Dassault benefited without bank guarantee: CAG

NEW DELHI: The contract signed in 2016 to acquire 36 Rafale fighter jets from France through the Inter-Governmental Agreement (IGA) was 2.86% lower in value than “Audit’s aligned price” of the bid received in 2007 when the then UPA government had sought to purchase 126 Medium Multi-Role Combat Aircraft (MMRCA), the Comptroller and Auditor General (CAG) of India said in its report, tabled in Parliament on Wednesday.

The 2016 deal for 36 jets through IGA is 2.86% cheaper than the UPA deal. Savings of 17% in India Specific Enhancements in present deal. However, four ISEs were not required and constitute of 14% of the estimated ISE value.

The CAG also observed that the price could have been reduced further had the benefits of waiving of the bank guarantees for the vendor (Dassault Aviation) been passed on to India.

There have been varying claims from government officials on how much cheaper the 2016 deal was, with estimates ranging from 9% to 20%.

On the delivery schedule, the national auditor found that the 2016 deal’s terms would ensure only a month’s advantage over the timeline offered in the 2007 bid.

The report, which had been widely awaited in the wake of a string of revelations on procedural deviations in the negotiations to acquire the French Rafale jets and political allegations of financial irregularities in the deal, was tabled in the Rajya Sabha on the last day of the 16th Lok Sabha.

In its performance audit report on ‘Capital Acquisition of the Indian Air Force’, the CAG reviewed 11 contracts signed between 2012-13 and 2017-18 with an approximate value of Rs.95,000 crore.

On the Rafale’s India Specific Enhancements (ISE), which cost more than €1.3 billion of the €7.87 billion deal, the CAG stated that there was a saving of 17.08%. However, the audit noted that four enhancements were “stated not to be required in the technical and staff evaluations” and that the cost of these four items constituted about 14% of the ISE estimated cost.

“The Ministry has stated that scaling down the requirement to limit cash outgo cannot be considered as saving,” the CAG said.

The auditor redacted all price figures from the report — done, it said, at the insistence of the Ministry of Defence which had cited the Indo-French Agreement of 2008 and the provisions of the IGA.

On the overall delivery schedule of the 36 jets as per the 2016 deal, compared with the delivery of 18 jets in flyaway condition plus another 18 produced in India under licence under the terms of the MMRCA proposal, CAG noted that there was an improvement of only one month in the 2016 contract.

The price of the 36 Rafale aircraft in the 2016 deal was 2.86% lower than the comparable price based on the UPA-negotiated deal. The comparable price as of 2015 (aligned price) was arrived at by applying a price escalation formula to the June 2007 bid.

The CAG also observed that in respect of bank guarantees, the French government had not agreed to an escrow account and had contended that the “guarantees already provided by the government of France were far reaching and unprecedented.”

The finally approved Article 5 of IGA by the Defence Acquisition Council (DAC), provided that the advance payments were to be made directly to the bank accounts of the French vendor that were opened in a French government controlled bank, over which the French government was to exercise control and monitoring for effective implementation of IGA and the supply protocols, the auditor noted in the report.

Underscoring the importance of a sovereign guarantee to this deal, the CAG observed that in case of a breach of agreement, the Indian party (Ministry) would have to first settle it through arbitration directly with the French vendors.

“If the arbitration award were in favour of Indian party and the French party fails to honour the award, Indian party should exhaust all available legal remedies. Only then the French government would make these payments on behalf of the vendors,” the CAG noted