Wednesday, October 3, 2018

ALL YOU WANT TO KNOW ABOUT RAFALE DEAL




RAFALE DEAL

Background

Much has been said and written about Rafale deal. Congress even alleged some wrongdoings in the deal. Defence Capital acquisition is always very costly. It is based on technology which is at forefront and not yet freely available to people around the world. The technology is guarded by nations for their own security and also security of the nations to whom it is being given as knowing about the technology and weapons by the adversaries means they can counter it or prepare for it. Many times it is a classified technology not available yet in the open realm.

This article covers all the aspects which a common man wants to know. This has chronology of events leading to the Rafale deal as Part I. It has answers to frequently asked questions (FAQs) on Rafale deal as Part II. For some, reading only FAQs may be enough, they will get all the answers to their questions, they will even get answers to questions asked by others and even asked by suspecting Congress leaders.

While reading FAQs if there is difficulty in understanding acronyms, a list of acronyms is given as a ready reckoner. For those who want to know more about defence acquisition and are inquisitive, they can continue reading Part III.

Part I              -           Chronology of Events Leading to Rafale Deal.

Part II             -           Frequently Asked Questions with a Tailpiece.

Part III            -           More About Defence Procedure.

Part I - Chronology of Events Leading to Rafale Deal

  • 1.  Indian Airforce in year 2001 felt that it has heavy weight and light weight combat aircraft, there was a necessity felt to get medium weight fighter jets which are smarter and have latest modern technology. (Please refer to Part III para 6(a))
  • 2.  Acquisition process began in year 2007 when Defence Acquisition Council (DAC) gave concurrence to issue Request for Proposal (RFP) for 126 Medium Multi Role Combat Aircrafts (MMRCA) for which Lockheed Martin’s F-16s, Boeing’s F/A-18s, Eurofighter Typhoon, Russia’s MiG-35, Sweden’s Saab’s Gripen and Rafale gave bids. After Technical Evaluation Committee (TEC) and Field/ Flight Evaluation Trials (FET) in 2011 Indian Air Force (IAF) shortlisted Rafale and Eurofighter Typhoon aircrafts.
  • 3.  Commercial bids were scrutinised and in 2012 Rafale was declared as the lowest bidder.
  • 4.  Even after 2 years (year 2014) the price negotiations were not complete (which generally takes few months) mainly due to Transfer of Technology (ToT) issues concerning Hindustan Aeronautics Limited (HAL) and Request for Proposal (RFP) clauses. The delay was because Dassault (Maker of Rafale) was not willing to take responsibility for quality control of 108 aircrafts assembled/ produced in India by HAL (18 were to by fly away condition aircrafts out of 126). Also Dassualt provisioned for 3 cr man hours for production of aircrafts, which was at variance and HAL stated more man hours this could have escalated the costs per aircraft and made untenable for Dassualt in the scope of the bid price. We must remember here that every commercial company exists for making profits. Dassualt is not a Non-Governmental Organisation (NGO) which can subsidise its products. It is seen that no government or company subsidises products of war.
  • 5.    Till this time the procurement was on Defence Procurement Procedure (DPP), Direct Commercial Sales (DCS) route. After Modi government came it saw that by this route the negotiations were not getting concluded even after 3 years. Already from 2007 to 2015, 08 years had elapsed since the Acceptance of Necessity (AoN) was accorded. Something had to be done. They decided as the project is very costly it should be dealt differently by inter-governmental intervention. This should be a government of India to government of the manufacturer. So government picked the same aircraft which was selected through technical evaluation and staff evaluation and which was at the lowest bid ensuring the process doesn’t start all over again and still we get the same aircraft which was chosen both technically and had lowest bid.
  • 6.    When Modi visited France in Apr 2015 a broad Inter Governmental Agreement (IGA) was declared on Rafale purchase and 16 months later Cabinet Committee on Security (CCA) the highest body of defence decision making finally gave a go ahead for procurement of 36 Rafales in fly way condition instead of buying 126 of them.
    Part II – Frequently Asked Questions with a Tailpiece

    Q1. Is the price of one Rafale as negotiated by Modi govt higher than UPA govt?

