Shri Rajiv Mehrishi, Comptroller and Auditor General of India, Pocket-9, Deen Dayal Upadhyaya Marg, New Delhi, Delhi 110124
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MEMORANDUM September 19, 2018 Attn: - Shri Rajiv Mehrishi, Comptroller and Auditor General of India, Pocket-9, Deen Dayal Upadhyaya Marg, New Delhi, Delhi 110124 Subject: - Loss to Public Exchequer, endangering of National Security, by-passing Public Sector Undertaking- Hindustan Aeronautics Limited (HAL), benefitting Crony Friends, & Violating the Mandatory Provisions of ‘ Defence Procurement Procedure’ in the unilateral purchase of 36 Rafale Jets from Dassault Aviation. Sir, The Government of India is unforgivably guilty of compromising ‘National Interest’ & ‘National Security’. The manner in which the deal to buy Medium Multi-Role Combat Aircrafts was suddenly ‘shelved’, the ‘shoddy cover-up’, the ‘self-defeating assertions’ & the ‘deliberate lies’ have caused grave apprehensions in the minds of the Indian people vis-à-vis a major scandal in the purchase of 36 Rafale Fighter Jets. Insurmountable loss caused to public exchequer stands exposed as Government refuses to ‘state the truth’, as also place facts in public domain. Modi Government remains ‘opaque’, ‘intransient’, ‘obscure’ & ‘obstinate’ to cover up the ‘Rafale Scam’ Factual Matrix:- 1. On 20.08.2007, UPA Government floated a tender for purchase of 126 ‘Medium Multi Role Combat Aircrafts’ (MMRCA). Indian Air Force found two aircrafts technically equal i.e. ‘Rafale’ and ‘Eurofighter Typhoon. Incidentally, the ‘Request For Proposal’ (RFP) in the UPA tender had made it clear that the bids were to be inclusive of ‘cost of initial purchase, transfer of technology, licensed production, etc’ (Annexure A1). 2. Pursuant to the technical shortlisting, financial bids were invited. On 12.12.2012, Rafale emerged as L-1 vendor with a publically disclosed price of US$ 10.2 billion. (£6.3bn) [₹ 66.300 Cr i.e 526.1Cr per aircraft ] (Exchange Rate: ₹ 65 = 1US$ ) Out of 126 aircrafts, 18 aircrafts were to come from France in ‘fly away condition’ with remaining 108 aircrafts being manufactured in India by Public Sector Undertaking (PSU), Hindustan Aeronautics Limited (HAL) with transfer of technology. In addition, there was a 50% offset clause requiring the Dassault Aviation to invest 50% of the sale price by way of investment in India. (Annexure A2) Even as per authoritative figures for Rafale pricing released by the French Senate in 2013-14, cost of Rafale aircraft comes to Rs 527 Cr per aircraft (Euro 68.8 Million) [Relevant extract from the ‘2014 Finance Bill: Defense: Equipment of the Forces and Technological Excellence of the Defense Industries’ from the French Senate is attached as Annexure 2A (French) and Annexure 2B (English). Link is - http://www.senat.fr/rap/a13-158-8/a13-158-814.html ] 3. On 13.03.2014, a ‘Work share Agreement’ worth approximately ₹36,000 Cr was signed between HAL and Dassault Aviation. 70% work of 108 Aircrafts to be made in India was to be done by HAL and 30% by Dassault Aviation. (Annexure A3) Even in the Annual Report, 2013 of Dassault Aviation, Mr. Eric Trappier, Chairman and CEO claimed that HAL was its partner in the Rafale Deal for manufacture of 108 aircrafts (Relevant Extract of the Annual Report is attached Annexure A4) 4. On 26th May 2014, Modi Government came to power. PM, Shri Narendra Modi visited France on 10th April, 2015. Two days before his visit, an official briefing by the Foreign Secretary, Shri S Jaishankar was held on 8th April, 2015. In his briefing, Foreign Secretary stated that “in terms of Rafale, my understanding is, discussions were underway between the French Company, our Ministry of Defence, the HAL which is involved in this. There are ongoing discussions. These are very technical, detailed discussions. We don’t not mix up leadership even in the security field.” (Annexure A5) Two facts stand out:- [i] There were ongoing negotiations between Defence Ministry, Dassault Aviation and HAL for purchase of 126 Rafale, 108 out of which were to be manufactured by HAL. And; [ii] That PM Shri Modi would not be involved in the purchase of Rafale aircrafts as the issue was of a technical nature. 5. Despite this public admission by the Foreign Secretary, Prime Minister, Shri Narendra Modi unilaterally announced ‘off-the-shelf’ purchase of 36 Rafale aircrafts in Paris on 10th April, 2015. In fact the India-France joint statement dated April 10th, 2015 issued by French President, Mr Francois Hollande and PM Shri Narendra Modi clearly stated that the aircrafts would be cheaper as also that the aircrafts would have the same systems, i.e avionics and weapons as per the configuration that had been decided by Indian Air Force. These configurations were decided at the time of tender issued by the UPA-Congress Government. Relevant portion of the statement reads as follows: “The two leaders agreed to conclude an Inter-Governmental Agreement for supply of the aircraft on terms that would be better than conveyed by Dassault Aviation as part of a separate process underway; the delivery would be in time-frame that would be compatible with the operational requirement of IAF; and that the aircraft and associated systems and weapons would be delivered on the same configuration as had been tested and approved by Indian Air Force, and with a longer maintenance responsibility by France.”