By relying on Defence Procurement Procedure of 2013, Nirmala Sitharaman has caused trouble for herself
Under 2013 Defence Procurement Procedure, Anil Ambani’s Reliance was not eligible to be Dassault Aviation’s India Offset Partner
Since we broke the story of the mysterious escalation of prices of Rafale fighter jets by the Narendra Modi government, the government and their supporting media made desperate attempts to give inexplicable reasons in a bid to justify the prime minister’s decision. This despite the fact that the new deal, struck by PM Modi, had violated set norms.
The questionable decisions included scrapping of 95% of the completed negotiations on RFP, rejection of Hindustan Aeronautical Ltd as the Indian partner and the critical Transfer of Technology (ToT) from France to India.
Then there was also PM Modi’s unilateral announcement of the purchase of 36 units of Rafale jets without the relevant cabinet committee’s approvals coupled with Dassault Aviation’s selection of Anil Ambani’s Reliance Defence and Aerospace as the Joint Venture partner.
The only advantage working in favour of Reliance headed by Anil Ambani in defence equipment manufacturing sector- let alone the technically challenging fighter jet manufacturing- was the group chairman’s proximity to Modi. Hence its preference over HAL as the JV partner to fulfill its 50% offset obligation.
Call it her over-enthusiasm or hubris, the Defence minister Nirmala Sitharaman, who was relatively new in her post, back then in November, hurriedly held a press conference and rubbished all the questions raised in our two-part expose. She went on to audaciously declare that the prices negotiated by PM Modi were much cheaper and promised to release details soon.
The so-called mainstream media outlets that initially appeared reluctant to provide coverage to our expose when we first broke the news and who even blacked out the opposition party’s press conference, were seen nimble-footed in giving blow-by-blow coverage to Sitharaman’s press conference later. Ironically, even in their glaring biases, these media outlets played a crucial role in unwittingly informing India and the world that there were indeed some uncomfortable questions in the deal and how they remained unanswered.
Although the ruling party and its propaganda machinery desperately sought to portray our expose as a campaign to malign the image of the BJP and Modi in the run up to last year’s Gujarat assembly polls, they never explained the reasons for the price escalation satisfactorily.
Sitharaman makes a mess of Rafale controversy
The topic, over the next two months, was placed in the back-burner till it was raised in the Rajya Sabha by congress MP Prof Rajeev Gowda during the ongoing budget session of the parliament.
Gowda asked for the details of the penalty imposed on Dassault for refusing to fulfill the contractual obligations, cost per air craft under the inter-government agreement signed by this government for 36 Rafale jets and whether the cost difference is due to the inclusion of a private player instead of HAL. Sitharaman’s answer in the parliament was very interesting, to term it politely. (See the reply below)
The first answer reads “there was no contract with Dassault for the Medium Multi Role Combat Aircraft”. Technically this argument is correct because the RFP was cancelled by this government before signing the contract. But the pertinent question that remained unanswered by Sitharaman was why they cancelled the RFP when the negotiations were 95% complete? Dassault CEO, Eric Trappier, confirmed this in front of the Indian High Commissioner to France, senior IAF officials and French journalists in a press conference. When Eric Trappier was getting ready to visit India in two weeks, the Indian PM announced his decision to go for an off-the-shelf purchase of 36 aircrafts, that too in almost two weeks. (Eric Trappier’s press conference was on 25 March 2015 and Modi’s announcement from Paris was on 10 April 2015).
Sitharaman’s second answer in the parliament reads that she cannot disclose the details of the price at which the Modi government signed the contract due to a certain clause in the “Agreement between The Government of the Republic of India and The Government of the French Republic concerning the Protection of Classified Information and Material in the field of Defence”.
Really? Let’s read what that agreement, signed between India and France in 2008, stated. The said agreement read, “For any contract or sub-contracting contract that includes classified information and material, a security annex shall be drawn up. In this annex, the competent security authority from the Party forwarding the information or the material, shall specify what has to be protected by the Receiving Party, as well as the corresponding classification level, applicable to it.”
The agreement was signed on 25 January 2008 for a period of 10 years. The agreement had a clause to renew it for another 5 years within six months of prior notice by either side. If that did not happen, the validity of the cited agreement expired on 24 January 2018.
For a moment, let us assume that the above mentioned agreement was renewed (though there’s no information of that available in public domain). But, it raises a more fundamental question. In a democracy, how can the defence minister hide the financial details of a big transaction from the exchequer in the guise of a secrecy agreement? That argument itself raises more questions thereby giving more credence to the clouds of suspicion surrounding the Rafale deal.
The last answer to the question raised is the best example of wordplay; a witty exploitation of the meanings and ambiguities of words. It reads, “the quantum of offsets in 36 Rafale IGA is 50% which includes investments in terms of Transfer of Technology (ToT) for manufacture and/or maintenance of eligible products and services. Details of Indian offset partners have not yet been provided by the French industrial suppliers and as per the provisions of the Defence Procurement Procedures (DPP) 2013, they need to do so at the time of seeking offset credits or one year prior to discharge of offset obligations through the Indian offset partners. As per the provision of DPP 2013, Indian offset partner need not be a Public Sector Undertaking”.
