Are we really paying three times more for each Rafale jet? Has a private company being favoured at the cost of a public sector enterprise? These questions have been keeping our TV screens, mobiles, social media sites occupied for the last few months.On September 19, the Opposition approached CAG to investigate the deal and bring the truth in public domain. They submitted a memorandum to CAG covering the history of the procurement process since 2007 and the allegations.
- Why 36 Rafales instead of 126
- The government paid three times the cost
- No Transfer of Technology (ToT) benefitting Indian Aviation Industry
- HAL’s Exit and Reliance’ entry.
- Violation of the Defence Procurement Procedure (DPP)
- Why 36 Rafales instead of 126 - In 2007, the Ministry of Defence (MoD) issued a tender to purchase 126 Medium Multi Role Combat Aircraft (MMRCA procurement programme). IAF tested 6 fighters over 600 parameters at sea level, high altitude, extremely hot and cold weathers and finally shortlisted Rafale and Eurofighter Typoon. In 2012, Dassault Aviation of France was declared as L1 bidder and negotiations started. GoI (UPA and NDA both) could not strike a deal with Dassault because of three main reasons –
- Cost – Starting 2007, media started reporting that the total cost of MMRCA, the `mother of all deals` would be $10 billion. By 2013, it went up to $15 billion and in 2014, it started touching astonishing $30 billion. It had to because the initial quoted figure of $10 billion had no basis and the MMRCA was the first procurement programme that included the entire life cycle cost of the aircraft – from the procurement to the decommissioning roughly 40 years later. In 2014, it was not the same Rafale of 2007, it had Indian Specific Enhancements and upgraded radar (Rafale first flew with AESA radar in Oct 2012 and the RBE2-AESA radar got integrated with Rafale in 2013).
If procured, the total cost of 126 Rafales (including the total life cycle cost) would have chocked IAF’s budget for years, may be a decade considering the inflation and falling rupee (Euro got strengthened by almost 13% since Aug 2016). This would have seriously impacted IAF’s modernisation drive.
An added sour point was that the cost of Rafale made by HCL. It would have been much more than the one made by Dassault in France. Partially, this was understandable as HAL would have invested in the assembly line, training of the man power, engaging vendors etc but man-hours quoted by HAL to manufacture one Rafale was three times more than man hours quoted by Dassault. Neither MoD nor the IAF could ignore the increase in the manufacturing cost.
- Guarantee – One of the requirements of the MMRCA was high serviceability of the aircraft (Serviceability is the number of AC available for operations at any given time. Su-30MKI has a serviceability record of just 50-60%. It means at any given time, out of 240 odd Sukhois, just 130-140 are available for operations, rest are undergoing maintenance). Dassault offered 75% serviceability for Rafale. Being a very expensive platform, GoI wanted Dassault to be the single point of responsibility for the whole Rafale fleet. Dasaault refused and was willing to give guarantee for 18 Rafales made in France but was not for the 108 Rafales that were to be made in India by HAL. It was quite logical as Dassault would have no or very less access or Quality control over the planes made by HCL. And HAL was not willing to offer the guarantee either.
- ToT (this will be covered in the next section of this write up)
- Why three times the negotiated cost: - As explained above, the UPA government could never finalize the final price. However, media reports skyrocketed the total price of the deal from $ 10 Bn to $ 30 Bn by 2014. Going by those reports, Price Per unit (ppu) would have been €210 million.
- 36 Rafale would cost us around €7.8 Bn. GoI has not officially revealed the figures, however after signing the Rafale deal, a senior political leader of the ruling alliance, NDA held an off the record briefing with several journalists. On analysing deals struck by other customers of Rafale, figures given in that off-the-record briefing appears to be authentic.
Journalists were informed that IAF will get 28 single seat fighters (appr. €91.07 Million apiece) and 8 twin seat fighters (appr. €94 Million apiece). Total of just 36 Rafales (without weaponry, Indian Specific Enhancement, life cycle cost etc.) would cost €3.3 Billion.
India-Specific Enhancement (required by the IAF) would cost IAF €1.7 Billion. IAF will pay €1.8 Bn for spare parts and engines, €700 million for weaponry and €350 million for `Performance based logistics`, which will ensure that 75% of the Rafale fleet remains operationally available. All these add up to make the remaining €4.5 Bn.
This is the breakup of complete €7.87 (3.3 + 4.5) Bn deal - €218 PPU. The question still remains - if NDA paid more than the UPA negotiated deal?
The answer can be found if we get to see the similar break up of UPA negotiated deal. As per available information, UPA could never complete the negotiation. Neither they are producing any details of the allegedly finalized price of Rs 590 Crore a piece.
