CAG report on Rafale tabled in Rajya Sabha Highlights: The Comptroller and Auditor General’s report on ‘Capital Acquisitions in Indian Air Force’, which includes details of the controversial Rafale deal was tabled in the Rajya Sabha Wednesday, the last day of the budget session in Parliament. Amid uproar by the Opposition, the Upper House was adjourned sine die.
The Congress had earlier objected to CAG Rajiv Mehrishi auditing of the Rafale deal over his alleged “conflict of interest”. The Congress had accused Mehrishi of “attempting to help the government by giving it a clean chit certificate”. Finance Minister Arun Jaitley said the report exposed the lies of the “mahajhootbandhan”.
Highlights of the report
1) The report said that the NDA government’s deal to obtain the 36 aircraft is 2.86 per cent cheaper than the deal which was negotiated by the UPA government. This comes as a relief to the ruling party, which has been accused of multiple wrongdoings in the deal by the Congress.
2)”The objective of the Indian Negotiation Team (INT) as derived from the term of the IGA (Inter-Governmental Agreement) and decision of DAC (Defence Acquisition Council) of ‘better prices’ was to bring down the cost of acquisition of the 36 Rafale aircraft as compared to the cost of the previous procurement of 2007,” it said.
3) The CAG report, tabled in the Parliament, examines the pricing of the deal, but does not include the pricing details. The prices were redacted in the report based on the insistence of the Ministry of Defence citing the Indo French Agreement of 2008 and the provisions of IGA.
4) The CAG report highlighted the drawbacks of settling for a ‘Letter of Comfort’ rather than a sovereign guarantee by the French government. The report noted that the 2007 UPA deal included a 15 per cent bank guarantee against advance payments. Highlighting its concerns, the CAG observed that in case of a breach of agreement, India would now have to first settle the matter through arbitration directly with the French vendors.
5) The audit report compared the two deals and said the 2007 deal (under the UPA government) included Missiles ‘A1’ which was excluded by IAF in 2015 because it was being developed indigenously by Defence Research & Development Organisation (DRDO). In place of Missiles ‘A1’, IAF included Missile ‘A2’ for integration on the aircraft.
6) With regard to India-specific enhancements, the deal was 17.08 per cent cheaper, said the audit report. In terms of engineering support package and performance-based logistics, the deal was 6.54 per cent more expensive, it stated.
7) The audit noted that repeated changes or adjustments were made in the Air Staff Qualitative Requirements (ASQRs) during the procurement process. To acquire the right product at the right price, it is essential that the qualitative requirements (Air Staff Qualitative Requirements in the IAF-ASQRs) reflect the user’s functional need, the report said. The report said that the Indian Air Force (IAF) did not define the ASQRs properly. As a result, none of the vendors could fully meet the requirements, adding that it affected the integrity of competitive tendering and delayed the acquisition process.
8) It said, “During negotiation of 36 aircraft in 2015, in view of the huge cost and the reduced number of aircraft to be purchased, INT headed by the Deputy Chief of Air Staff (DCAS) proposed to reduce the number of Indian Specific Enhancements. In August 2016 before submission of the note to the approval of the CCS, DCAS (with the approval of CAS) intimated Ministry that ISE scope could be reduced by postponing six enhancements, which could be included if more Rafale aircraft were procured in future. However, this proposal was not accepted by MoD because that was tantamount to dilution of ASQRs which was not in consonance with the basic framework provided by the Joint statement of 10 April 2015 by the DAC that aircraft must have the same configuration.”
9) According to the audit report, the Defence Ministry also faced difficulties in “realistically estimating the benchmark price, making it difficult to establish the reasonability of price.” This caused a delay in price evaluation and contract negotiations. The model used for calculating the Life Cycle Cost of acquisitions had several deficiencies and needs to be fine-tuned and improved further, it further said.
9) The CAG report suggested that ‘Lowest Price Technically Acceptable (LPTA)’ method of bid evaluation—wherein the contract is awarded to the lowest priced offer which is technically acceptable—needs reconsideration, adding that for procuring highly technical products “use of the Best Value method or a quantitative assessment method may ensure better value for money.”
10) Item-wise Cost Analysis (2007 with 2015) (Price in million €)
The Centre had earlier told the Supreme Court the 36-fighter jet deal was examined by the CAG. Last month, in response to an RTI query, the CAG refused to disclose details about its audit, saying the process is not yet complete and any disclosure would amount to breach of the Parliament’s privilege.