In the second part of the last answer, Sitharaman either misled the parliament or she is simply ignorant. When Dassault formed a JV with Anil Ambani’s company and 13 months later when the JV partners laid the foundation stone for their facility in Nagpur in the presence of Sitharaman’s cabinet colleague Nitin Gadkari and Maharashtra chief minister Devendra Fadnavis, wasn’t she aware that the investment Dassault was making into this JV was a part of their offset obligation? But the JV partners say that their upcoming facility is a part of the offset obligation of 36 Rafale deal. Here is the Dassault Press Release and the second screenshot is of the press release of the JV Company.
Falling in own trap by Sitharaman and Anil Ambani factor
Defence Minister is correct when she says the Indian offset partner need not be a Public Sector Undertaking i.e. HAL. DPP 2013 stipulates such a clause in chapter one, Annexe D, clause 4.3. But the same Annexe D has another clause 4.1 that reads “Indian Enterprises and Institutions and Establishments engaged in manufacture of eligible products and / or provision of eligible services, including DRDO, are referred to as the Indian offset Partner.”
Under the DPP’s clause 4.1 of chapter 1, it’s clearly stated that for an entity to be an Indian Offset Partner, it ought to be ‘engaged in manufacture of eligible products.’ The eligible products in the context of deal with Dassault was the fighter jets (HAL has experience of Sukhoi and Tejas under their belt). Anil Ambani’s company had no previous experience of manufacturing fighter jets or was never engaged in its manufacturing when it was chosen as the IOP with Dassault. So, questions may be asked if the government was in violation of the DPP by selecting Anil Ambani’s Reliance to be the offset partner on Rafale deal.
After Sitharaman’s reply in the parliament, the MoD put out a long press release.
There are glaring flaws in this press release too. To start with, the ministry says, “the then defence minister (under the UPA) exercised an unprecedented personal veto on the laid down institutional process then underway for procurement of 126 MMRCA”. This line is totally misleading and too political. As per the available information in public domain, the then defence minister, AK Antony, asked to halt the negotiations and inquire when a TDP MP alleged corruption in the process of selection of L1 bidder.
The process was halted till the inquiry was over and the report said that the allegations were baseless. We have pointed out this in detail in our earlier stories. Another point is, here too, the ministry is seeking the help of a non-existing secrecy agreement to hide the financial transactions of the deal from the public. As for the argument of a better deal being struck by this government, we have to understand that the technical aspects of the deal was concluded according to the RFP submitted by Dassault as per IAF’s requirements and no major changes were done.
The press release also talks of “India specific changes”. What does this childish argument of “India specific changes” mean? Does it mean that the IAF submitted its requirement without considering “India specific changes” and also that negotiations went ahead until Modi announced his decision to purchase 36 units off-the-shelf? If that’s the case, this government must initiate legal action against all those who were involved from the time of RFI, trials, finalisation to RFP and contract negotiations.
It is clearly mentioned by many retired senior IAF officials including couple of previous IAF Chiefs that the requirement submitted by the Air Force covered everything- from changes needed for India to maintenance, warranty, parts, weapons, training and the changes needed to integrate the weapons. So, if there’s anything new under the deal struck by Modi, then this must be explained by the defence minister. The atrocious claim of “this government concluded the deal in one year” is also laughable because the Manmohan Singh government had to complete the trial and finalisation of the product and the RFP. This is a time consuming exercise but absolutely key for the government before it starts the negotiations with the preferred bidder. The negotiations on Rafale by the UPA government started in 2012 just two years before the Modi government came to power.
The defence ministry, in its statement, also clarified that the ToT was not a part of the RFP and manufacturing under the license was the option but that too was not agreed by the vendor and ended up in a stalemate. They are in a way agreeing that the previous government stood its ground on the terms and conditions as per the RFP. In other words the defence ministry under Sitharaman has confirmed that the Manmohan Singh government was tough in negotiations and did not compromise the ToT. But , the Modi government buckled under pressure from a private company from France and conceded all the terms and conditions set by a foreign entity in order to please a private entity in India, owned by the PM’s friend.
And the claim of “manufacturing under license” is utterly misleading too, because a lot of people who were closely associated with the deal on various occasions have confirmed that the bigger loss to India as a country on account of 36 Rafale jets was the loss of technology of fighter jets and the source code of a most advanced radar system. Although the Modi government remains adamant and refuses to consider it as the country’s loss.
The Modi government keeps saying that they followed all the guidelines and took the approval of all the relevant committees before signing the inter-government agreement. They are right in that point. But what the government and the BJP are not answering is how the PM could take a unilateral decision when he announced the deal from France on 10 April, 2015 as these approvals came only in September 2016. There the main question is, who gave the permission to Modi to take such a decision?
In nutshell, instead of giving proper and satisfactory answers, Sitharaman and her ministry are just beating around the bush.