(Annexure A6) Two implications of the joint statement were: [i] the price of the 36 Rafales would be cheaper than what had already been negotiated. In any event, as the aircrafts were being supplied in “fly-away condition”, they had to be cheaper than the 126 Rafales that Dassault had bid to supply in the MMRCA tender with Transfer of Technology. Moreover, [ii] the aircraft and systems were to be “on the same configuration as had been tested and approved by the IAF in the MMRCA evaluation.” That clear and emphatic affirmation in the joint statement nails the falsehood that has been spread since then – namely, that the price per aircraft is so much higher because of some novel “India specific enhancements” in the 36 Rafales now contracted. On return of Prime Minister from France, Modi Govt proceeded to cancel the tender for purchase of 126 Rafale aircrafts on 24th June, 2015. Moreover in pursuance of the announcement dated 10th April, 2015 of PM Modi for purchase of 36 ‘off-the-shelf’ Rafale aircraft, a final agreement was signed on 23rd December 2016. 6. That, while announcing the ‘Rafale Deal’ on 10th April, 2015, PM Modi violated the mandatory ‘Defence Procurement Procedure’. (i) No mandatory prior approval of ‘Cabinet Committee on Security’ was taken before announcing purchase of 36 Rafale aircrafts on 10th April, 2015. (ii) Mandatory requirement of ‘Defense Procurement Procedure’ for ‘Price Discovery’ through the instrumentalities of ‘Contract Negotiation Committee’ (CNC) and ‘Price Negotiation Committee’ (PNC) were not followed by the PM. (iii) ‘Transfer of Technology’ to PSU, HAL for manufacture of Rafale aircrafts in India was also sacrificed by PM, Shri Narendra Modi. Not only this, the decision of the Prime Minister, Shri Narendra Modi in proceeding to announce purchase of 36 Rafale Aircrafts ‘off-the-shelf’ on 10th April, 2015, when an international tender was already under negotiation as also the subsequent cancellation of the international tender on 24th June, 2015, is clearly violative of the ‘Defence Procurement Procedure’. 7. That the price of ‘off-the-shelf’ purchase of 36 Rafale aircrafts announced by PM, Shri Narendra Modi on 10th April, 2015 in Paris, France is Euro 7.5 Billion (₹ 1670.70 Cr per aircraft). This price has been disclosed by Dassault Aviation in its Annual Report, 2016 (Annexure A7) as also Press Release dated 16.02.2017 of Reliance Defence Limited (Annexure A8) That, as against the originally negotiated price of UPA deal, Modi Govt’s purchase price is over 300% higher, involving an extra outflow of money from public exchequer of ₹ 41,000 Cr approximately 8. Not only this, Rafale-Dassault Aviation also sold 48 Rafale aircrafts to two other countries i.e Egypt and Qatar (24 each) in 2015. Annual Report, 2016 of Dassault Aviation reflects the price of 48 aircrafts as Euro 7.9 billion as against the price of 36 Rafale aircrafts sold to India for Euro 7.5 Billion. Per aircraft price of Rafale aircraft sold to Egypt/Qatar comes to ₹ 1319.80 Cr as against the price per aircraft of ₹1670.70 Cr being paid by India. Even when compared with these two countries, India is paying an extra amount of ₹350.90 Cr per Rafale aircraft over the same price paid by Egypt/Qatar. Total extra payment by India would be ₹12,632 Cr approximately. (Annexure A7, referred to above) 9. In the originally invited tender for MMRCA by UPA-Congress Govt, Rafale and Eurofighter Typhoon were found equal on all technical fronts. Rafale became L1 in the financial bid. However, after the induction of Modi Govt, Eurofighter Typhoon admittedly wrote a letter dated 4th July, 2014 to the then Defence Minister, Shri Arun Jaitley offering to reduce the price by 20% (Annexure A9). Once PM Modi had decided to make a fresh purchase of Rafale on 10th April, 2015, both companies i.e Rafale and Eurofighter Typhoon should have been asked to bid afresh through ‘Inter Governmental Agreement’ (IGA) route so as to arrive at the lowest price in favour of public exchequer. This would have immensely benefitted India’s public treasury. Its negation and consequence financial loss itself creates serious doubts on the intent and action of Modi Govt. 10. That soon after the announcement for purchase of 36 Rafale aircrafts ‘off-the-shelf’ by PM, Shri Narendra Modi; the biggest body blow was dealt on the interest of Public Sector Undertaking, HAL, as they were by-passed without any reason or justification for execution of the ‘offset contract’ worth over ₹30,000 Cr.