    Ans 1. The negotiations by UPA were not complete so one cannot compare partially negotiated equipment with fully negotiated equipment. The negotiations depend upon the ballpark or bench mark pricing which itself changes as new inputs come in. In any case the negotiated price has a validity stated in contract. Since the contract itself was not carried out in UPA regime, that partially negotiated price makes no sense. Still the price negotiated for 36 Rafales is less than UPA’s partially negotiated price considering the newly introduced 50% offset (Please refer to Part III para 6(g)) (which is beneficial to our nation as Indian companies would get business worth 50 % of the cost of the deal). Comptroller Auditor General (CAG) would in any case go into details of pricing and would give its verdict. Till then apples cannot be compared with oranges.

    Q2. If the negotiated price is less than UPA governments negotiated price then why go for 36 Rafales and not for 126 Rafales?

    Ans 2. In this regard one has to see things objectively, 36 Rafales delivery would start by Sep 2019 and would complete in two to three years, by then HAL can ramp up Light Combat Aircraft (LCA) Tejas production and Indian DPSU would get business otherwise with earlier contract which was not negotiated for three years and was not going anywhere as Dassualt was not comfortable with HAL technology transfer would have taken another 5 to 7 years for negotiation probable and there was a possibility of eventually getting it scrapped. This would have resulted in IAF not getting any aircrafts nor HAL getting any business. Also repeat order clause is always there in DPP and if required the Govt of the day can buy more aircrafts with already negotiated bench mark prices where even escalation clause is built in for such future arisings. There is another angle to this – do we really need 126 Rafales?

    Q3. Do we need 126 Rafales?

    Ans 3.  In this regard one has to see things objectively. I had written a letter to Shri Manohar Parrikar in Oct 2015 and I am quoting part of it. It explains the logic for lesser number of Rafale
    Letter has some paras on different subject then
    “………………………… Along with technology the combat scene has under gone a change and military aviation has grown into a superior tactical and strategic arm. Present day fighter aircrafts carryout tasks of several aircrafts in one single modern fighter aircraft. With the fantastic capabilities, the emphasis is not on numbers but it is on ‘smart’ capability. This can be seen from the fact that the Royal Air Force and the French Air Force, undertake world-wide commitments with just 225 aircraft of two types each, the French Air Force with the Rafale and Mirage-2000 and the Royal Air Force with Tornadoes and Typhoons.
    Now we are going for a smart plane in Rafale. I heard CHIEF OF AIR STAFF saying they require more Rafales. It is natural to ask for moon as a head of organisation. No head of an organisation would sincerely trim the organisation except for private entrepreneurs. For public funded organisations we see that they get inflated over a period of time. There are 42 squadrons of MIG now slowly getting depleted. No Chief of Air Staff would say that with smart fighter planes we don’t require so many squadrons. Every organisation on public money tends to grow and never try to scale down the force. As a head of the three services I urge to look into this aspect - do we really need all 42 squadrons. 42 Squadrons were when MIG of low technology fighter was available.  I know that cutting down number of squadrons is not easy and opposition may make mountain out of a mole. At the same time there is no need to equip all squadrons with costly smart planes. That way we can have a healthy mix of smart and not so smart planes.  ………………………………………………………..”
    The letter continues to delve on other issues irrelevant here.

    Q4. What is the configuration and fit of Rafale (in terms of weapons) is it different than what UPA had envisaged?

    Ans 4. The associated weapons and systems would remain in the same configuration which were tested and tried by IAF during field trials of the aircraft. In addition the maintenance cover would be extended by Dassualt longer than the original bid and over and above that 50% offsets would also be added.

    Q5. Was Bofors a G2G deal?

    Ans 5. No it was between Government of the day (Defence ministry) and Swedish firm manufacturing Bofors with Quattraochi (Italian middleman and friend of Gandhi family) acting as a middleman.

    Q6. Was Bofors deal through DPP?

    Ans 6. No that time DPP was not existing. The first fast track procedure was made in 2001 (Vajpayee govt) and the DPP consultations were started during Vajpayee govt tenure and it saw light of the day in year 2005 with Shri Pranab Mukherjee as Defence minister as its first signatory. Till then procurement procedure was adhoc and vulnerable to middlemen.

    Q7. Is Rafale deal based on DPP (Please refer to Part III para 1 to 8)?

