CAG says Rafale cost is not 9 per cent cheaper as claimed by NDA government. There was no transfer of technology in 2015 deal. Cost of bank guarantees not included in 2015 deal

What is to be noted is that the earlier price included transfer of technology in their deal which is not the part of the Inter Government Agreement (IGA). The Comptroller and Auditor General (CAG) report on Rafale said that the Modi government's aircraft deal was 2.86 per cent cheaper than what was being negotiated by the UPA government

by Abhishek Bhalla

The Comptroller and Auditor General (CAG) report on Rafale said that the Modi government's aircraft deal was 2.86 per cent cheaper than what was being negotiated by the UPA government.

This might have come as a relief for the Narandra Modi government but the political bickering on the Rafale row may not be buried anytime soon as some of the key findings in the CAG report still provide ammunition to Rahul Gadhi and the Opposition to continue with their attacks.

Here are few of the observations that could still sting the government:

Rafale Cost Is Not 9 Per Cent Cheaper As Claimed By Nda Government

So far, the Modi government has maintained that the price of the NDA deal to buy 36 aircraft from France was 9 per cent cheaper but the CAG report said that the benefit was of 2.86 per cent.

No Transfer of Technology

The CAG report states that the 2007 price offer, under the UPA government, had two distinct packages - pricing for 18 flyaway aircraft package and pricing for Transfer of Technology (ToT) of 108 aircraft which were to be license produced in India.

The offer of 2015, on the other hand, was only for 36 flyaway fighter aircraft. The 2015 offer, under the Modi government, did not include the ToT in their deal.

What is to be noted is that the earlier price included transfer of technology in their deal which is not the part of the Inter Government Agreement (IGA).

The acquisition and price bids of the UPA (2007) and NDA (2015) were very different as the latter did not include the price of ToT for license production of 108 aircraft in India which was 77.8 per cent of the total price bid of 2007, CAG says.

Cost of Bank Guarantees Not Included

The cost of the IGA of 2015 did not take into account the subject of bank guarantees that were part of negotiations done in 2007. The dissent note of three members of the negotiation team raising these issues could also be raised by the Opposition.

In case of IGA for 36 Rafale aircraft, the offer of Dassault Aviation in 2007 had included 15 per cent bank guarantee against the advance payments and five per cent each for performance guarantee and warranty.

"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," the CAG report stated.

Law Ministry Insisted For Bank Guarantees

Since about 60 per cent of advance payments were to be made to the French vendors, the Ministry of Law and Justice advised that the government/sovereign guarantee should be requested in view of the value of the proposed procurement, the CAG says.

However, the government of France and vendor did not agree.

The French government only provided a 'Letter of Comfort' signed by the French prime minister in lieu of the bank guarantee. The Cabinet committee on security headed by Prime Minister Narendra Modi decided to override the Ministry of Law on the subject.

India-Specific Enhancements

The CAG report also dwells on whether the India-specific enhancements that led to the Rafale cost escalation were really needed.

The CAG states that the 2007 offer included missiles which were excluded by the Indian Air Force (IAF) in 2015 because they (the missiles) were being developed indigenously by Defence Research and Development Organisation (DRDO).

In view of the huge cost and the reduced number of aircraft that were to be purchased, the Indian negotiation team in 2015, headed by the Deputy Chief of Air Staff (DCAS) proposed to reduce the number of India-specific enhancements.

But the Dassault Aviation stated that since its price was a total package, the ministry would have to take up the matter with the government of France.

"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 Report No. 3 of 2019 (Performance Audit) 131 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," CAG stated.

No Parity In Evaluation

The audit report also states that equality was not maintained in evaluation of Dassault Aviation and European Aeronautic Defence and Space Company (EADS) manufacturing Eurofighter, the jet in the race.

"This comparison of prices under 2007 and 2015 offers has posed its own difficulties because the package offered in 2007 included the price of License Production of 108 aircraft in India while the 2015 offer included only direct flyaway aircraft," CAG says.