THE TORTUOUS MMRCA SAGA: Part I

More than a year after the government signed the deal to buy 36 Rafale combat jets in September 2016, the contract is back in the news again, thanks to the allegations by the Opposition Congress that the government did not follow rules and procedures and that it overpaid for the fighters. The allegations have been denied by the government and rightly so. To begin with the previous UPA government had not finalised the price of the contract. So comparison of cost is incorrect. But there is more. the Mod under then Defence Minister AK Antony had convoluted the process to an extent where it had become impossible to go through with the deal in its original format. I have detailed the decade-long journey of what was once described as 'mother of all deals,' in my book Securing India The Modi way: Pathankot, Surgical Strikes and more. Here are the excerpts, in two parts which sheds light on what exactly happened in the Rafale deal.  

The competition to acquire 126 Medium Multi Role Combat Aircraft (MMRCA) for the Indian Air Force began in 2007 after the government agreed with the IAF that it needed to replace the aging fleet of MiG aircraft.

Six companies across the world were issued the tender papers. They were: EADS from Germany, manufacturers of the Eurofighter Typhoon; Lockheed Martin (who make the F-16s) and Boeing ((F-18 aircraft) from the USA, Sweden’s SAAB (makers of Gripen); Dassualt Aviation from France (the Rafale manufacturers) and Russia’s Rosoboron Export (MiG-35).

India was looking for 18 aircraft to be bought off the shelf and 108 were to be manufactured in India (with a local partner, in this case, it was supposed to be the state-owned Hindustan Aeronautics Ltd). Required maintenance, repair and overhaul facilities were to be set up. The MMRCA contract was variously described as ‘mother of all deals,’ ‘most complex defence contract,’ etc in the media reports. And it indeed was.

According to official documents that I have had a chance to read, the MoD had in 2011, bench marked the Total Cost of Acquisition at Rs 163,403 crores. This, it must be pointed out, was different from the total cost of deliverables in the  126 MMRCA contract, which was bench marked by the MoD at Rs 69,456 crores, excluding the offset loading cost, estimated to be anywhere between Rs 2530 crores to Rs 5060 crores.

All this came after the six companies submitted their techno-commercial bids in April 2008, followed by nearly 11 months of field evaluation trial (FET) held in the heat of Rajasthan desert during peak summer months and extreme cold conditions in the high altitude zone of Ladakh. The trials were completed in May 2010. The evaluation committee of the IAF shortlisted two aircraft—the Eurofighter Typhoon and the Rafale aircraft fielded by the Dassault Aviation (DA)—and forwarded the recommendation to Defence Minister AK Antony. Antony took almost a year to accept the recommendation. It was already 2011. After prolonged internal discussions in two sub-committees (the Technical Oversight Committee-TOC, the Technical Offset Evaluation Committee-TOEC), a Contract Negotiations Committee (CNC) was formed in April 2011. By September that year, the CNC had arrived at the benchmarking cost after applying escalation rates by averaging simple year-on-year escalation.

But it was not before July 2012, that the CNC activated four Sub-Committees, the 'Maintenance', `Offset', and `ToT and `Contract' Sub-Committees.

For the next two years, negotiations on Transfer of Technology, Offset and Maintenance went on apace. However, certain aspects related to License Manufacture of 108 aircraft in India with HAL as the lead production agency could not be finalized. Major differences occurred on the aspect of Man Hours that would be required to produce the aircraft from kits in India and who would take the responsibility for entire lot of 126 aircraft. While DA maintained that 31 Million Man Hours that it has proposed should be sufficient to produce 108 Rafale aircraft in India, HAL was asking for mark up of this Man Hours by 2.7 times.

This point became the bone of contention between the government and the French manufacturer.

Moreover, in the understanding of the MoD, the company that had emerged as the winner in the bid—Dassault Aviation—would have to sign a single contract with the Indian government. The French Company would then need to have back to back contract(s) with HAL and other Indian Production Agencies. Dassault Aviation would also be responsible for the delivery of the complete 126 aircraft to IAF and the single point responsibility for this contract rested with Dassault Aviation because the RFP was issued to them. At that stage, the representatives of Dassault Aviation agreed do their best to meet all requirements of the project as envisaged in the RFP.

However, Dassault Aviation did not fulfil the commitment given in the first meeting and an impasse ensued on the responsibility of delivery of 108 aircraft to be manufactured in India. Another hurdle came up on the point of work share of HAL. Dassault Aviation was asked to submit a 'Responsibility Matrix', clearly defining the role and responsibility of Dassault Aviation and HAL. The `Responsibility Matrix' was to facilitate a back to back contract of Dassault Aviation with HAL.  The CNC was however not able to move the negotiations forward since the interpretation of two fundamental aspects of the case by the French Company was not in line with the terms of the original terms in the tender.

The first aspect related to treating Dassault Aviation as the 'Seller' of 126 aircraft, including 108 to be manufactured in India and the corresponding contractual obligations and liabilities. The second point was about the ‘man hours for the aircraft to be manufactured in India. The UPA government, under the overly cautious AK Antony instead of imposing a deadline for the French manufacturer to comply with the terms of the RFP, dragged its feet and allowed Dassault Aviation to get away with obfuscation. Moreover, in an unusual move, Antony instructed MoD officials to bring the file back to him after concluding the CNC to re-examine the integrity of the process before proceeding to finalise the contract, creating confusion and doubt in the minds of the officials who were negotiating with the manufacturer.

Even as talks got deadlocked, the government changed in Delhi.

(Continued in Part II)