- But if we compare our deal with Egypt or Qatar, we might get some answer. In 2015, Egypt signed a deal with France for €5.2 Bn for 24 Rafales, 1 FREMM warship (a Frigate) and weaponry (a number of short/medium range missiles). With no 75% Servicebility assurance, Special Enhancements, TOT or Offset clause, Egypt purchased Rafale at €210 million a plane. Qatar placed an order of 24 Rafales for €6.3 Bn but with extensive weapons, training (included training of 26 pilots and 100 technicians) and maintenance programme. Qatar paid €262 million apiece with no Special Enhancements, TOT or Offset clause. India on the other hand paid €218 million for each Rafale with 50% Offset, no TOT but with India Specific Enhancements. These enhancements include integration of Indian and Israeli equipment and as Vishnu Som explained - `the India specific upgrades include a Low band jammer, a towed array decoy system, additional modes and greater resolution in the main radar and the Front Sector Optronics System of the jet.
- No Transfer of Technology: - Transfer of Technology – to an ordinary citizen, this term gives an impression that the seller country will transfer the technology to the client country. In this case, France will transfer the technology of Rafale aircraft (with its subsystems, engine, radar, weaponry etc) to India. This is a misunderstanding of this term. No country, which has developed a cutting edge state of the art aircraft through years of research and after spending billions of dollar, would transfer the technology to the client for a fraction of money.
- HAL’s Exit and Reliance’s Entry: - Social media sites are full of angry netizens. They are angry because they are told that HAL has been deliberately thrown out of the deal and Reliance was brought in, thus depriving HAL of a business opportunity of around Rs 30,000 crore. Netizens feel that a company with 0 experience has replaced a company with over 60 years of experience in the Aviation sector and the one that has produced Mig-21, Tejas, Su-30 MKI etc.
Contrary to the popular belief, it is not Reliance who has got the lion’s share of offset clause but the DRDO. To fulfil its offset obligation of €1 Bn, Snecma has tied up with DRDO to revive and certify indigenous Kaveri engine. Once done, it will have a tremendous effect on our zeal to become self-reliant in the military aviation field. Kaveri will not only power Tejas Mk.-II but will become the bed rock for future generations of engines. We will not need GE engines from the United States to fly our indigenous fighters. Reliance’s selection by Dassault caused quite a stir in Indian media and political circles. Allegedly Reliance group’s company involved in the offset business came into existence few days before the announcement of 36 Rafales. While the game of allegations and clarifications was in full swing, a statement from former President of France Francois Hollande (who was the President of France when the announcement of 36 Rafales was made) complicated the situation even more. Hollande said that Dassault had no choice but to tie up with reliance as Reliance was proposed by the Indian Government. Both Indian and French Governments issued rebuttal by saying that neither Government had any role in selecting Offset partner and it was totally up to respective French company to select their Indian Counterpart. Hollande’s claim is not verifiable. But typical to media trials, the burden of proof is on the Government.
Violation of Defence Procurement Procedure (DPP): - The memorandum given to CAG lists down the points where DPP was violated in Rafale deal. It says: -
"No mandatory prior approval of 'Cabinet Committee on Security' was taken before announcing the purchase of 36 Rafale aircraft on 10th April, 2015. … Mandatory requirement of DPP for 'Price Discovery' through the instrumentalities of 'Contract Negotiation Committee' (CNC) and 'Price Negotiation Committee' (PNC) were not followed…. Not only this, the decision of Modi in proceeding to announce the purchase of 36 Rafale 'off-the-shelf' on April 10, 2015, when an international tender was already under negotiation as also the subsequent cancellation of the international tender on 24th June 2015, is clearly violative of the DPP,"
But the DPP 2013 does not restrict the government to make the announcement (not signing the contract). The announcement was made to procure 36 Rafales under a Government to Gsovernment deal. It was assured by the French that 36 Rafale deal would be at better price, terms and condition than the 126 Rafale deal. This was possible because no ToT and Licence production was to be involved in 36 Rafale deal. The due procedure was then followed, tough negotiation happened and the Cabinet Committee on Security approved the deal in Aug 2016.
One may argue why we did not engage L2 bidder - Eurofighter Typoon when negotiations with Dassault were not making much headway and Typoon had offered 20% discount on their quoted price. UPA rejected Eurofighter’s offer because the DPP has no provision to accept such revised bids. So far there appears to be no major violation of DPP but if there was any, CAG will bring that to the public domain. Conclusion: - Daal main itna kala hai nahi, jitna dhoondh ja raha hai. The deal appears to have been negotiated well, in favour of the exchequer and the end user. Deliveries will be at a faster pace. An advanced version of Rafale with come with thorough training and maintenance agreements. These Rafales will not be what we started with in 2007 but a much deadlier machine. But turning it to a Bofor’s like scandal will have an adverse effect on nation’s defence preparedness. If CAG finds some procedural anomaly, then the proper legal procedure should be followed. But IAF should not be made to make do with just 36 Rafales. Investing so much money for just 2 Squadrons would be a waste of resources in the future.Ambala and Hasimara Air Force Stations are being prepared to host Rafale.
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