The ECIL influence: MoD shuts out private companies from fuze purchase

The Fuchs M9801 multi-option fuze for artillery shells from 105 mm to 203 mm. Fuchs fuze components are imported by the Electronics Corporation of India Limited (ECIL), assembled, and sold to the Indian military

(Part 2 of a series on: DPSU Dadagiri: hanging onto monopoly)

Yesterday’s article, on the MoD’s violation of procurement rules in nominating BEL for developing EW systems, made waves in Bangalore soon after hitting the stands. On the last day of a 4-day, MoD-organised seminar on EW, officials from private companies were effectively expelled from a seminar they had been invited to attend. Before resuming this morning an announcement was made: today's session is only for the public sector!

by Ajai Shukla

Business Standard, 13th Feb 2010

Controversy surrounds the Ministry of Defence’s Rs 800 crore procurement of artillery fuzes, tiny electronic devices that cause artillery shells, fired from guns like the 155mm Bofors, to explode when they reach their target. Forbidden by a Lok Sabha committee from ordering fuzes on a single-vendor basis from the Electronics Corporation of India Limited (ECIL), and to ensure multi-vendor competition instead, the MoD has structured the tender in a manner that excludes private bidders.

Simultaneously, proceeding on a single-vendor basis, the MoD has ordered 4,00,000 fuzes, worth over Rs 200 crores, from ECIL, citing urgent military needs.

ECIL is not a defence PSU; it functions under the Department of Atomic Energy. But a close relationship with South Block, which terms it “the sole approved supplier”, has long given ECIL automatic rights over 80% of the army’s requirement of fuzes.

That near-monopoly status has been questioned by a stream of MPs, the Central Vigilance Commission (CVC), the Lok Sabha Standing Committee on Defence, and the Lok Sabha Committee on Petitions (in its 43rd Report, tabled on 8th Nov 08).

The questions raised against ECIL include its dependency on South African company, Fuchs Electronics, the main supplier of fuzes to blacklisted South African armaments company, Denel. Critics have pointed out that ECIL merely assembles fuzes from components supplied by Fuchs. The main components --- a safety & arming device (S&A), the battery and an electronic timer kit --- all come from abroad.

Despite that, ECIL has flourished with its key buyer --- the Indian Army’s artillery branch --- on its right side. Army HQ admitted to a Lok Sabha committee that its former Director General of Artillery, Lt Gen Charanjit Singh, joined ECIL as an advisor immediately after he retired. The army’s justification: “ECIL had been appointing several retired defence officers as their advisor (sic).”

ECIL has not responded to an emailed questionnaire on these issues.

But the most serious charge against alleged MoD-ECIL collusion is the MoD’s alleged doctoring of its tender (Request for Proposals, or RfP, in MoD terminology) for the supply of some 10 lakh fuzes, a contract worth some Rs 600 crores. The RfP has lumped together three different kinds of fuzes: point detonation, timed and proximity fuzes. A vendor either supplies all three types, or supplies none. Private companies like Hyderabad-based HBL Defence Electronics, and Delhi-based Micron Instruments Pvt Ltd, all manufacture one or the other type of fuzes, the stipulation that vendors must provide all three fuze types effectively rules them out of contention.

Artillery experts say that each fuze type involves different technologies. Lumping the three types together would exclude companies with excellent capabilities in, say, timed fuzes, simply because it was not manufacturing proximity fuzes.

Small, high-tech companies that are bidding for the contract argue that the MoD would benefit by diversifying its sources of supply, rather than remaining dependent on one large PSU. The Defence Procurement Policy of 2008 (DPP-2008) encourages the cultivation of diverse suppliers.

The MoD has not responded to an email questionnaire on the subject.

The tender for 10 lakh fuzes is also characterized by a high degree of tolerance for ECIL’s dependency on imported fuze components from Fuchs. The RfP specifically allows import duty exemptions for fuze components up to 70% of the value of the contract. Considering that the contract value includes a profit margin of about 15%, the 70% exemption clause effectively allows vendors to import 80% of the fuze.

“This is hardly indigenous production”, points out Dr Jagdish Prasad, Chairman of HBL Defence Electronics, which claims a far higher percentage of indigenous components in its fuzes. “Importing 70% of the fuze and assembling the components in India does not wean our military off foreign dependency.”

This tender, floated on 2nd April and opened on 27th August 09, is currently hanging fire. MoD sources say that objections from MPs, and from government vigilance organisations, have held back the MoD from ordering trials and awarding the contract.

Before electronic fuzes were invented, artillery shells were exploded by mechanical fuzes that detonated on impact with the ground. Birla group company, VXL Technologies was India’s primary supplier of mechanical fuzes. Three decades ago, Bhabha Atomic Research Centre (BARC) first produced electronic proximity fuzes; the production licence for the famous VT-8A fuze was given to ECIL. When that became obsolete, ECIL’s failure to absorb technology, and to conduct R&D on fuzes, took it to Fuchs. That great dependency continues today.