms of the Strategic Partnership Model. Similar concerns are now being expressed by TKMS. 

“The major concern is that if an OEM passes on key technologies and Intellectual Property (IP) through co-development or co-design, it would end up creating a competitor to itself in the global market. This is precisely what happened when TKMS collaborated with Daewoo. Daewoo’s KSS-III is a derivative of TKMS’ Type 214, and the two are now competing against each other for the Indian order,” a source privy to the Project 75 (I) process explained. 

Another Industry insider claimed that the submarine tender is “riddled with ambiguities” particularly on the critical issue of deep ToT. Also, the benchmarked price of Rs 43,000 Crore ($5.7 Billion) has been dubbed “unrealistic” by Industry watchers in the context of the deep ToT agenda. The transfer of design capability and IP, and a minimum of 40 per cent ToT mandated in the RFP could push up the cost to as much as Rs 70,000 to 80,000 Crore ($9.3 to 10.7 Billion). 

“The ambiguities could result in three possibilities: The OEMs not accepting the conditions and opting out, tentative agreements leading to contentious problems and disagreements during the delivery of the contract, or OEMs cutting corners and not sharing deep technology at the benchmarked price. The last possibility could defeat the purpose of the exercise, and India ending up with just manufacturing technology instead of the deep ToT that it seeks,” he said. 

Sensing an impasse, rivals who do not appear to have good prospects in the Project 75 (I) competition have reportedly started hawking alternate offers. The Indian Navy has refused to comment on the arms bazaar buzz about Russia’s reported offer to buy the Reliance shipyard at Pipavav if it is guaranteed a contract for six submarines. The attempt to find a buyer for the Pipavav shipyard has not received much traction under the NCLT process so far.

The Navy is also silent on the reported “3+3” package offer of Kilo class submarines. This involves mid-life upgrade of 3 Indian Navy submarines and the sale of another 3 mothballed Russian Navy Kilo class submarines after upgrade. The French Naval Group’s offer of 3 follow-on Scorpene submarines at MDL fitted with DRDO’s (under development) AIP plugs is a long-standing one. 

dummy-image

Vishal Thapar

BW Reporters Group Editorial Head for BW’s Defence, Security & Police

Also Read

Stay in the know with our newsletter