    Ans 7. When there is Govt to Govt (G2G) or IGA, there is lot of manoeuvring leeway available for the government and it is not mandatory that government should go by DPP.  Actually Modi government was free to go and talk with any country making Medium Multi Role Combat Aircraft (MMRCA) such as Lockheed Martin’s F-16s, Boeing’s F/A-18s, Eurofighter Typhoon, Russia’s MiG-35, Sweden’s Saab’s Gripen and Rafale. Had it done then also there would have been no irregularities. However in spite of such a freedom, Modi government went with Rafale which was earlier chosen through DPP process. By this it had a strong base of going to Rafale as it had not only gone through all Technical and Field evaluation trials but it was that time a lowest bidder. So yes although not bound by DPP in any way this G2G went ahead with a deal based on DPP.

    Q8. Were offset partners suggested by Modi? Why were they left to Dassualt and not told to go with HAL?

    Ans 8. No. The Original Equipment Manufacturer (OEM) in this case Dassualt is free to go with any Indian company which has licenses as per Department of Industrial Policy and Promotion (DIPP) and is as per Appendix A  to Chapter 3 of DPP where in the guidelines have been stated.  Also the main OEM should see that any shortfall of offset by his sub OEMs is met by him as per the guidelines. HAL was earlier brought in for transfer of technology (here read assembly of aircraft and not necessarily making of the parts and its technology as transfer (ToT) of technology has got several levels and one should not think that by taking ToT, HAL would have become Rafale producer with all its components) but Dassualt had issues since 2012 till 2015 and the earlier negotiations were not getting closed due to these issues. If persisted that time the deal would have never come to conclusion. Airforce had projected through its 15 year long term perspective plan of need for medium multirole aircrafts long back in 2001 and even after 15 yrs they were deprived of such an aircraft. Further delay would have negated all the perspective plans as per threat perception and would have adversely affected morale of fighting force.

    Q9. Ex Prime Minister of France told in an interview that Modi Government suggested name of Reliance and therefore it had to go for it.

    Ans 9. After saying this the Ex Prime Minister France has retracted his statement suggesting that this statement was given only to confuse lay persons in India on the behest of his friends in opposition in India with an aim to create a perception of corruption. This was corroborated when one week prior to Ex Prime Minister making the statement, one leader of opposition in India had tweeted that in one week one statement would come which will show the nexus! Politics apart, DIPP has a list of all companies having legitimate licenses for manufacturing and when in such a contract if asked by the other government DIPP is free to give the list of companies to facilitate the OEM who otherwise would spend time and energy locating companies and many companies would never come on its radar due to lack of information and may get left out. So someone suggesting that Modi government suggested the names of companies is absurd and exposes him of not knowing any legitimate bureaucratic channels of information dissemination process. 

    Q10. What are the offset partners in Rafale deal?

    Ans 10. (Please refer to Part III para 6(g)). More than 70, including DRDO and private companies. The following are offset partners in the Rafale :-



    (Courtesy - net) Q 11. Why was Transfer of Technology clause excluded in the RAFALE deal?

    Ans 11. It was becoming a no go in the deal. Had it been a non no go then the deal should have been signed in 2012 itself. UPA failed to conclude the negotiations even after Rafale being the lowest bidder as per DPP in 2011 and is the testimony that the deal would not have seen the light of the day with this. The objective of the procurement as per LTIPP was to acquire MMRCA not to get a ToT. ToT was an offshoot and not primary objective. When in any deal primary objective is not getting fulfilled it is of no use to pursue secondary objective.

    Q12. Why cost is not being discussed. What is security angle in contract?

    Ans 12. Every defence contract comes with non-disclosure clauses. By disclosing the price our adversaries from their ball park prices could come to conclusion of type of weapons and equipment fit contracted. Once it is known they can start countering them by buying counter weapons and equipments. Whole game of warfare is to counter and to counter counter. That side which is ahead in the game wins. By disclosing all we are helping our adversaries.

    Tailpiece - I have written this to show that from year 2001 defence procurement is no longer adhoc and no longer vulnerable to corruption. The procedures are at place. Government to Government is an extra shield to sound procedures where the middlemen are cut and government directly talks to the other government. This article should be read out to all youngsters and generation next so that they have confidence that not all deals have shadow of corruption and the perception which is being tried to be created by some parties is a result of their existential needs and not what is actually is. I am sure the president of the party who is levelling charges would not know a speck of DPP nor would he comprehend anything. He just parrots what is taught to him.

