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Modi’s Rafale deal terms ‘not better’ than offer during UPA regime

The €7.87-billion Rafale deal for the 36 aircraft concluded by the Narendra Modi Government is soaring to higher levels of controversy with the latest that it was not on “better terms” than the offer made by Dassault Aviation during the procurement process for 126 aircraft under the previous United Progressive Alliance Government.

Three senior Defence Ministry officials, who were the domain experts on the seven-member Indian Negotiating Team (INT), came to such a well-substantiated conclusion, according to yet another expose by 'The Hindu’. Not to stop it at that, the delivery schedule of even the first 18 of the 36 flyaway Rafale aircraft in the new deal was slower than the one offered in the original procurement process.

These findings go against the two central claims made by the Indian Government of a cheaper deal and faster delivery of fighter aircraft, which it even affirmed in the Supreme Court of India in official submissions.

The expose says the three officials registered serious concern over the Government’s acceptance of a ‘Letter of Comfort’ in lieu of a sovereign or government guarantee or bank guarantees, legal issues relating to the IGA, offset issues and Dassault Aviation’s restrictive trade practices.
The three domain experts, MP Singh, Adviser (Cost), AR Sule, Financial Manager (Air), and Rajeev Verma, Joint Secretary and Acquisitions Manager, submitted their strong dissent note on June 1, 2016, to the Deputy Chief of Air Staff (DCAS) in his capacity as chairman of the negotiating team.

“The reasonability of price offered by the French Government is not established. Even the final price offered by the French Government cannot be considered as ‘better terms’ compared to the MMRCA [medium multi-role combat aircraft] offer and therefore not meeting the requirement of the Joint Statement,” their note said.

Their eight-page note expresses deep concern and unease over the terms of the new deal. One of the most contentious issues about the deal, which went up for resolution to the Cabinet Committee on Security (CCS) chaired by the Prime Minister, was the benchmark price. This was a number ‘discovered in advance’ by financial experts which acts as a ceiling on the finally negotiated price of the whole package. The three officials pointed out that the Defence Procurement Procedure (DPP) stipulated that in all cases the contract negotiating committee “should establish a benchmark and reasonableness of price in an Internal Meeting before opening the Commercial Offer.”

In this case, the Defence Acquisition Council directed on August 28 and September 1, 2015, that the benchmark price should be decided and finalised by the INT before starting price negotiations. The benchmark price determined for the aircraft and weapons packages in the new deal was €5.06 billion.

The final price offered by the French Government (which is escalation based) is 55.6 per cent above the benchmark (which is for firm and fixed price). “Considering the future escalations till the time of delivery, the gap in the benchmark and the final price would further increase,” it said.

Contrary to the argument that the UPA-era commercial offer and the deal signed by Modi government are not comparable, the note states that in the DAC on May 13, 2015, where the case for the 36 Rafale flyaway aircraft was first approved, Defence Secretary G Mohan Kumar, “suggested that the ‘Benchmark Price’ and comparison of how much lesser it was, vis-à-vis the earlier Price (since this was a commitment to the PM by the French Government) should be arrived at and placed on record before proceeding any further.” Despite repeated efforts, “the French side refused to take cognizance of this aspect”, the note adds.

While the commercial offers submitted by Dassault Aviation during the UPA regime were based on the submission of bank guarantees against advance payments, the final price offered to Modi Government was without any sovereign or government guarantee or bank guarantees.