Fact Check: Are we really paying three times more for each Rafale jet?

Source :SIFY
Author :Sumit Walia
Last Updated: Thu, Oct 4th, 2018, 00:31:10hrs
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Fact Check: Are we really paying three times more for each Rafale jet?
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.

Following main allegations on the government: -

  • 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)

Political parties are busy scoring political point using this deal. Tweaked figures and selected part of the truth are being used for political gains. The opposition party has been trying to turn Rafale deal into a waterloo for the ruling party - a repeat of Bofors scam that sank Rajiv Gandhi Govt in the late 1980s.

Let us try to understand what happened in this deal in simple words.

  • 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)

Till 2015, both MoD and Dassault tried hard to find a middle way but without any luck and scrapping the whole deal would have meant the loss of at least 2-3 years that IAF could not afford. It was already down to roughly 35 squadrons, ready to phase out another 7 squadrons of Mig21 and Mig 27 by 2025 (bringing the strength to 28 squadrons), had nothing in the pipeline except last 3 squadrons of Su-30MKI (to be delivered by 2020) and an unknown number of LCA Tejas. IAF even tried to procure second hand Mirages from Qatar and second hand Mig-29s from Russia to make up the dwindling numerical strength. Mirages deal went off as Qatar asked for too much money and we are still working with Russians to get Mig 29s.

No Rafale would have converted a bad situation into a worst one for the IAF.

On the other hand, before PM Modi’s France visit in 2016, French had put its entire diplomatic weight to secure the deal. Because till then, Dassault could just secure two small orders from Egypt (24 planes) and Qatar (24 planes, Qatar placed a follow-on order of 12 planes in 2017). And the list of Dassault’s failed attempts was long – Brazil, Singapore, Libya, Kuwait, Switzerland, South Korea etc. French Air Force had already decreased its order of Rafale. Securing an order from a tough and reputed customer like IAF would have given a boost to Rafale’s international image as a costly but a very potent fighter aircraft.

Signing a deal for 36 planes was a good move as these 2 squadrons will give great technological leap in weaponry and electronic warfare field. But just 36 planes would become a pain point for IAF in the long run. To be able to exploit the full potential of the Rafale platform and the money invested, we need to have at least 5-6 squadrons, if we don’t want Rafale to become one of the reasons of IAF’s logistic nightmare.

  • 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.

Let’s see what finally happened.

Opposition party today blames the present Government to have increased the Rafale’s Price Per Unit (PPU) from the UPA negotiated of Rs 590 Crore to Rs. 1670 Crore. Though they never provided the basis of UPA finalized Rs 590 Crore. To understand if the present deal has made a dent on tax payer’s pocket, we must see (i) what amount India has agreed to pay and what we are getting from Dassault & (ii) what other customers (Egypt and Qatar) have paid.

For fair analysis, the cost must be discussed in EUROs and not Rupee that has depreciated by 13% since the deal was signed.

  • 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.

` These make Indian Rafales technologically superior to the Rafales in French Air Force. Had we placed an order with no Special Enhancement as Egypt or Qatar did, Total cost of the deal would have been €6 Bn and we would have got Rafale at appr €171 million apiece, much cheaper than Egypt or Qatar.

The following table will make it easy to conclude who got the better deal.

  • 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.

French government informed the French parliament that the total cost of the Rafale programme was appr. €46 billion. It involved the R&D cost and cost of the 286 planes for French forces. More than half of €46 bn was spent to develop the fighter. Why would French transfer that to any country for just €7.87 Bn? In Rafale deal, the ToT went off the table the moment we decided to procure 36 Rafales in fly-away condition from France.

The fact of the matter is that no OEM does ToT of its key components like radar, engine, avionics, weaponry, sensors etc. Had it been happening, we would have become self-reliant in Fighter Aircraft field when HAL started assembling Mig-21s in 1960 or Su-30MKIs in the early 2000s.

HAL has been producing planes for the last 60 years but unfortunately could not obtain Final Operational Clearance (FOC) for Tejas till now. It first flew on Jan 4 2001 and obtained the Initial Operational Clearance (IOC) on 10th Jan 2011, HAL is still struggling with the FOC. IAF inducted Tejas with IOC standard in No. 45 Squadron on 1st July 2016. No. 45 Squadron was given just 4 Tejas and HAL promised to deliver 8 Tejas fighters within a year but it could not do so even in 2 years! So much for the experience it gained in the last 60 years.

Surprisingly no such hue-cry was there when we concluded such Government to Government deals in the past with the USA for planes like C17, C130, P8 etc. Because HAL and the government both knew that there would be no ToT or licence production for such a small number of planes.

  • 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.

Did it really happen?

In the MMRCA programme (for 126 Rafales), HAL was a part of the GoI’s Contract Negotiation Committee because it was envisaged that HAL will produce 108 Rafales, while 18 rafales will come from France in fly-away condition. But there were serious challenges in their path. HCL and Dassault were not able to conclude work share agreement for a host of reasons – delivery schedule of HAL made Rafales, quality control, almost three times man-hour required by HAL to produce one Rafale and escalated the cost of HAL made Rafales.

But, when the decision to procure 36 planes from France in fly away condition was taken, the possibility of license production of Rafale in India ceased to exist. And with that, ceased the HAL’s involvement in the deal.

Now the only way for HAL to stay involved in Rafale deal was through the offset clause.

Coming to Offset clause of Rs 30,000 Crore. An IAF officer recently explained the mechanism of fulfilling Offset Clause in fighter aircrafts. Different components of a fighter aircraft are made by different companies. Manufacturer of the fighter procure those components and produce the fighter. Lockheed Martin uses GE engine for F16 and it uses Pratt and Whitney engine for its F-22. Boeing uses GE engine for F-18. Tejas also uses the GE-404 engine.

Rafale has Snecma’s M88 engine, Thales’ RBE2 AESA radar and weaponry from MBDA. Under the €7.87 Bn deal, GoI has signed contracts with all these companies, who are bound to fulfil their offset clause of 50% by themselves. It is not just Dassault, who would invest €3.9 Bn back in India. Dassault share was of the tune of Rs 6500 Crore and it has tie ups with a number of companies (Mahindra, Samtel, BTSL Automotive India, Defsys Solutions, Maini Aerospace, Kinetic India and Reliance) to fulfil the offset clause. Even Thales has also tied up with Reliance to get few components manufactured. Times of India just reported that DRAL (Dassault Reliance Aerospace Ltd) has started making nose cones of Flacon aircraft of Dassault and will start deliveries starting next year.

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. 
Rs 220 Crore has been sanctioned to upgrade the Infrastructure of these bases. Bases will have Simulator based training facilities and ammunition/spare storage facilities. These two bases can easily handle 1 more squadron each. This would save us a lot of money (in comparison with the cost involved in procuring any other type of aircraft to make up the number), help the IAF in minimizing the number of type of aircrafts in its fleet (Currently IAF is a sort of a museum having Mig21, Mig27, Mig 29, Mirage, Jaguar, Su-30 MKI, Tejas. Rafale would be a new addition to this verity) and make IAF’s Rafale fleet logistically, financially and operational a potent fighter. The Government must take strong, correct and may be an unpopular decision but it should be in the best interest of the IAF and Our Country.
Sumit Walia is an IT Specialist, based in Germany . He is also a military history buff who continues to explore & research various facets of the Indian Military history in his spare time.

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