Vol. XLIII No. 12 March 24, 2019
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More on Rafale CAG Report: Between the Lines

Raghu

IN these columns of the previous issue, the main points of the report of the Comptroller and Auditor General of Accounts (CAG) on the Rafale deal were discussed. It was noted that all price figures had been redacted, rendering the reader incapable of informed assessment. It was also noted that while the CAG Report had delved deep into the decision-making process in the 2007 Medium Multi-Role Combat Aircraft (MMRCA) tender or Request for Proposal (RfP) in which the Rafale fighter was declared winner, it had chosen to maintain a deafening silence on processes involved in the Modi government’s 2016 Inter-governmental agreement (IGA) replacing the RfP.
 
Audits are expected to go into processes and comment on achievement of expected outcomes, but the CAG report does neither as regards the IGA, while ruthlessly dissecting the RfP process. From all information available in the public domain, it seems clear that the IGA decision was taken at the very top of government, and all other steps as envisaged in the DPP were taken subsequently, merely ratifying decisions already arrived at. Yet CAG is silent.
 
As such, the CAG Report provides no answers to the many questions haunting the country about the Rafale deal, and serves only to echo the government’s narrative.
 
That CAG should have agreed to the government’s insistence on redactions despite CAG’s own written “reluctance/refusal… on account of difficulties in comprehension and lack of precedence of redaction of commercial details in the Audit Reports,” is yet another instance of the severe weakening of the independence of statutory institutions under the BJP dispensation, and of the checks and balances they should provide. This is especially so since there are serious doubts about whether the confidentiality clauses in the IGA actually cover price details rather than only security aspects, as even the French president believes. Coming as this does after the Supreme Court accepting the government’s version and even quoting extensively from its submissions in its own ruling without any independent investigation or verification, is deeply troubling. The CAG report being tabled in parliament on the last day of the present Lok Sabha, precluding any discussions, only adds insult to injury.
 
For all this, a close reading of the CAG report throws up significant bits of information and details hitherto not in the public domain, revealing important facts about the Rafale deal, both directly and by reading between the lines, which contradict the bombastic or untrue claims of the Modi government especially its defence minister. Put together, these point to directions that future investigations or reporting could follow up on.
 
 
 
INDIA-SPECIFIC ENHANCEMENTS
 
The defence minister and other government spokespersons have made much of India Specific Enhancements (ISE) added to the Rafale fighters as constituting major technical advances over the 2007 RfP, and have often invoked these even to explain away cost differences. Details in the CAG report concerning the ISEs contain much information contradicting government claims.
 
Many analysts have shown that these ISEs were, in fact, the same as called for in the Air Staff Quality Requirements (ASQRs) and the 2007 tender as part of the aircraft itself, and not as add-ons. CAG raises major questions over why at all additional payments were agreed to in the RfP, but does not follow this up by questioning why these ISEs were carried forward into the 2016 IGA as additional items with added costs amounting to a whopping Euro 1.3 million, according to official documents revealed in The Hindu and elsewhere, but redacted in the CAG report. Critics have further shown that these charges are exorbitant as R&D or “development costs,” for what amount to little more than customisation of fairly well-known technologies. Also, these “R&D costs” are made even more expensive when amortised over a mere 36 aircraft rather than the original 126. Nor does the IGA clarify to whom the intellectual property rights (IPR) belong for these technologies for which India has paid so much. Most of these points are in fact vindicated by the CAG report, which unfortunately does not raise the IPR question.
 
The report’s section on the IGA points out (pp. 130-131) that the IAF proposed “postponing” 6 of the 14 ISEs till such time as more Rafale fighters were procured so as to reduce costs. One may therefore infer that these 6 ISEs were not crucial or essential to the operational effectiveness of the fighters. Indeed, the CAG report notes that out of these six, four had even been declared as “not required” in the technical and staff evaluations during the earlier RfP processing, and together accounted for a substantial 14 per cent of the sizeable ISE cost, or around Rs 1600 crore!
 
In the convoluted ways of Indian bureaucracy, however, the IAF’s proposal to forego some of these non-essential ISEs, was rejected as “dilution of ASQRs” and “not in consonance with the basic framework… that the aircraft must have the same configuration” as in the 2007 RfP. MoD responded to CAG’s query saying that “scaling down the requirement to limit cash outgo cannot be considered as saving.” In other words, even non-essential items must be procured merely, even if expenditure can be be reduced, just so as to enable the Modi government to maintain the myth that it had procured fighters with the “same (or better) configuration” as in the RfP!
 
 
 
REASONS FOR RfP WITHDRAWAL
 
Another narrative pushed by the Modi government, and regrettably by CAG too (p.125), despite detailed information to the contrary contained in its own report, is that the IGA deal became necessary because the earlier RfP negotiations had got stalled over two main issues viz., HAL demanding 2.7 times the manpower stipulated by Dassault, and the latter refusing to provide guarantee for the 108 Rafales to be made in India by HAL through technology transfer.
 
On the subject of guarantee, retired HAL chairman Suvarna Raju has repeatedly stated in press interviews that HAL had agreed to stand guarantee for fighters made by it. As regards man-hours, he has also stated that whereas initially man-hours required would be more, the gap would narrow as production progresses. Both he and the Dassault CEO Eric Trappier have also reiterated that 95 per cent agreement had been reached between HAL and Dassault on all other issues.
 
