India's first joint venture between the public sector and a private firm to build warships, Mazagon Dock-Pipavav, has been frozen after concerns about unfair competition.

The Defense Ministry said collaboration talks between state-owned Mazagon Dock and Pipavav Defense and Offshore Engineering shipyard in Gujarat have been stopped after competing shipbuilders alleged lack of transparency in the selection process to create the joint venture.

Defense Minister A.K. Antony said the freeze on the 50-50 joint venture would remain until the government came out with a policy on creating such businesses, a report in the Hindustan Times said.

Antony said his ministry would examine complaints from private shipbuilders.

"The issue needs to be fully examined and settled before any forward movement takes place," he said.

Complaints were received from Larsen and Toubro, ABG Shipyard and Bharati Shipyard which were among the private firms shortlisted by Mazagon to form a joint venture. They asked the Defense Ministry to intervene in the proposed joint venture by Mazagon and Pipavav.

"The (Ministry of Defense) has taken an appropriate decision," Larsen and Toubro Chairman A. M. Naik told Business Standard newspaper.

"The entire process (of selecting a JV partner) had been rushed through without a transparent evaluation process. Now, we hope there will be a proper evaluation, based on a points system, awarded for each shipyard's infrastructure, capability, board structure and ownership structure."

But news of the freeze on negotiations to form the JV was received with disappointment by Pipavav Shipyard Chairman Nikhil Gandhi.

"It's a very sad and disturbing day," Gandhi told the Business Standard. "But I am sure I will stand vindicated, as we were selected after a transparent process which went on for eight months. We have invested a billion dollars in building the required infrastructure and not waited for orders first to build capacity."

Pipavav shipyard, at Pipavav Port, around 12 miles from Rajula City in Gujarat on the west coast, covers nearly 500 acres with around 2,370 feet of sea front and 2,250 feet of outfit quay.

The company can handle up to 1,200-tonne, pre-outfitted ship blocks and has the capability for modular construction.

Earlier this month Pipavav Defense and Offshore Engineering Co., which employs around 3,000 people, announced it had been chosen to form the joint venture with Mazagon Dock.

At the time, Gandhi said no new investment would be made in the proposed joint venture as Pipavav Defense had committed to invest $1 billion in its own facilities, a report in the Business standard. Out of this, $750 million has is going toward converting from wet dock facilities to dry dock facilities.

Pipavav Defense and Offshore has worked with Northrop Grumman in the United States and Babcock Group in the United Kingdom. Pipavav also has an agreement with Rosoboronexport in Russia for defense co-operation, the company said.

The shipyard's order book stands at around $1.5 billion. This includes orders worth around $661 million to design and construct five naval offshore petrol vessels for the Indian navy.

Several public sector shipyards were interested in joining of forming a joint venture with Mazagon. These included Garden Reach Shipbuilders and Engineers in Kolkata and Hindustan Shipyard in Visakhapatnam on the east coast of India.

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