New Delhi: The Rafale deal struck by the NDA government is only 2.86 per cent cheaper than the UPA-era contract, the Comptroller and Auditor General (CAG) has found while indicating that the price could have been brought down further.
The report, tabled in Parliament Wednesday, gives enough ammunition to both the government and the opposition to continue the political dogfight over the deal in the run-up to the Lok Sabha elections.
While it says that the basic aircraft price was the same in both the deals, the report indicates that the NDA contract, signed in 2016, managed to ensure 17 per cent savings in relation to India-specific enhancements on the aircraft.
This, the CAG report cites as one of the biggest reasons why the deal is 2.86 per cent cheaper than the UPA-era one, which was negotiated in 2007.
The report, however, goes against the claims made by Finance Minister Arun Jaitley that the NDA’s deal was 9 per cent cheaper than the UPA-era contract on the basic aircraft and 20 per cent cheaper overall.
The CAG has also noted that the 20 per cent discount offered by Eurofighter in July 2014 should have been leveraged during negotiations with the French firm Dassault Aviation (DA) for the 36 Rafale fighters.
IAF wanted to forego six India-specific enhancements
According to the CAG, the Indian Air Force, during negotiations, was ready to forego six of the 13 India-specific enhancements but the defence ministry insisted on them.
Sources have said in the past that India paid €1.3 billion for these Indian-specific enhancements.
The CAG notes that in view of the huge cost and the reduced number of aircraft to be purchased — the NDA deal was for 36 fighters while the UPA’s was for 121 fighters — the Indian Negotiating Team (INT) headed by the deputy chief of air staff (DCAS) proposed to reduce the number of India-specific enhancements.
“But M/S DA (Dassault) stated that since its price was a total package, the (defence) ministry would have to take up the matter with Govt. of France,” the report said.
It added that in August 2016, the IAF sought to postpone six enhancements, which could be included if more Rafale aircraft were procured in the future.
“However, this proposal was not accepted by MoD because that was tantamount to dilution of ASQRs (Air Staff Qualitative Requirements), which was not in consonance with the basic framework provided by the joint statement of 10 April 2015, by the DAC (Defence Acquisition Council) that aircraft must have the same configuration,” the report said.
The ministry, in its response to the CAG, stated that reduction of India-specific enhancements was not considered after due deliberations as it was a temporary deferment only as a “cost reduction measure”.
“Audit noted that four of these enhancements were stated not to be required in the technical and staff evaluations,” the CAG report states.
“The cost of these four enhancements items was “IS4” M€ constituting about 14 per cent of the ISE contracted cost. The ministry has stated that ‘scaling down the requirement to limit cash outgo cannot be considered as saving’”.
UPA deal had financial guarantees from Dassault
The CAG report says that the NDA could have saved more money if it had ensured financial guarantees, which Dassault Aviation offered in 2007, were included in the 2016 deal.
The report notes that in the previous offer, Dassault Aviation had provided performance and financial guarantees, which was about 25 per cent of the total value of the contract.
Dassault Aviation had embedded the cost in its bid price. “However in the 2016 contract, there is no such guarantees/warranty. This led to a saving for M/s DA, which was not passed on to the government of India,” the CAG notes.
On pricing, the CAG said that the 2016 contract consisted of six different packages with a total of 14 items under them. The contracted price of seven items was higher than the aligned price, that is the price at which the contract should have been signed (as calculated by the CAG).
Three items, including the basic aircraft, were procured at the same price. Four items were bought at lower than the aligned price, the report says.
The Letter of Comfort
The CAG also noted that in lieu of bank guarantee from the vendor, the defence ministry had sought a sovereign guarantee from the French government on the advice of the Ministry of Law and Justice.
The French government, however, gave a Letter of Comfort.
Also, the defence ministry had sought the opening of an Escrow Account to manage the payments as a measure of safeguard, which was not agreed to by France.
On the issue of faster delivery, while the government had claimed the delivery schedule of 36 Rafales is faster than would have been of the UPA, CAG report showed that the saving is just of a mere one month.