PRESENTATION AT

DEFTRONICS 2015

NEW DELHI

DEFENCE OFFSETS

A STATUS REPORT

Commander PK Bhattacharya

Officer on Special Duty

Min of Def, DOMW

SCOPE 2

Recap of Provisions of Defence Offset Guidelines

Frequently Sought Clarifications on Offset Guidelines

Offset Management – Pre Contractual Stage

Offset Management – Post Contractual Stage

Offset Banking – Procedure and Implementation

Defence Offset – Opportunities and Challenges

Facilitation – DPP and Beyond

APPLICABILITY – DEFENCE OFFSETS 3

All Procurement Proposals (with reference to

DPP)

Indicative Cost – 300 Crore or more

Categorisation

‘Buy (Global) – Outright Purchase from

foreign/Indian vendors

‘Buy and Make with TOT’ – Purchase from

foreign vendor followed by Licensed Production

POLICY HIGHLIGHTS4

Expansion of avenues of

offset discharge

Expansion of list of eligible products

Six monthly reporting

Enhancement of banking period

Extension of discharge time

frame

70% mandatory offset discharge

through four avenues

Multipliers for MSME and

DRDO

Cap of 20% on overall penalty

Formation of DOMW

INDIAN OFFSET PARTNER5

Indian enterprises and institutions and

establishments engaged in manufacture of

eligible products and/or provision of eligible

services, including DRDO, are referred to as

the Indian Offset Partner (IOP)

The Indian offset partner shall, besides any

other regulations in force, also comply with the

guidelines/licensing requirements stipulated by

the Department of Industrial Policy and

Promotion (DIPP) as applicable

(Contd).

INDIAN OFFSET PARTNER6

The OEM/vendor/Tier-I sub-vendor will be

free to select the Indian offset partner for

implementing the offset obligation provided the

IOP has not been barred from doing business

by the Ministry of Defence.

The agreement between the

OEM/vendor/Tier-1 sub vendor and the IOP

shall be subject to the laws of India.

DETERMINATION OF VALUE ADDITION

Value addition is determined by

subtracting

Value of imported components i.e

import content in the product and

Any fees /royalty paid

7

FLOW CHART OF OFFSETS8

RFPSUBMISSION OF

OFFERS TOECCNC (MAIN &

OFFSET)

CONTRACT (MAIN & OFFSET)

OFFSET

CONDITIONS

DEFINED

DATE FOR SUBMISION

OF OFFSET OFFER

SPECIFIED IN RFP

POST CONTRACT

IMPLEMENTATION

OFFSET MANAGEMENT

PRE-CONTRACTUAL STAGE

Terms and Conditions of Offsets as Specified in

RFP

Undertaking to Comply with Offset

Requirements

Date of Submission of Offset Offers (Technical

and Commercial)

Technical Offset Offer to include

Details of Products, Services

& Investment as per format (Relative %)

Details of Proposed Indian Offset Partners (IOP)

Details of Banked Offset Credits, if any9

OFFSET MANAGEMENT

PRE-CONTRACTUAL STAGE

Commercial Offset Offer to include

Translation of Technical Proposal into a

Business Implementation Plan

Absolute Amount of the Offset with detail

Products, Services & Investment

Details of Annual Phasing/Schedule

Details of Indian Offset Partners (IOPs)

Details of Banked Offset Credits, if any10

OFFSET MANAGEMENT

PRE-CONTRACTUAL STAGE

Evaluation Process - Technical Evaluation

Eligibility of Avenues of Discharge

Eligibility of Products and Services

Eligibility of Investment

Eligibility of IOP Including Status of MSME

Scheduling of Offset Activities

Yearly Phasing

Percentage of Total Offsets 11

OFFSET MANAGEMENT

PRE-CONTRACTUAL STAGE

Evaluation Process - Commercial Evaluation

Offset Offer of only L1 vendor is evaluated

Alignment with the Approved TOEC Report

Value of the Offset Components Specified

12

SIGNING OF OFFSET CONTRACT

PRE-CONTRACTUAL STAGE

Offset Proposal is Approved by Raksha Mantri

Offset Contract is to be formulated as per Model

Offset Contract contained in DPP

May vary depending on facts and circumstances

of each case

Offset contract is subject to the laws of India

13

MONITORING OF OFFSET CONTRACT

POST-CONTRACTUAL STAGE

Monitoring of Offset Implementation

Submission of Offset Programme Contracts

(Between Vendor & IOP) to MoD/DOMW

Submission Progress Report to MoD/DOMW

(Based on Approved Offset Schedule)

Requirement of Supporting Documents (List of

Documents is Available at FAQ Section)

14

MONITORING OF OFFSET CONTRACT

POST-CONTRACTUAL STAGE

Monitoring of Offset Implementation

Preliminary Examination of Offset Claims at

DOMW

Audit of Offset Claims

Clarifications from Vendor, if any, is sought

Assignment of Offset Credits

15

OFFSET IMPLEMENTATION

POST-CONTRACTUAL ISSUES

16

Non-adherence to offset schedule resulting in non-

assignment of offset credits and likelihood of

shortfall

Frequent requests for amendments resulting in

delay in progress of offset implementation

Exceptional circumstances which is subjective

Offset implementation documentations are

necessary for verification and audit.

