CAG pokes finger at inferior steel in navy tankers

The Comptroller and Auditor General (CAG) of India has criticized the acceptance of inferior-grade steel used in the manufacture of fleet tankers of the Indian Navy by Italian firm, Fincantieri, saying it amounted to ‘undue favor to a foreign vendor in (the) procurement of fleet tankers’.

Not just the steel, the CAG also has a problem with the ‘excess provisioning of spares worth more than INR 300 million (USD 6 million) and under realization of offset benefit to Indian industry’ in the procurement worth INR 9.36 billion (USD 200 million).

The CAG’s report says the original Request For Proposal (RFP) had a mandatory stipulation requiring the use of ‘DMR 249A or equivalent grade steel’ in the construction of two fleet tankers, which it says is ‘almost double the cost of ordinary steel’.

The report recaps, “In order to maintain its approved force levels, Indian Navy’s Ship-building Plan envisaged addition of two fleet tankers (tanker) by 2008 and 2011 respectively. Accordingly, a Request for Proposal (RFP) was issued to 12 firms in November 2005. In response to the RFP, only three firms responded, namely M/s Rosoboronexport, Russia (ROE), M/s Hyundai Heavy Industries Limited (HHIL) and M/s Fincantieri, Italy.”

It says, “Out of the three firms, only ROE offered a technical proposal for using DMR 249A/ or equivalent steel. The offer of HHIL was rejected due to noncompliance with RFP provisions which included non-usage of DMR 249A steel. Fincantieri’s proposal was stated to be compliant with the RFP conditions. However, the firm proposed to use DH 36 steel in place of DMR 249A steel.”

The justification offered by Fincantieri for selection of DH 36 grade steel to the Technical Evaluation Committee (TEC) of the Ministry of Defense included problems in sourcing DMR 249A steel, the normal use of ordinary steel for tankers and that high resilience performance of DMR 249A was not necessary for the ship.

“According to the firm’s own admission, DH 36 grade steel has less weight and less resilience when compared to DMR 249A. The chemical compositions of DH-36 grade steel and DMR 249A steel are different and they cannot be treated as equivalent to each other. The prices of these two grades of steel are also different in as much as DMR 249 A grade is more expensive than DH-36 grade steel,” says the report, adding, “Nonetheless, the TEC opined that the DH 36 steel was equivalent to DMR 249A grade steel and accepted the technical bid of Fincantieri without taking cognizance of the offer made by the other two bidders. The Technical Oversight Committee also recommended the offer of Fincantieri. Later, when the commercial bids were opened, Fincantieri emerged as L1 (lowest bid) with a quote of Rs 723 crore. The offer of ROE was rejected as it was costlier, being based upon the prices of DMR 249A / or equivalent steel.”