    Part III – More About Defence Procedure

    List of Acronyms Used :-
    AoN                            -           Acceptance of Necessity.
    ASR                            -           Air Staff Requirements.
    CAG                           -           Comptroller Auditor General.
    CCS                           -           Cabinet Committee on Security.
    DAC                           -           Defence Acquisition Council.
    DCS                           -           Direct Commercial Sales.
    DIPP                           -           Department of Industrial Policy and Promotion.
    DPP                           -           Defence Procurement Procedure.
    DPSU                         -           Defence Public Sector Undertaking.
    FAQs                          -           Frequently Asked Questions.
    FET                             -           Field Evaluation Trials/ Flight Evaluation Trials.
    FMS                            -           Foreign Military Sales.
    G2G                            -           Government to Government.
    GSQR                                    -           General Staff Qualitative Requirements.
    HAL                            -           Hindustan Aeronautics Limited.
    IAF                              -           Indian Airforce.
    IGA                             -           Inter-Governmental Agreement.
    LCA                            -           Light Combat Aircraft.
    LTIPP                         -           Long Term Integrated Perspective Plan.
    MMRCA                     -           Medium Multi Role Combat Aircraft.
    NGO                           -           Non Governmental Organisation.
    OEM                           -           Original Equipment Manager.
    RFI                              -           Request for Information.
    RFP                            -           Request for Proposal.
    TEC                            -           Technical Evaluation Committee.
    ToT                             -           Transfer of Technology.

    Defence Procurement Procedure

    • 1.    Any capital purchase for defence is based on Defence Acquisition Procedure (DPP) it is a voluminous policy document. The document is reviewed periodically and is kept in sync with our policies in vogue in the best interests of the nation. Reviews of DPP are carried out by every government of the day and equally contribute towards making it practical and adoptable. DPP was revised in 2005, 2006, 2008, 2009, 2011 and 2013, enhancing the scope to include. Make, Buy and Make (Indian) categories, concept of Offsets and Ship Building procedure. Every Direct Commercial Sales (DCS) acquisition is made as per DPP. In this the service (Army Navy Airforce) directly goes to the market and procures from Original Equipment Manufacturer (OEM).


    • 2. Government to Government (G2G) or Foreign Military Sales (FMS) or Inter-Governmental Agreement (IGA) is also broadly based on the essence of DPP. The difference however is government directly holds talk with government of the country from which we want to purchase the equipment. It has an advantage over DPP DCS acquisition - it is faster, direct and devoid of any middlemen. It results in single vendor situations which are curbed in DPP. Single vendor situations are avoided in DCS for purpose to arrive at a competitive price and to ensure sustainability of the equipment through its life cycle. In G2G, this is ensured by the Government of that country from which equipment is purchased. G2G is very effective for ultra-high value purchases such as aircrafts, aircraft carriers, and armoured tanks.


    • 3.    DPP is the guideline for any capital DCS by defence. It is a procedure to make the process independent of government meddling and is left to Defence services to spend from their yearly budget. Yearly budget projections flow from defence services based on the Long Term Integrated Perspective Plans (LTIPP), bench mark or ballpark prices and necessity based on threat perception. DPP is very effective and makes the purchases streamlined with very limited intervention from government and which should be so.


    • 4.  Like every acquisition procedure in private and public enterprises it has its own vulnerabilities in terms quality, sustenance and corruption during acquisition. The vulnerabilities arise as a direct outcome of our nation’s basic moral character prevailing as organisations are made up of Indians who manifest with the basic moral character as is prevailing.

    • 5.  The defence acquisition procedure is voluminous (about 400 pages document, download available from mod.gov.in site) but is based on common sense logic of getting the capital equipment of quality, in competitive price and ensures its sustenance throughout its lifecycle from womb to tomb journey. The procedure is based upon ensuring that there is no single vendor situation so that the vendor cannot take undue advantage in pricing and sustenance. 


    • 6.    The salient points of DPP are stated here so that the Rafale deal is understood properly and essence of DPP is known to all.

