ECCO Symposium No 6 June 20, 2013

Transcription

1 ECCO Symposium No 6 June 20, 2013

2 Contents 1 Policy Regime 2 Impact of DPP The Offset Policy 4 The unfinished agenda 2

3 Key Messages Focus on domestic manufacturing Encourage foreign and domestic investments through enhancing clarity Foreign OEMs need to review India entry strategies partnerships with Indian industry for strategic reasons rather than just Offsets Regulatory compliance needs to be aligned with tax optimization in main and offset supply chains in India 3 3

4 The Policy Regime

5 The policy regime is evolving and can be challenging DPP 2013 Industrial Licence Regime FDI Regime Foreign Trade Policy Evolving Challenging Evolving Challenging L1 Concept Life cycle costing Long time frame for issue No licences for services FIPB approval mandatory SCOMET list restrictions Need for an export licence Offset Policy change post contract signing PBL Cancellation of RFPs Single vendor/complaints TOT to DPSUs Long drawn Make Use of agents Indigenous content Offset audits Dual use products Increase in 26% cap Need for a defence export policy List of defence products for IL released Background checks of foreign collaborators and domestic promoters Security of site 100% FDI permitted in Services Defence products need alignment FII investment not counted as part of 26% cap Long and uncertain lag time Requirement of NOC Policy expected to become better Policy expected to become stricter Policy expected to stay neutral India Strategy April

6 Where is the market heading... Military Aerospace acquisitions Sukhoi-30MKI $3.0bn Lockheed C130 $1.1bn $1.2bn Boeing C-17 Hawk $0.7bn $1.2bn $0.7bn Il-76 Midas Mi-17V-5 AW101 $1.2bn $0.7bn $4.2bn MiG-29K $0.7bn $1.5bn Boeing P8i AEWAC Rafale (MRCA) Mig-29 overhaul Mirage overhaul Projected acquisitions PAK/FA Lockheed C130 Boeing C-17 MRMR Naval platform Phalcon AEWAC COMJAM/SIGINT Aircraft UK $35.5bn Ir, Ind, Fr, Ru Ind, US Ind, Ru $2.1bn US, Ind $50.5bn $1.1bn Ir, Ru, Fr, Ind $1.1bn Ir, Fr Ind, Fr, Ir UK Ir, Ru, Fr, Ind Future acquisitions may tend to move towards surveillance aircraft FRA, AWACs, UAVs, radars, PGMs Network centricity and PBL HLS may gather importance Ind, US $3.3bn Ir, Fr Ind, US, Ir Ir, Ru, Fr, Ind Most combat platforms have now been determined until 2020 Significant shift in procurement of aircrafts and helicopters platforms from legacy USSR Transformation from a tactical to a strategic force ongoing Fighters:Induction of MMRCA, LCA,Sukhois imminent Transport:C130, C 17 ongoing Trainer: BTA, IJT, Hawks contracts signed Spent 5.17 BUSD in FY $20bn April

7 Impact of DPP 13 7

8 Buy and Make (Indian) simplified. (1/2) Hierarchy of acquisition programs: Indian first Provision of Maintenance ToT to an Indian vendor for Buy (Global) cases: Who pays for it Request for extension of bid submission date to be made at least two weeks prior with adequate justification Introduction of standard format for RFI: Provide a cost estimation and suggest alternatives Validity of AoN reduced from two years to one year Simplification of Buy & Make (Indian) procedure - Requirement of Capability Definition Document, Detailed Project Proposal and appraisal by a Project Appraisal Committee (PAC) done away with Amendment in Make procedure : only manufacturing concerns with IL 8

9 Indigenous content at trial stage will be a challenge. (2/2) Clear definition of Indigenous Contenta) By cost and at all stages (tiers). Exclude: i) CIF; ii) Imports; ii) license fees, royalties, technical fees and other fees; iv) Taxes and duties b) Incorporate definition and reporting requirements in MOUs/agreements/contracts c) Certificate by CFO/Company auditor at final delivery d) Penalty of 5% in case mandatory indigenous content not achieved e) Buy (Indian) - 30% at FET stage f) Buy & Make (Indian) Nil up to Buy phase, 30% initially and 50% overall in Make phase 9

10 Supply chain Options: Total integration outside India with services being provided by WoS to its Holding Company (RFP to Foreign OEM) Foreign OEM Overseas $ P Services Final goods & services India $ Goods WoS $ MoD IOP Legend - Goods/ services - Payments - People 10

11 Supply chain options: Increasing indigenization final integration in India by DPSU( RFP to foreign OEM) Foreign OEM Services Overseas $ $ P $ Goods,SKD/ CKD India WoS Goods Indian Co. DPSU MoD Legend IOP Services/Intermediate goods Final goods - Goods/ services - Payments - ToT - People 11

12 Supply chain options: Buy (Indian)/ Buy & Make (Indian) (RFP to Indian Company) Foreign Company Goods/ Services Overseas P Goods/ Services India WoS of Foreign OEM Goods/ Services 26% Indian OEM Goods/ Services ICo1 Final Goods/ Services ICo2 MoD Legend Goods/ services Payments ToT People Investment 12

13 The Offset Policy

14 DPP 2013:Increase in number of avenues for discharge of offset obligations Buy i.e. Outright purchase from Indian or foreign vendor Buy and make with ToT Purchase from foreign vendor followed by licensed production Offset Offset obligation of 30% to be discharged by Direct purchase from Indian enterprises FDI in Indian enterprises ToT to Indian enterprises Equipment to Indian enterprises Equipment/ToT to government institutions Advanced technology acquisition by DRDO Minimum 70% of total obligation Multipliers permitted for SMEs Banking allowed Multipliers permitted 14

15 The Offset Experience 17 Offset Contracts signed - USD 4.28 bn Manufacturing, Infrastructure, Engineering Design, Development & Testing, Simulators Offsets dominated by Indian Air Force deals $ 3.4 bn Offset contracts - allocation Private Sector: SMEs 24% Private Sector: Large industrie s 33% DPSUs 43% Aerospace offsets (USD Million) France, 774 USA, 925 Italy; 197,4 Israel ; 133,7 Russia ;

16 Key considerations for formulating offset strategy Credits for equipment and ToT Offset banking Increase in co-terminus period for execution of offsets Proof of compliance Offset multipliers Possible change in FDI policy from existing 26% Feasibility assessment of JVs with DPSUs Analysis of business footprint in India Building efficiency in supply chains/ monitoring/raising standards of IOPs People with in-depth understanding of the regulations and supply chain issues Requirement of industrial license and export license Adequate Due Diligence Understanding direct tax exposures and identifying mitigation strategies Ways of using the WOS 16

17 The unfinished agenda...

18 The unfinished agenda Raising FDI limit Simplification of procedure for modification of offset bids post signing of contract Allowing on-going offset programmes benefit of new liberalised provisions WoS eligibility as IOP Norms for valuation of ToT under 3.1 (e) 18

19 Thank You Rajiv Chib Associate Director PricewaterhouseCoopers Pvt. Ltd. Tele: PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers, a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.