In a shot in the arm for the BJP-led government which has been under Congress attack over the Rafale deal, the Comptroller and Auditor General’s report to Parliament, tabled in Rajya Sabha on the last day of the Budget session, stated that the government’s contract with France for the purchase of 36 fighter aircraft was 2.86 per cent lower than the price assessed by the CAG for the UPA government’s inconclusive Rafale deal.
The CAG, which did not disclose pricing details in absolute terms, came to this conclusion after considering fourteen items under six component packages of the deal. But the CAG estimation of savings did not include the amount saved by Dassault Aviation, the Rafale manufacturer, by not having to pay bank charges for the bank guarantee that had been factored in the UPA government’s tender.
The report dismissed the contention that “this was a saving to the Ministry” (of Defence) and said “this was actually a saving for M/s DA (Dassault Aviation) when compared to its previous offer of 2007”.
The report was silent on offset partners, an issue at the centre of the political row. The Congress has alleged corruption in Anil Ambani’s Reliance Group securing one of the offset contracts.
On the delivery schedule, the auditor said that according to the 2007 delivery schedule, 36 Rafale aircraft were to be delivered in 72 months — 18 in flyaway condition by Dassault Aviation and 18 manufactured by HAL. But in the current case, 36 Rafale aircraft — all in flyaway condition by Dassault Aviation — will be delivered in 71 months. This, the report noted, meant an improvement of one month in the delivery schedule.
The biggest savings, according to the CAG, come under the item of India Specific Enhancements where the overall cost of these enhancements had come down by 17.08 per cent. But the auditor did not consider the fact that the non-recurring cost of design and development of ISE was to be divided only over 36 aircraft instead of 126 aircraft earlier.
The CAG dismissed the government’s argument that the price escalation in the current contract was based on French rates of inflation, subject to a cap of 3.5 per cent per annum which would lead to substantial savings over the previous case. But the auditor said that these savings “would have also been available in the 2007 commercial offer depending upon escalation rates, but after the mid-delivery period, as calculated by the CNC/L-1 subcommittee in 2011-12” — the CNC stands for the Contract Negotiation Committee and L-1 the lowest vendor.
The report also did not agree with the argument about the cost of Rafale aircraft being 9 per cent less than the price offered for the aircraft in 2007. It concluded that “there is no difference between the bid of 2007 as escalated by INT with actual escalation factors, and the negotiated cost of the 2015 offer, for the same aircraft” — the INT stands for Indian Negotiating Team.
Opposition parties have alleged that by reducing the order from 126 Rafale in 2007 to 36 in 2015, the BJP-led government created a wide gap in operational preparedness of the IAF. The CAG report stated that it “could not find any proposal with the Ministry for filling of this side gap in the operational preparedness of the IAF.”
On the unsolicited offer of a 20 per cent discount by EADS, the manufacturer of Eurofighter, which was the only other aircraft to have cleared the trials besides Rafale, the government told the CAG that it did not undertake any negotiations with EADS as per provisions of the Defence Procurement Procedure (DPP). But the report states that “there are no provisions for concluding an IGA with L-1 bidder in the DPP” — the IGA is the intergovernmental agreement. It upheld the use of the offer made by Eurofighter as “that reference point was necessary to determine better price, better delivery etc. as stipulated in the Joint Statement”.
The CAG was critical of the “unrealistic” benchmark price fixed by the INT which “was about 57 per cent lower than the initial offer of the French Team and 46 per cent lower than the non-firm & fixed offer”. It said the INT “could have estimated the benchmark price more realistically”.
The report also gave details of the cancellation of the tender for 126 Rafale aircraft under the UPA government.