    (a)  Long Term Integrated Perspective Plan  (LTIPP) - Procurement or Acquisition process of capital equipment starts LTIPP - with a service (Army, Navy and Airforce) asking for an equipment based on its threat perception and how the services should remain fighting fit in the next fifteen years. This long term plan is then shared with Indian industries so that they can decide, plan and be ready to participate. There are medium term plans of 5 years and yearly plans. The inputs are given to Ministry of Defence (Finance) and Finance ministry for getting budgetary support in yearly finance bill (budget).
                                         
    (b)  Request for Information (RFI) – The acquisition process starts with RFI as the equipment which Army Airforce and Navy requires is unique according to threat perception and not available in open market or even if available it has to be changed as per threat perception – typical example 1 – Single engine helicopter that can hover at 6 km altitude (for Siachen Glacier) and carry 150 kg of payload – such an helicopter is not easily available in world market so it has to be designed and developed. Example 2 Nuclear Biological and Chemical detector - not available in open market and where available, that country would not allow for export of such a detector due to their country’s policy or not available due to sanctions.

    (c)  General / Air/ Naval Staff Qualitative Requirements (GSQR/ ASR/ NSQR) - is a classified document and is based on threat perception gathered, acquisitions made by adversaries, their development plans and information about contemporary technology and equipment available. The documents consist of specifications of equipment which the services would like to acquire to remain fighting fit. Broadly care is taken that single vendor situation is not arised.

    (d)  Acceptance of Necessity (AoN) - The services based on Staff Requirments makes a case before Defence Acquisition Council (DAC) and only after council accepts the necessity goes ahead for procurement is given. This ensures acquisition is based on a national necessity and not subjective – an individual or head of institution and his whims and fancies. AoN has a validity of six months upwards depending upon which category acquisition is being made. A bench mark or ball park price is decided by a committee which is used not only for negotiations but also for projecting the budgetary requirements for the government to be included in making of the finance budget.

    (e)  Request for Proposal (RFP) - is made and it is kept as open source so that anyone interested can peruse, participate and field their equipment.  

    (f)   Technical Evaluation Committee (TEC) - evaluates the equipment and out of many vendors some vendors who comply to the Staff requirements on paper are short listed. The short listed vendors are called for field trials and the claim is verified against the staff requirements.

    (g)  Offsets - The key objective of the Defence Offset Policy is to leverage the capital acquisitions to develop Indian defence industry by fostering development of internationally competitive enterprises, augmenting capacity for Research, Design and Development related to defence products and encouraging development of synergistic sectors like civil aerospace and internal security. As per DPP for acquisitions more than 2000 cr, 30% of the cost of the project to be ploughed back to Indian businesses so that Indian business and industry grows. It is to be noted that in case of Rafale the offset is made 50%, which is more than stipulated in DPP.  


    • 7.   For the companies who pass through the field trials, the commercial quotes are opened and the company which comes out with lesser quote is then awarded the contract. The price which is quoted in the bid has got a cover period and validity as the company says if the contract is not placed in time then the price can be escalated by predetermined escalation factor. It is as good, when a consumer negotiate the price the dealer says if the negotiated good is bought in a month then negotiated price holds good. Otherwise if it is not bought in time then it requires renegotiation and may result in upward change in price.


    • 8.    There are various categories in procurement - Whether the equipment is Buy (Indian- Indigenously designed developed and manufactured) – this is the latest category to give impetus to Make in India and lot of support is given to this category. Other categories are - Buy Indian, Buy & Make (Indian), Buy & Make, Buy (Global). There are guidelines as how a procurement category is to be decided so that as per the priorities and necessity, acquisition process takes place and also maximum support for Indian players given in order to make grow Indian companies.

    38 comments:

    Unknown said...

    Lot of information for a lay person, but clears the clouds hiding the truth

    Neeraj Gupta said...

    Sir amazing read. Nicely researched. Regards

    Unknown said...

    Totally correct. Unfortunately none of these guys who makes news agauaga this have any commitments towards our Nation. That's it. Great reading Ranjit

    Unknown said...

    Aguaga = avaiaga

    hariharan said...

    Sir, an edifying vignette of complete episode answers all doubts
    Thanks and regards
    Hariharan

    Unknown said...

    Enlightening words by an expert... Much required in these times of misinformation . Thank you

    Unknown said...

    A well researched and comprehensive presentation of facts. Thanks for clearing the fog specially created by misinformation and rhetoric of politicians who are only interested in selfish political mileage

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    I do not understand a country which can launch satellites and developed potent missile system , why it can not develop own aircraft

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