Latest on CAG report: Rafales '2.86% cheaper'
32 pages devoted to Rafale deal; price of jets 'masked'
Image Credit: Reuters
Highlights
- India's Comptroller and Auditor General (CAG) audit of Indian Air Force, for purchases covers the 2012-2017 period, was tabled at the Rajya Sabha, the upper house of the Indian Parliament, on Wednesday.
- Five of the 11 deals audited were linked during the previous Congress-led (United Progressive Alliance) goverment and six from the present (BJP-led National Democratic Alliance, NDA) government
- CAG has redacted pricing details for the Rafale deal; instead, it has mentioned only percentage terms
- In 10 other acquisitions by the IAF, the auditor has mentioned the prices while evaluating these deals
The office of the Comptroller and Auditor General (CAG), created by the Constitution Act of 1950, is accountable to the Indian Parliament, the people’s representatives.
CAG’s primary task is to audit financial transactions of the Union and State governments and Union territories.
On Wednesday, the CAG’s much-anticipated report on India's 36-aircraft Rafale deal with Dassault of France was tabled in the Rajya Sabha (Council of States), the upper house of the Parliament of India.
The report includes scrutiny of the pricing details, which was "masked".
The bottomline: A 2.86 per cent reduction in price for the Rafale deal, according to CAG.
Still, the most controversial point — pricing — has been "redacted". It was claimed that the details cannot be revealed on grounds of national security.
Image Credit: AFP
The report states that compared to the 2007 deal signed by the Congress-led UPA government, the Rafale deal was signed by the Modi government in 2016 at a slightly lower price — 2.86 per cent lower.
India's Economic Times posted a picture of Table 5 purportedly taken from the report.
The table displays "Item-wise Cost Analysis". It was priced in million euros. The four columns — where it's supposed to show the price, were empty. Only the fifth column, showing a percentage increase/decrease was filled.
And that's how the overall savings figure of 2.86% was arrived at.
Image Credit: Courtesy: Economic Times
Following are the key points contained in the CAG report:
- "2.86 per cent cheaper": The report prepared by the CAG states that the Rafale fighter jet deal signed in 2016 by the BJP-led National Democratic Alliance (NDA) government was 2.86 per cent cheaper than the deal signed by the Congress-led United Progressive Alliance (UPA) in 2007.
- Basic aircraft price: CAG further reported that three items in the Rafale deal, including the basic aircraft, were procured at the same price.
- Lower price: Four others were purchased at lower than the “aligned price”, making the 2016 contract 2.86 per cent cheaper than the previous cost.
- Figures not disclosed: The report, however, did not disclose the actual price of the 36 Rafale fighter jets contracted by the NDA government.
- 4 enhancements 'not needed': The CAG report states that four of the India-specific enhancements were “not needed” at all. This was the same point the Indian Air Force (IAF) had stated in its technical evaluation in 2010. Those "unnecessary specifications" were included in the Rafale deal.
- India-specific enhancements: The Modi government, responding to the opposition’s criticism that Indian taxpayers paid more in the reworked the Rafale deal, has argued that the 2016 contract had more India-specific enhancements.
- MOD vs CAG figures don’t agree: The Indian Defence Ministry has been arguing that the 2016 contracted price of 36 basic “fly-away” Rafale aircraft was 9 per cent lower than the 2007 price. However, the CAG audit report found that the basic flyaway aircrafts were bought at the same price as that of 2007.
- Different Packages: The CAG report stated that the Rafale contract consisted of six different packages with a total of 14 items. The contracted prices of seven items were higher than the “aligned price”, the price at which the contract should have been signed after adjusting price variation between 2007 and 2015.
- Warranty absent: The CAG report highlighted that the 2007 offer by the Dassault Aviation provided performance and financial guarantees, which was about 25 per cent of the total value of the contract. There was no such guarantee or warranty in the 2016 contract. The auditor observes that this led to a saving for Dassault Aviation and not passed on to Indian government.