OFFSET IMPLEMENTATION

INFORMATION TO VENDORS

17

Identification and selection of IOPs – fully

independent

Free to take advantage of multipliers

Standard Contract Document covers complete

legal and financial aspects

Adequate opportunity to make your proposal fully

compliant

Beneficial to have evenly distribute offset schedule

Documentations – IOPs are aware of the

requirements

REQUESTS FROM THE VENDORS

18

Change of IOP(s)

Change of component(s)

Re-phasing

Extension of time

Contract Amendments

Change of work share

Acceptance of offset activities prior signing of

contract

PROCEDURE TO PROCESS

VENDOR’S REQUEST

19

Contracts signed under previous DPPs (mainly

DPP 2006, 2008 and 2011)

All these dispensation are not permitted

Even if permitted, they are not automatic

Resolve case to case basis

Resulting in – Delay, shortfall, Non-execution,

penalty etc

POLICY ON OFFSET BANKING

Pre-approved banked offset credits are

allowed for discharge of offset obligations

Maximum 50% of the total offset obligation

can be considered (met) through banked

offset credits under each procurement

contract

Banked offset credits are valid for a period of

07 years from the date of acceptance by

DOMW (Contd).20

POLICY ON OFFSET BANKING

Banked offset credits are non-transferable

except between the main vendor and his

Tier-I sub-vendors within the same

procurement contract.

Tier-I sub-vendors as per list submitted by

the vendor along with technical and

commercial proposals

21

POLICY ON OFFSET BANKING

Banking of offset credits is allowed in

respect of (Apply within 01 year of

completion of transaction)

Direct purchase of or executing export orders

Foreign Direct Investment in joint ventures

with Indian Enterprises (equity investment)

Investment in Kind in terms of Transfer of

Technology (ToT)

Investment in Kind in Indian enterprises in

terms of provision of equipment through non-

equity route

22

OFFSET BANKING IMPLEMENTATION

23

Committee on Offset Banking with

representation from all stakeholders

Preliminary examination by DOMW

Allotment of Project Identification Number

Audit of admissible banking proposal

Presentation of case to Committee on

Offset Banking with both Technical and

Financial Report

Approval of Competent Authority

OFFSET BANKING IMPLEMENTATION

RECENT INITIATIVES

24

Vendors having unresolved offset banking

proposal were invited at Facilitation Cell of

DOMW

23 vendors attended the scheduled

meeting to resolve their pending issues

Average 8-10 weeks time was given to

them to resolve their outstanding issues

Only 04 vendors came back with some

clarifications but were not adequate

Committee on offset banking directed the

vendors to apply afresh

OPPORTUNITIES IN DEFENCE OFFSETS

Liberalised and fine tuned offset policy

Wide range of eligible products and services

All major foreign vendors across the world are

engaged in defence offsets

Vendor/Tier-I Sub-vendor is free to select their

IOP

Substantial business to Indian Industries

25

OPPORTUNITIES IN DEFENCE OFFSETS

Current offset business in India = 4.8 BUSD

(Approx)/30,000 Crores (Approx)

Adequate time to complete the offset business

Several other contracts are in the pipeline and

thus quantum of offset obligations is expected to

increase accordingly

More investment through liberalised banking

provisions

26

OPPORTUNITIES IN DEFENCE OFFSETS

Creation of pool of qualified professionals

(through ToT, ToE and training) through 3.1 (e)

augmenting capacity for R&D, Design and

Development, Training and education

Preferred areas are

Defence Manufacturing

Aviation

Electronics

Communications

27

CHALLENGES IN DEFENCE OFFSETS

Direct purchase and export of low end technical

products preferred by the foreign vendors

Requirement to remain internationally

competitive (IOPs)

Competitive bidding for IOPs

28

CHALLENGES IN DEFENCE OFFSETS

Stringent selection process for IOP like

Core competencies

Quality standards

Cost effectiveness

Scale of production

Adherence of delivery schedule

Non-assurance to IOPs on continuity of business

29

Functioning of Facilitation Cell of DOMW

Clarifications on requirements of Industrial

License

Clarification on FDI in Defence Sector

Opportunity for alignment of proposal

Continuous review of offset policy

Identification of IOPs based on their area of

activity

30

FACILITATION – DPP AND BEYOND

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THANK YOU