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Modi govt's Rafale deal €246.11 mn costlier than UPA's due to lack of bank guarantees from France, reports The Hindu

The Congress on Wednesday wasted no time in reiterating its "chowkidaar chor hai" chant after The Hindu published another report saying that the NDA Rafale deal was €246.11 million more expensive than the deal which UPA-I had struck due to lack of bank guarantees.

"No bank guarantees needed because AA se dosti nibhani padegi. So what if we Indians have to pay more to Dassault to acquire Rafale jets. #ChowkidarHiChorHai," Congress spokesperson Priyanka Chaturvedi tweeted early on Wednesday, referring to the offset contract in the deal being granted to Anil Ambani's Reliance Defence.

 Modi govts Rafale deal €246.11 mn costlier than UPAs due to lack of bank guarantees from France, reports The Hindu

A Rafale fighter aircraft. Reuters

In an exclusive report The Hindu wrote that the lack of bank guarantees from France made the cost of the Rafale deal negotiated by the BJP-led NDA government more expensive by €246.11 million (around Rs 1,962 crore). The article said that the seven-member Indian Negotiating Team (INT), in its final report submitted to the Defence Ministry on 21 July, 2016, had estimated the cost of loading bank guarantees, "which the French commercial suppliers with backing from the French government refused to do", as €574 million (approximately Rs 4,574 crore), making the €7.87-billion (around Rs 62,712, crore) deal signed on 23 September, 2016, for the aircraft and weapons packages significantly more expensive than what the UPA government had negotiated.

The Hindu report quoted the INT explaining how it arrived at the €574 million figure: "The computations were done on an annual bank commission rate of 2 percent, including confirmation charges by an Indian bank, as communicated by SBI on 2 March, 2016." The total commercial impact of bank guarantees was worked out to a substantial 7.28 percent of the contract value, The Hindu report said.

A bank guarantee is essentially a financial security net for the consumer nation in case the supplier nation fails to stick to the terms of the contract. If India had managed to procure a bank guarantee from France, the defence ministry could have reserved the right to cash it in if it felt that some conditions in the contract were not met in the quantum promised.

According to the INT report, the Indian negotiators had repeatedly pushed the French to provide bank guarantees, with even the Ministry of Law and Justice advising, in December 2015, that India should procure government or sovereign guarantees as a legal safeguard from France "in view of the contract involving huge pay-outs value of procurement price before actual delivery of supplies and services, which de facto meant advance payment".

The question of bank guarantees is important as India was to make 60 percent of the payments in advance within 18 months of signing the deal, that is, by March 2018, even though the first Rafale fighter jet would not arrive in India before September 2019.

Parallel negotiations

The Hindu report then goes into the alleged parallel negotiations carried out the Prime Minister's Office (PMO) and the National Security Adviser on the Rafale deal, not known to the INT. It referred to a "dissent note" dated 24 November, 2015, which had protested against such parallel discussions by the PMO that had "weakened the negotiating position of MoD and Indian Negotiating Team".

Significantly, the latest report in The Hindu notes that the French government "only had to rely on what had been agreed on along the parallel track with officials of the PMO and the National Security Adviser or cite the draft IGA (inter-governmental agreement) or the Memorandum of Understanding, signed on 25 January, 2016, as the effective closure of the deal".

After the French side refused to give a sovereign or government guarantee, which the INT report said had a "substantial material bearing" on the pricing of the new Rafale deal, the Cabinet Committee on Security waived the requirement and settled for a legally non-binding 'Letter of Comfort' from the Prime Minister of France. A letter of comfort is merely a moral obligation, something an unfriendly government in future can entirely sideline.

In contrast, when firms were submitting bids for the MMRCA tender to the UPA government, all of them, including Rafale-manufacturer Dassault Aviation, had submitted bank guarantees.

Manufactured by Dassault Aviation, Rafale is a twin-engine medium multi-role combat aircraft (MMRCA). These 'omni-role' aircraft are capable of performing a wide range of combat roles, such as air supremacy, interdiction, aerial reconnaissance, ground support, in-depth strike, anti-ship strike and nuclear deterrence.

This the third report by The Hindu on the Rafale deal. The earlier two reports (read here and here) sparked a fresh debate over the Rafale deal as the report quoted a 2014 note written by the Ministry of Defence which raised strong objections to 'parallel negotiations' conducted by the Prime Minister's Office (PMO) with the French side. Stating that it was clear that such parallel discussions by the PMO had "weakened the negotiating position of MoD and Indian Negotiating Team," the note, dated 24 November, 2015 brought this to the attention of the then defence minister Manohar Parrikar.

The Hindu quoted the defence ministry's note and reported: "We may advise PMO that any Officers who are not part of Indian Negotiating Team may refrain from having parallel parlays [parleys] with the officers of French Government,” it suggested that “in case the PMO is not confident about the outcome of negotiations being carried out by the MoD, a revised modality of negotiations to be led by PMO at appropriate level may be adopted in the case."

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Updated Date: Mar 06, 2019 10:49:19 IST

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