- Technology transfer clause absent: The CAG report states that the 2007 offer for 126 Rafale aircraft included transfer of technology or licence to the Hindustan Aeronautics Limited (HAL) for the production of 108 fighter jets. But no such transfer of technology was provided under the 2016 contract. Doing away with the transfer of technology clause has been a major criticism of the Modi government by the Congress over Rafale deal. Congress president Rahul Gandhi has repeatedly charged PM Modi with “snatching the contract from the HAL” and giving it to the Reliance Defence.
- No sovereign guarantee/financial security: On the issue of sovereign guarantee, the CAG report says that the French side did not agree to India’s demand. The defence ministry sought sovereign guarantee from the French government in lieu of bank guarantee from the Dassault Aviation. India had to settle with a Letter of Comfort from the French government. This has become a contentious point. The Congress-led opposition has assailed the Modi government over this point, saying that the new Rafale deal was not secured financially.
- Delivery dates: The government has defended the 2016 Rafale deal on counts including faster delivery of the fighter jets. It has defended the deal saying that the air force needed immediate supply of the fighter jets and, hence, the deal could not have been delayed any further. However, the CAG report observes no big difference in the delivery deadlines for the Rafale fighter jets.
- Under the original 2007 deal, the first 18 fly-away Rafale fighter jets were to be delivered by 50th month from the date the contract was signed. Under the 2016 deal, the Dassault Aviation is required to supply first 18 aircrafts by the end of 53rd month.
- Non-firm and fixed price: The CAG report is critical of the Ministry of Defence (MoD) for signing the Rafale deal on “non-firm and fixed price”. This made India, as the buyer, vulnerable to price escalation depending upon the price index. The MoD found it cheaper than the “firm and fixed bid”.
- Savings: The government claimed this approach would lead to “savings”, but the CAG report says: “Audit does not find this claim valid because” the same advantage was applicable even in the case of 2007 deal.
- Non-compliant: Finding issues in the UPA-era, 126-aircraft deal, CAG says Defence Ministry team had said in 2015 that the proposal of Dassault Aviation for the Rafales should been rejected in the evaluation stage itself. The reason: It was non-compliant with the requirements stated in the original request for proposals.
- No sovereign guarantee/financial security: On the issue of sovereign guarantee, the CAG report says that the French side did not agree to India’s demand. The defence ministry sought sovereign guarantee from the French government in lieu of bank guarantee from the Dassault Aviation. India had to settle with a Letter of Comfort from the French government. This has become a contentious point. The Congress-led opposition has assailed the Modi government over this point, saying that the new Rafale deal was not secured financially.
- Audit also noted that the IAF did not define the Air Staff Qualitative Requirements (ASQRs) properly. As a result, none of the vendors could fully meet the ASQRs and these were changed repeatedly during the procurement process. This created difficulties during the technical and price evaluation and affected the integrity of competitive tendering, which is one of the main reasons for delay in the acquisition process.
- Evaluation process inconsistent: Objectivity, equity and consistency of technical evaluation process was not evident in the technical evaluation report, reported ANI, citing the CAG report.
- Scrapping of deal recommended by MoD in 2015: The report states that the Ministry of Defence team, in March 2015, had recommended the scrapping of the 126 Rafale deal. The ministry had said that Dassault Aviation was not the lowest bidder and that the EADS (European Aeronautic Defence & Space Company) was not fully compliant with the tender requirements.
- Pricing redacted: Top sources at the CAG told Bloomberg Quint that the pricing of the 36 Rafale fighter jets deal has been redacted in the CAG report on the request of the Ministry of Defence (MoD) — "keeping in line with the security concerns".
- Masking of Rafale price: While the BJP-headed NDA government decided not to reveal the price of the 36 Rafale fighter jets it agreed to buy from Dassault on grounds of security, the Congress-led UPA government, too, had signed a deal to mask the price of the jets, according to the same CAG report.