NDA’s Rafale deal 2.86% cheaper than UPA’s: CAG

The Comptroller and Auditor General (CAG) report on the Rafale jet fighter deal has concluded that the purchase of 36 aircraft through an Inter-Governmental Agreement (IGA) between France and the NDA government is 2.86 per cent cheaper than the earlier UPA-led negotiations for 126 planes.

The government has thus far variously claimed that the cost it negotiated was lower by 9 per cent to 20 per cent than was being negotiated by the UPA for 126 jets.

The CAG, however, put the Defence Ministry in the dock for price escalation and non-inclusion of a bank guarantee clause in the IGA, an anomaly that was flagged by technical and financial experts on the Indian Negotiating Team (INT) and reported by The Hindu .

The report on capital acquisition in the Indian Air Force, tabled in the Rajya Sabha on Wednesday, drew criticism from opposition leaders, particularly Congress President Rahul Gandhi, who said an audit that does not factor in the technical and financial evaluations of the deal and the objections raised by INT members is “not worth the paper it is printed on”.

The government asserted that the CAG report vindicated its position. “The report vindicated the NDA government and blasted the big lie spearheaded by the Congress. Rahul (Gandhi) manufactured statistics and data... Using that data, he repeated the lie to the country,” Jaitley said.

Different packages

In the report, the CAG admitted that the comparison of prices from 2007 and 2015 poses difficulties because the packages were different. It also noted that under the 2015 agreement, Dassault Aviation (DA) had refused to provide guarantee for aircraft to be produced by HAL.

The report noted that the capital acquisition system, as it exists, is unlikely to effectively support the IAF in its operational preparedness and modernisation.

The report said that on aspects such as flyaway aircraft package, services, products - operational support equipment & technical assistance, documentation, programme management, Indian-specific enhancement and weapons package, the IGA of 2015 was better for the Defence Ministry.

However, on parameters such as engineering support package and performance-based logistics, the UPA’s deal was better. “Overall, it may be seen that as against the Aligned Price as estimated by Audit of “CV” million € the contract was concluded for “U” million € i.e. 2.86 per cent lower than the Audit Aligned Price,” the report said.

It added that in the offer of 2007, DA had provided financial and performance guarantees, the cost of which was embedded in the offer. “But in the offer of 2015, there were no such guarantees as it was an IGA,” the report said. The vendor was to provide bank guarantee against the 15 per cent advance payment made by Ministry and a performance guarantee and warranty. “Therefore, the total saving of “AAB3” million € accruing to the vendor by not having to pay these bank charges should have been passed on to Ministry. Ministry has agreed to the audit calculations on bank guarantees but contended that this was a saving to the Ministry because the bank guarantee charges were not to be paid. However, audit noted that this was actually a saving for DA when compared to its previous offer of 2007,” it said.

“A bank guarantee gets directly and automatically invoked in case of breach of contract by the seller. In the 2015 offer the French vendor did not furnish any financial and performance bank guarantees. Since about 60 per cent of advance payments were to be made to the French vendors, Ministry of Law and Justice advised that Government/Sovereign guarantee should be requested in view of the value of the proposed procurement. However, the Government of France and vendor neither agreed to furnish the bank guarantees nor Government/Sovereign guarantee. Instead it provided a ‘Letter of Comfort’ signed by the French Prime Minister in lieu of the bank guarantee,” the report added.

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