More lies on Rafale deal exposed: Defence Procurement Procedure was violated in choosing Anil Ambani as offset partner

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The Indian government has found itself in another spot of bother after a French website released a key document that proved that the choosing Anil Ambani, Prime Minister Narendra Modi’s billionaire friend, was mandatory for the Rafale deal to go through. This is precisely what Former French President Francois Hollande had told the same website a few weeks ago. Meanwhile, Defence Minister Nirmala Sitharaman has arrived in France, prompting Congress President Rahul Gandhi to conclude that her visit to protect Modi in the scam.

Although, Dassault Aviation was quick to clarify that there was no pressure on the company to choose Ambani as the Indian offset partner, facts appear to contradict their assertion.

A Press Release from Defence Ministry on 7 February, this year says “…no Indian Offset Partner for the 2016 deal for 36 Rafale Aircraft has been so far selected by the vendor (DA) because as per the applicable guidelines, DA is free to select the Indian Offset Partners and provide their details at the time of seeking offset credits, or one year prior to discharge of offset obligation.”

Anil Ambani

Defence Minister Nirmala Sitharaman kept saying “Absolutely no procedure has been violated”. And a Press Release from Dassault Aviation on 21 September 2018 says “This offsets contract is delivered in compliance with the Defence Procurement Procedure (DPP) 2016 regulations. In this framework, and in accordance with the policy of Make in India, Dassault Aviation has decided to make a partnership with India’s Reliance Group.” I

n another press release, Ministry of Defence, on 22 September 2018 said “As per Defence Offset Guidelines, the foreign Original Equipment Manufacturer (OEM) is free to select any Indian company as its offset partner.” Further, it adds “As per the guidelines, the vendor is to provide the details of the offset partners either at the time of seeking offset credit or one year prior to discharge of offset obligation, which in this case will be due from 2020.”

Let us try to analyse the main policy document – The Defence Procurement Procedure (DPP) – to find out whether the Narendra Modi government and Dassault Aviation followed the set guidelines of DPP as they claim.

(Janta Ka Reporter in its three part series last had first exposed the scam in the purchase of Rafale jets from the French company Dassault aviation.  (You can read them here Part 1 and Part 2 and Part 3).

DPP came in to force in 2005 with the aim of making the defence procurement more transparent by following a set guidelines. Many of the clauses have been amended over the years to improve the transparency and reduce the time frame of the purchases. One of the important aspects of the DPP, since its inception, is the Offset Policy.

As it was pointed out earlier, Dassault Aviation claimed through a press release that they “created” the Joint Venture with Reliance Aerostructure Limited – a company incorporated on 24 April 2015 – in April 2015 itself. If this is the case, then DPP 2013 was in force, not DPP 2016 as claimed by Dassault Aviation because DPP 2016 came into effect only after 28 March 2016 – nearly a year after they created the JV.

A clause in DPP 2013 (para 8.2 of appendix D, Chapter 1) read “The TOEC (Technical Offset Evaluation Committee) will scrutinise the technical offset proposals (excluding proposals for technology acquisition by DRDO as per para 8.3) to ensure conformity with the offset guidelines. For this purpose, the vendor may be advised to undertake changes to bring his offset proposals in conformity with the offset guidelines. The TOEC will be expected to submit its report within 4-8 weeks of its constitution.”

On 5 August 2015, Modi government amended this clause to “The TOEC will scrutinise the Technical offset proposals (excluding proposals for technology acquisition by DRDO as per para 8.3) to ensure conformity with the offset guidelines. For this purpose the vendor may be advised to undertake changes to bring his offset proposals in conformity with the offset guidelines. During TOEC, the vendor is expected to provide details pertaining to IOP (Indian Offset Partner) wise Workshare, specific products and supporting documents indicating eligibility of IOPs in addition to conformity with other clauses in the offset guidelines. If the vendor is unable to provide these details at the time of TOEC, the same may be provided to DOMW (Defence Offset Management Wing) either at the time of seeking offset Credits or one year prior to discharge of offset obligation through that IOP…..”

This is why the Modi government and defence minister are repeatedly saying “As per the guidelines, the vendor is to provide the details of the offset partners either at the time of seeking offset credit or one year prior to discharge of offset obligation, which in this case will be due from 2020.”

More lies exposed

This is just one clause that was amended, which continues as it is in DPP 2016. This amended clause itself says, eligibility should be “on conformity with other clauses in the offset guidelines”. And the problem lies exactly there.

Appendix A to Chapter II “Defining attributes of the ‘Buy (Global)’ category”, para 6 titled “Defining attributes of the ‘Buy (Global)’ category” elaborates in clause (b) as “The requirement is of strategic nature and/or of long term nature. A single foreign vendor or all foreign vendors of the same country can provide equipment/system/platform; under this circumstance, the following may be ensured: Clause (i) “Buy (Global) under Government to Government arrangement.” Clause (iv) says “Requirement of ToT (Transfer of Technology) /MToT (Maintenance ToT) as required/likely to be made available may be factored.”

