NDA sealed Rafale deal for lower price, it also saved 17.8% on ISE, says CAG; criticises passing benefits to Dassault

  • The CAG report on NDA's Rafale deal was tabled in Rajya Sabha on Wednesday after which Parliament was adjourned sine die for this Budget Session

  • CAG report, comparing the cost analysis of UPA versus NDA deal (2007-2015), has said that the deal for Rafale jets is 2.86 percent cheaper than the UPA deal

  • Coming as a disappointment for Opposition, the CAG found no scam in the deal and slammed the delay caused by the UPA government in acquiring much needed aircraft for the IAF

The Comptroller & Auditor General (CAG) report on Rafale deal, which was tabled in Rajya Sabha on Wednesday, has countered the misconception that the NDA government led by Prime Minister Narendra Modi went for a costly deal with France. The report, comparing the cost analysis of UPA versus NDA deal (2007-2015), has said that the deal for 36 'ready-to-fly' Rafale jets that was inked between India-France under inter-government agreement is 2.86 percent cheaper than the UPA deal.

The report also said that the NDA saved 17.8 percent in Indian Specific Enhancement though the amount of money has not been made public. Coming as a disappointment for Opposition, especially the Congress which is raking up the Rafale as ‘NDA Bofors’, the CAG found no scam in the deal and slammed the delay caused by the UPA government in acquiring much needed aircraft for the Indian Air Force (IAF). The cost analysis by the CAG has scrutinised six different packages — flyaway aircraft package, maintenance package, Indian specific enhancement, weapon package, associated services and simulator package. Even the weapons package negotiated under the NDA government is cheaper than previous negotiations conducted the UPA regime.

Item of Supply Variation (%)
Flyaway Aircraft Package 0
Service products -4.77
Indian Specific Enhancement -17.08
Standards of Preparation 0
Engineering Support Package +6.54
Performance-based Logistics +6.54
Tools, Testers and Ground Equipment +0.15
Weapons Package -1.05
Role equipment 0
Training of pilots and technicians +2.68
Simulator and simulator training 0
TOTAL -2.86

The CAG report has categorically stated that during negotiations, the NDA government managed to get the required missiles in the jets that saved more money than previous deal that couldn't be finalised.

“In the price bid of 2016 M/s DA had quoted "IS" M€ for ISE. In addition it had quoted “IS1” M€ for ISE equipment and “IS2” M€ for integration. This was finally negotiated (2016) to “AX3” M€ as the total price for ISE which included “AX4” M€ for NRC and “IS2” M€ for integration. The price of equipment was also inclusive. Audit aligned the scope of the offer of 2007 and contract of 2016. The 2007 offer included Missiles ‘A1’ which was excluded by IAF in 2015 because it was being developed indigenously by Defence Research & Development Organisation (DRDO). In place of Missiles ‘A1’, IAF included Missile ‘A2’ for integration on the aircraft. The difference between integration of Missile ‘A1’ and Missile ‘A2’ which was “IS3” M€ had to be deducted from the ISE price of “XX” M€. This works out to “AX1” M€. Therefore the aligned price by audit was estimated to be “AX2” M€. As against this the contract was signed for “AX3” M€, a saving of 17.08 per cent,” CAG report said.

'Not just lower prices but also faster delivery'

 NDA sealed Rafale deal for lower price, it also saved 17.8% on ISE, says CAG; criticises passing benefits to Dassault

File image of Prime Minister Narendra Modi with the then Defence Minister Manohar Parrikar. PTI

The CAG report on Rafale has concluded that the NDA government deal has ensured faster delivery of aircrafts in comparison to UPA regime's negotiations. One of objectives of the Indian Negotiation Team (INT) was to expedite the delivery of the aircraft and weapons as compared to the delivery period offered by Dassault Aviation in 2007. According to the original delivery schedule offered by M/s DA in 2007, first 18 flyaway aircraft were to be delivered between 37 months to 50 months of signing of the contract. Further, next 18 aircraft, which were to be licence produced in Hindustan Aeronautics Limited (HAL), were to be delivered from 49th to 72nd months of signing of the contract.

During negotiations under NDA regime, the INT conveyed to the French side that it expected the delivery of first batch of 18 Rafale aircraft in 24 months after the signing of the Inter-Governmental Agreement (IGA) and next batch of 18 aircraft in 36 months after the signing of IGA.

“However, the delivery schedule finally offered by the French side was 18 aircraft by 36 to 53 months after the signing of IGA, and the remaining 18 aircraft to be delivered by 67 months of signing of IGA. This was better than the delivery schedule of 2007 by 05 months. Audit noted that as against the delivery period of 72 months in the earlier offer the contracted delivery schedule for 36 Rafale aircraft was actually 71 months. The ISE on the first aircraft would be completed by T0 + 63 months and integration on the next 35 aircraft would be completed in 8 months. Thus, there was an improvement of one month in the delivery schedule of the 2016 contract," CAG report said.

CAG, nevertheless, pointed out apprehensions raised by INT in achieving the delivery schedule because at the time of signing of the contract, Dassault Aviation had an order backlog of 83 aircrafts. CAG said considering its production rate of 11 aircraft a year, clearing this backlog itself would take more than seven years. The defence ministry, however, confirmed to the national auditor that project was on schedule and progress was being closely monitored by the resident project management team and alsio through Inter-Governmental Bilateral high-level group.

Dassault Aviation saved on guarantees: Benefit should have been passed on to India

The national auditor has, however, disagreed with the Ministry of Defence on the issue of financial and performance guarantees by Dassault and criticised the government for passing on the benefits to the vendor. Under the UPA offer in 2007, the company had provided the financial and performance guarantee, the cost of which was embedded in the offer because the Request For Proposal (RFP) had required the vendor to factor these costs in the price bid.

However, in the 2015 offer there were no such guarantees as it was an Inter-Governmental Agreement. The vendor was to provide bank guarantee against the 15 percent advance payment made by the ministry to the vendor which would be outstanding for three years till the deliveries of equivalent amount are made by the vendor. The bank charges, which the vendor would have to pay to hold this guarantee, works out to “AAB1” million € (@ the Bank rate of 1.25 percent per annum as claimed by the vendor) 75 and 0.34 percent as checked independently by the Indian Negotiation Team (INT).

CAG report said that the offer of 2007 included Performance Guarantee and Warranty valuing 10 percent of the total value of the contract which was to be held till the completion of deliveries i.e. 5.5 years. The bank charges for this works out to “AAB2” million €.

"Therefore, the total saving of “AAB3” million € accruing to the vendor by not having to pay these Bank Charges should have been passed on to Ministry. Ministry has agreed to the Audit calculations on Bank Guarantees but contended that this was a saving to the Ministry because the Bank guarantee charges were not to be paid. However, Audit noted that this was actually a saving for M/s DA when compared to its previous offer of 2007," CAG report said.

CAG report said despite Inter-Governmental Agreement, the government of France and vendor neither agreed to furnish the bank guarantees nor government or sovereign guarantee and instead it provided a ‘Letter of Comfort’ signed by the French Prime Minister in lieu of the Bank Guarantee. The CAG felt that in case of breach of agreement, the process to settle is long drawn and it could have been avoided.

The defence ministry, however, in its reply to CAG has said that the IGA has been signed between two Strategic Partners who are Sovereign nations with long standing Strategic relationship. It has argued that on the advice of the Ministry of Law and Justice, responsibility of the French Government and Dassault was made “Joint and Several” in the IGA.

"This would make the French Government equally responsible to fulfil its obligations," defence ministry told the CAG.

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Updated Date: Feb 13, 2019 15:29:38 IST