Know, what is in the CAG Report on Rafale. A big victory for PM Modi!

Know, what is in the CAG Report on Rafale. A big victory for PM Modi!

The much-awaited CAG audit report on Capital Acquisitions in Indian Air Force was tabled in Rajya Sabha that included the government to government Rafale deal signed between India and France. The report does not disclose the actual price of the 36 Rafale fighter jets contracted by the NDA government. However, it includes an examination of the pricing. The prices have been redacted in the report based on the insistence of the Defence Ministry citing the Indo-French agreement of 2008 and the provisions of Inter-governmental agreement. Blunting opposition charges of overpricing, the 141-page CAG report has mentioned that the flyaway price of the jet is the same as agreed in 2007 by the UPA government. Opposition parties especially Rahul Gandhi and the Congress have been using the Rafale Deal as a political weapon against the Modi government. The CAG report has confirmed the fact that was reiterated multiple times by the ruling BJP government and its leaders. It has not only busted the lies of Rahul Gandhi and Congress but also has got them into trouble for compromising national interest. Through this article, IRC would like to completely analyze the recently tabled CAG report on capital acquisitions by the IAF.

PRICING

During UPA

The deal that was aborted under the UPA was full of discrepancies. The CAG reports clearly states that even before the RFP (Request for proposal) was submitted by M/s DA and M/s EADS it had been clearly stated that incomplete bids would be subjected to rejection. Thus bids submitted by them should have been rejected as they were incomplete and non-compliant to the RFP. But when the ministry was asked about this, it replied that the bids were compliant to the RFP. Also, the CNC determined the ‘Firm and Fixed’ costs from vendor’s proposals by applying escalation as per the Vendors’ provided indices and formulae. The reply of the ministry is perplexing, the report says, as there cannot be any escalation if costs offered were ‘Firm and Fixed’. It is also seen that the bids submitted by vendors were under ‘Firm and Fixed costs’ while CNC had quoted them under ‘non-firm and fixed’ costs by escalating the commercial offers on the basis of formulae provided by vendors. Clearly compromising lower pricing for the aircraft.

The ministry in 2011 had set up a benchmarking committee to estimate the benchmark price against which the price bids of vendors were to be evaluated. The benchmark price evaluated worked out by the ministry for actual deliverables was 47 percent below the actual prices offered by the L1(lowest bid) vendor, which clearly shows the benchmark price was unrealistically fixed. The audit also noted that M/s DA did not submit its price bid in the format prescribed by RFP which contained detail cost breakup of the seven cost elements prescribed in RFP, which were crucial for evaluation. M/s EADS had submitted the bid according to the norms of RFP. But the anomaly by M/s DA caused difficulty in comparing. But still, the ministry choosing M/s DA without any other validation causes suspicion.

During NDA

The deal is an intergovernmental agreement. In an acquisition, through IGA the government identifies a need for a military equipment or services and then chooses to acquire it from the government of another country, instead of procuring directly from the vendor. The foreign government may offer the equipment from its own inventory or procure it from the vendor through its own procedure and then transfer it to the buying government. One of the major benefits of an IGA, the report says, is that the selling government procures the items from their vendors on behalf of the buying government, using the same procedure, terms and conditions which it uses for its own procurements. The cost of such procurements are considered to be lower because the equipment is already in use by the selling government and much of the cost of R&D and other fixed costs would have been recovered by the vendor.

Ministry in its response (January 2019) had repeatedly stated that initially in the RFP of 2007, M/s DA was required to submit the price offer on Firm & Fixed basis. In contrary, the CNC had quoted it as non-F&F. It was informed by the French side that the price had escalated due to this formula by 3.9 percent.  The inter-governmental contract for Rafale was 2.86 per centlower than that of the UPA era. The contract for Rafale consisted of six different packages with a total of 14 items. Three items including basic aircraft were procured at the same price, whereas four items were purchased at a lower price. Engineering Support Package - NDA deal 6.54% MORE EXPENSIVE. When it comes to supporting package, i.e. the prices India will pay for support and maintenance of the Rafale jets, this is more in the current deal. Performance based logistics - NDA deal 6.54% more EXPENSIVE. Weapons Package - NDA deal is  1.05% CHEAPER.

DELIVERY

One of the objectives of the INT, which was derived from the Indo-French Joint Statement, was to expedite the delivery of aircraft and weapons as compared to the delivery period under the UPA era. According to the original delivery schedule offered by M/s DA in 2007, first 18 flyaway aircraft were to be delivered between 37 to 50 months of the signing of a contract. Next 18 aircraft which were to be license produced in HAL, were to be delivered from 49th to 72nd months of signing. During negotiations the India negotiating Team(INT) conveyed to the French side that it expected the delivery of the first batch of 18 Rafale aircraft in 24 months of the signing of the IGA; and next batch of 18 in 36 months of signing. The Audit noted that as against the delivery period of 72 months in earlier offer the contracted delivery schedule for 36 Rafale aircraft was actually 71 months. Thus there was an improvement of one month in delivery schedule in the new deal struck under NDA.

THE HAL FACTOR

Manpower

At the time of Benchmarking in June 2011, HAL had stated that the French man hours had to be converted to Indian man hours by multiplying it by a factor of 2.7. But CNC ignored this factor while determining the benchmark price as well as L ! vendor. This created difficulties later during negotiations with M/s DA when the CNC realized that after applying the factor of 2.7 to the manpower cost of M/s DA it was no longer the L1 vendor. The audit noted that by including this factor, the manpower cost would have been about 2.7 x 31.2 million man hours. Audit noted that the reply of the ministry is silent on the manner, the bid of M/s DA has evaluated since it was submitted with man hours under French industrial conditions and HAL wanted that figure to be multiplied by 2.7.

Guarantee

The RFP also stated that the vendor shall guarantee the performance of the product to design specification, the production agency or customer locations. During CNC M/s DA took the position that the firm was only responsible for delivery of 18 direct fly way aircraft, CKD, SKD and IM kits and weapons and associated supply and services. HAL as the production agency was responsible for the quality of the 108 aircraft to be manufactured by it under ToT. CNC insisted that M/s DA should take full responsibility for the quality and performance of all 126 aircraft as required under the RFP.

The above two issues led to a stalemate in negotiations. Five years after the bid, and after 3 years of evaluation and negotiations, there was no finalization.

Thus it can be clearly seen from the revelations on facts made by the CAG completely demolish the smoke created by Congress and their allies in media over the Rafale issue. The Congress people have put out yet another stunt rejecting the CAG. It is not new for Rahul Gandhi or for the grand old party to rubbish the institutions of this country. But the time has come when people shall tear apart the lies propagated by them. Rahul Gandhi and the Congress party will also have to answer to the people regarding the discrepancies made in the deal in the UPA era. It is clear that the political stunt by the Congress on the Rafale deal was nothing but to hide their own discrepancies in the UPA era deal. They needed to hide their favoritism and loss of public money in their own made deal. Hopefully, in the coming days, RaGa will answer some questions rather than a question. The CAG report once again establishes the credentials of the Modi government of putting the national interest first.