Appendix D to Chapter II of DPP 2016 is Defence Offset Guidelines. Para 4 details the “Indian Offset Partner”. Clause 4.1 reads “Indian enterprises and institutions and establishments engaged in the manufacture of eligible products and/or provision of eligible services, including DRDO, are referred to as the Indian Offset partner (IOP).”

If Dassault Aviation says they chose Reliance as their offset partner as per the DPP 2016, that is in clear violation of the policy as at the time of Dassault choosing Reliance Aerostructure Limited (RAL), RAL was not engaged in the “manufacture of eligible products and/or provision of eligible services” and was existed only on papers.

Para 7 explains the “Submission Of Offset Proposals”. Clause 7.2 explains: “The Technical and Commercial offset proposals have to be submitted by the vendor by a date to be specified in the RFP, which would normally be 12 weeks from the date of submission of the main technical and commercial proposals. Exact date as calculated and given in the RFP or intimated later by the Technical Managers will be binding. The technical and commercial offset proposal should be submitted in two separate sealed covers to the Technical Manager of Acquisition Wing.”

Clause 8.4 titled “Commercial Evaluation” explains: “The Commercial Offset Offer will contain the detailed offer specifying the value of the total offset commitment components, with a breakdown of the details, phasing, IOPs and banked offset credits if any proposed to be utilised. The commercial offset offer will be opened along with the main commercial offer after the TOEC report has been accepted by the DG (Acquisition).”

Clause 8.5 starts with “The CNC (Contract Negotiation Committee) for the main procurement case will verify that the Commercial Offset Offer meets the stipulated offset obligations.”

Clause 8.6 says: “All Offset proposals will be processed by the Acquisition Manager and approved by Raksha Mantri, regardless of their value. Offset proposals will also be incorporated in the note seeking approval of Competent Financial Authority (CFA) for the main procurement proposal for information of the CFA. The offset contract will be signed by the Acquisition Manager after the main procurement proposal has been approved by the CFA. Signed copies of the offset contract will be made available to DOMW (Defence Offset Management Wing).”

Lie or simple disregard to guidelines?

All these points make it amply clear that if the Modi government and Dassault Aviation followed the DPP as they claim, Dassault Aviation must have submitted the details of its intended offset partner along with the financial and technical obligations it will fulfill as well as its Indian Offset Partner. The DPP is clear that the vendor is free to chose his IOP. But the government’s claim that they are not aware who Dassault’s IOP is either a lie or shows they didn’t follow the guidelines as prescribed in DPP.

Appendix D to Chapter II, Clause 3(b) reads: “Foreign Direct Investment in joint ventures with Indian enterprises (equity investment) for the manufacture and/or maintenance of eligible products and provision of eligible services. Such investment would be subject to the guidelines/licensing requirements stipulated by the Department of Industrial Policy and Promotion(DIPP).” Further, clause 4.2 says “The IOP shall, besides any other regulations in force, also comply with the guidelines/licensing requirements stipulated by the DIPP as applicable.”

Based on these clauses, it will be interesting to see the rules stipulated by DIPP (Department of Industrial Policy and Promotion) and whether Dassault Aviation and its JV partner RAL followed them or not.

Dassault Aviation says its JV with RAL was created in April 2015. A list of industrial licenses issued by DIPP since January 2001 to July 2018 shows RAL got the license only on 22 February 2016 – 10 months after the JV was created. The License issued to RAL shows RAL’s address as Survey Number 589, Taluka Jafrabad, Village Lunsapur, Amreli District, Gujarat and the licence is for ““manufacturing and upgrade of airplanes and helicopters specially designed for military applications.”

The Industries (Development and Regulation) Act 1951 Chapter 3,  section 11A — Regulation of Scheduled Industries — reads: “The owner of an industrial undertaking not being the central government which is registered under section 10 or in respect of which a license or permission has been issued under section 11 shall not produce or manufacture any new articles unless — (a) In case of an industrial undertaking registered under section 10, he has obtained a license for producing or manufacturing such new article; and (b) In case of an industrial undertaking in respect of which a license or permission has been issued under section 11, he has had the existing license or permission amended in the prescribed manner.”

But, the above mentioned press release from Dassault Aviation dated 21 September 2018 says: “Dassault Aviation and Reliance have built a plant in Nagpur for manufacturing parts for Falcon and Rafale aircraft.” An article published in Times of India on 28 September 2018 mentions Dassault – Reliance JV – Dassault Reliance Aerospace Limited (DRAL) – manufacturing nose cones for Falcon business jets, which is in clear violation of the license issued to RAL. And there is no evidence for DRAL taking a new license to manufacture parts for non military aircrafts.

Further, taking an industrial license showing an address in Gujarat and procuring land in Maharashtra on the basis of that license is again in violation of DIPP rules.

Most importantly, Dassault Aviation creating a JV with a company which did not have a valid industrial license at the time of crating the JV to fulfil its offset obligation is bizarre  to say the least and government’s claim of not knowing the IOP of the vendor lack credibility and seems to be an effort to save face from more embarrassment.

(Author can be rached on Twitter via @t_d_h_nair )

A version of this article first appeared on newsclick.in

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