One of the biggest ship-building deals bagged by Alcock Ashdown (Gujarat) Ltd - a state government owned shipbuilding company - almost a decade ago from the Indian Navy...
One of the biggest ship-building deals bagged by Alcock Ashdown (Gujarat) Ltd – a state government owned shipbuilding company – almost a decade ago from the Indian Navy, is now threatening to cause a loss of over Rs 500 crore to the firm.
The 21st annual report of the company tabled in the Gujarat Assembly Tuesday show that contract for constructing six survey vessel for the Navy is causing a severe “financial crunch” to the company. As a result the firm “is not in a position to service the interest and principal liability of the loan taken from State Bank of India and Bank of Baroda,” who in turn have moved to the Debt Recovery Tribunal for recovering the dues.
“The company is executing contract for remaining five survey vessels for the Indian Navy. In view of the increase in cost of project (construction of vessels), your company has submitted a proposal to the Indian Navy towards grant of escalation in cost of project and to proceed with the remaining five of the six survey vessels. Pending decision from the Ministry of Defence (MoD), to approve the escalation, the company is facing a liquidity crunch,” states Mamta Verma, the chairperson of the company in the annual report for the year 2014-15.
The claim of price escalation is under consideration by the Indian Navy for the last three years. “In the meantime, a revised proposal is being prepared so as to arrive at a one-time-settlement with the prime lenders and ensure liquidity of the Navy project as required by MoD,” Verma added.
Only one survey vessel has been delivered to the Indian Navy so far (in 2012) incurring a loss of Rs 30.51 crore. The company, that has ship building facilities at Bhavnagar and Chanch in Gujarat, is now starting at a possible loss of over Rs 500 crore if it’s claim for price escalation is not considered by the Indian Navy.
This Rs 700-crore deal had also come in for sharp criticism from the Comptroller and Auditor General of India (CAG) in 2012, which observed that Gujarat government-owned company while bidding for the Navy contract in December 2006 “did not prepare proper cost estimates” and “imprudently accepted the price of Rs 109.89 crore per vessel”, even though its own estimated cost of construction (excluding profit) per vessel was Rs 115.87 crore.
As per terms of contract in the company’s deal with the India Navy, the first vessel was to be delivered by April 6, 2009, while the remaining five vessels were to be delivered within a year from July 6, 2009. The company, however, could execute works worth Rs 276 crore by March 2011. Based on the company’s earlier requests, the MoD had rescheduled the delivery of vessels starting from September 2011 to March 2013.
The proposal of disinvestment of Alcock Ashdown also hurt the company’s interest while trying to implement the Navy’s contract. The state government in the 2014-15 annual report cleared the air about the disinvestment process. “In view of the revival of projects on hand, the disinvestment process is deferred,” the report states. The annual report also shows that the company has clocked a loss of over Rs 68 crore for the financial year 2014-15.