[mikefertynnz]

In one of the biggest ship-building deals bagged by Alcock Ashdown (Gujarat) Ltd, the state-run utility is now staring at losses of about Rs 100 crore. The Rs 700-crore deal, involving construction of six survey vessels for the Indian Navy, has come in for sharp criticism from the Comptroller and Auditor General of India (CAG).

The apex auditing body has pulled up the state-run firm for the deal, saying the uncertainty prevailing over its own divestment process, inexperience in preparation of cost estimates for Navy vessels and non-availability of adequate financial assistance were primary reasons that have left the company exposed to the losses.

“In December 2006, the company, bidding of the Indian Navy contract for the first time, did not prepare proper cost estimates for the project involving construction of six survey vessels for the Indian Navy. We observed that the company imprudently accepted the price of Rs 109.89 crore per vessel for the MoD (Ministry of Defence) project, even though its own estimated cost of construction (excluding profit) per vessel was Rs 115.87 crore,” says the CAG report which is to be tabled in the state Assembly on March 30.

“As per the company’s own latest estimate (March 2011), the cost of construction (excluding the element of profit) per vessel would be Rs 125.96 crore, as against the contract price of Rs 109.89 crore. Thus, the company is already exposed to a probable loss of Rs 96.42 crore, which does not include the revised costs for the other fixed-price items in the contract (viz., cost of modification and project management) not estimated by the company as yet,” it adds.

The matter was reported to the government in June 2011, but CAG did not receive any replies in this regard.

The proposal of disinvestment of Alcock Ashdown also hurt the company’s interests while it trying to implement the Indian Navy contract. “As the proposal for disinvestment of the company was under consideration since July 2006 with the Government of Gujarat, the technical staff of the company had started quitting, causing adverse impact on the pace of execution of the contracts on hand. As a result, the company had started facing difficulties in mobilising working capital loans from banks. The company while accepting the contract did not take into cognisance of the above facts, which were vital for protecting the financial interests and reputation of the company,” the auditing body observes.

The Gujarat government has been trying to sell Alcock Ashdown to private players since 2002-03, but deals have failed to materialise.

The company has ship-building facilities in over 27 acres at Bhavnagar and 10 acres at Chanch in Gujarat. Originally a British owned company that went into liquidation, it was taken over by the Government of India in 1975. It was subsequently acquired by Government of Gujarat in 1994.

As per term of contract in the company’s deal with the Indian 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 company’s repeated requests, the MoD has rescheduled the delivery of vessels starting from September 2011 to March 2013.