The CAG report on the RfP, however, tells a very different story of a shambolic selection and approval process to arrive at the winner of the tender, of numerous arbitrary decisions and concessions especially to Dassault, and a deeply problematic selection of the Rafale as L1 or lowest bidder among the two finalists, the other being the Eurofighter Typhoon made by a European consortium.
 
The CAG report notes that even at the technical evaluation stage in 2008, five of the six contenders (Rafale, Eurofighter, Saab Grippen, F-16 and F/A-18) failed to meet the over-defined ASQRs, while only the Russian MiG-35 passed them all. The last was nevertheless rejected out of hand!
 
The Rafale failed to meet nine ASQRs and so was rejected too, but after clarifications were sought, offered to make modifications so as to meet six of these ASQRs, but was rejected again. In all, the Rafale failed on 14 ASQRs and, in May 2009, Dassault made an unsolicited submission that it would meet all ASQRs and submitted an additional commercial proposal for the same, which was strangely enough accepted. CAG states that all this was clearly in violation of Defence Procurement Procedure (DPP) 2006 and “against the canons of financial propriety,” and also led to additional costs (redacted) for the so-called ISEs which were, as noted above, part of the ASQRs. CAG adds that many of these ASQRs were not unique, such as the helmet-mounted display, which was being provided by all five other contenders!
 
The CAG report points to numerous other anomalies, of costs being inferred, of decisions to seek waivers for some ASQRs but such waiver not actually being sought, of miscalculation of quotes etc. Peculiarly, all these seemed to work out favouring Dassault!
 
Dassault had quoted 31.2 million man hours, but “as per French industrial conditions,” against the terms of the RfP. When HAL stated that it would require 2.7 times this manpower, MoD felt this had “no scientific basis,” but then completely ignored this aspect when working out L1, even though it would supposedly have resulted in substantial additional costs. There is no record in the CAG report of any discussions with HAL by the CNC or MoD, either in 2011 or till the RfP was cancelled, to better understand the man-hour issue. Strangely, CAG also makes no mention of how Eurofighter’s quote of 25.5 million man-hours was evaluated and whether that took into account Indian conditions. While there were many revisions by Dassault, no clarifications were sought from the No.2 contender. When the European Aeronautics Defence & Space Co. (EADS) did make an offer of 20 per cent price reduction on the Eurofighter with additional technology transfer and other sweeteners, this was rejected as an “unsolicited offer.”
 
An MOD team appointed by then defence minister A K Anthony to look at this entire process found that “determination of L1 was faulty and not as per laid down procedure… and contract cannot be concluded with them (i.e. Dassault)” (p.125), and recommended that the RfP be withdrawn.
 
It was therefore a host of procedural bungling and whimsical decisions which turned out favouring one party over another intentionally or otherwise, which led to question marks over the entire RfP process. It was certainly not merely the issue of guarantee or of excess man-hours in HAL, which has been needlessly made a scapegoat in the entire Rafale controversy.
 
None of this is to hold a brief for the Eurofighter. It may well be that the IAF tried out and preferred the Rafale. But the million-Euro question CAG does not ask or answer is, why did the Modi government not seek to rectify any of the numerous errors made in the RfP tender and simply agree to all Dassault’s terms, which were highly favourable to the French firm? Does this not open up the very issue of extraneous considerations favouring the deal with Dassault?
 
 
 
BROADER QUESTIONS
 
It is truly unfortunate that the CAG report does not also ask many of the broader questions that arise from the decision-making process for the IGA.
 
CAG does note that while the 2007 RfP called for 126 fighters, the IGA settled for a mere 36, but the audit “could not find any proposal with Ministry for filling of this wide gap in the operational preparedness of the IAF” (p.128). CAG records that MoD replied that it had issued another Request for Information (RfI) for 110 fighters and had also issued an RfP for 83 Tejas Light Combat Aircraft (LCA). Did CAG find this explanation satisfactory? CAG does not question how the need for 126 fighters was reduced to 36 in the first place, or why the gap was to be filled presumably by another aircraft, because if not, why not simply procure more Rafales?
 
CAG also completely evades the major objective of indigenisation and technology transfer. CAG does not at all ask how this goal would now be served.
 
Finally, in the context of the collapse of the RfP, CAG raises many questions about the DPP and finds that, as it stands, it does not meet its purpose. Indeed, the DPP needs to be completely overhauled. Yet CAG does not question whether the decision-making process leading to the IGA meets the purpose of effective, transparent and minimally subjective procurement. Answer cannot be that Rafale was clearly the preferred option, so it was selected, demonstrating decisiveness. The Bofors gun was selected, and its quality and performance was vindicated under battle conditions during Kargil, yet the decision to procure came into question because of whimsy and extraneous considerations. That was precisely the reason for formulating the DPP. Nobody today is questioning the quality of the Rafale, but was the selection done rationally and transparently, giving full consideration to all options? Or were other considerations allowed to prevail? CAG had a chance to at least provide some answers, but chose not to.