3 years

Cover Story

The Truth About Rafale: A Controversy Unravelled

PR Ramesh is Managing Editor of Open
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Is it a conspiracy by politicians and rival defence contractors?

SOME WEEKS AGO, AN AFFABLE BUT CONTROVERSIAL FORMER GERMAN politician of Turkish origin named Mahmut Türker met a few Narendra Modi-baiting politicians at a house in a leafy neighbourhood of southwest Delhi. Affiliated to Germany’s Freedom Democratic Party, this dapper 51-year-old based in Munich was in the national capital on a mission. As sales director of combat aircraft campaigns at Airbus, he meets people in various countries as a matter of routine, especially those who have influence on defence purchases. Here, however, he appeared especially keen to engage with those who could voice concerns about India’s deal with France to buy 36 Rafale aircraft from Dassault in ‘fly-away’ condition, a term that means the fighters would be ready for the Indian Air Force to deploy on delivery.

This Indo-French connection began with the Congress-led UPA Government when it invited bids for the supply of 126 combat aircraft for the Air Force to replace its vintage Soviet-era fighters. In 2012, Dassault secured the country’s biggest-ever contract, beating the likes of Saab, Lockheed Martin and EADS (called Airbus since 2014), which is part of a consortium that makes Eurofighter Typhoon aircraft (and includes BAE Systems, Leonardo and Airbus). Under the UPA deal, Dassault was to supply 18 aircraft in fly- away condition in 36 months and the rest were to be produced in collaboration with the public- sector Hindustan Aeronautics Ltd (HAL) at its Bangalore facility.

The initiative to replace the ageing Soviet MiGs and other planes with new aircraft had been taken by the NDA Government of Atal Bihari Vajpayee, but nothing had come of it even a decade after it lost power. On assuming charge in 2014, Prime Minister Modi wanted to put things back on track. The delay had been inordinate, thanks largely to HAL’s lengthy negotiations with Dassault that had produced no result, and the Modi Government lost no time in renegotiating the terms of the contract. This was done on the Prime Minister’s 2015 visit to Paris, where he met François Hollande, the French president then, and the deal was signed a year later in September 2016. In accordance with the revised agreement, Anil Ambani’s Reliance Defence was the local partner of Dassault in place of HAL. This was in line with an ‘offset clause’ that all defence deals with India must entail, by which a foreign supplier must award contracts worth a chunk of the deal value to Indian companies in return. In this case, the overseas player is committed to invest 30 per cent of it in local research programmes and 20 per cent in making Rafale components.

Not much noise was made about the deal between Dassault and Reliance Defence until this July, when the Indian Government began processing bids for another set of 110 fighter jets for the Air Force and 57 jets for the Navy in a deal valued at close to Rs 1 lakh crore. True, allegations had arisen a month before the 2017 Gujarat elections of Anil Ambani’s company being ‘favoured’ by the Centre. These were attributed to poll posturing by observers. But according to officials tracking the charges, they followed a secret meeting held in Washington DC where a couple of politicians and their aides came up with a ‘Rafale scam’ as an idea that would serve their political interests in India and give overseas operators a chance to make financial gains.

It is political friction between Hollande and Macron in France that explains the former's statement which cast a shadow on the Rafale deal

By August, whispers were gaining ground of the NDA having tweaked the UPA’s deal with Dassault in favour of Anil Ambani. Somebody seemed keen to rake up the alleged ‘irregularities’ in the renegotiated deal to taint the French company as well as the Indian Government. Frustrated over losing multi-billion-dollar deals, top global defence contractors are out to malign India’s defence acquisition process, argues an official close to the matter, adding that efforts of the likes of Türker need to be viewed in this context. Those who are trying to shroud high-value deals with suspicion, the official says, had sensed an opportunity in disgruntled politicians disposed to hurl allegations of corruption at the Government. The financial stakes are high, with several competitors in the fray for the new167-aircraft deal, including Dassault, Lockheed Martin, Boeing and Saab.

By the time Türker met a few members of the erstwhile NDA Government, more meetings along the lines of the one in Washington DC had taken place, this time in Europe. More players interested in a large slice of India’s defence pie emerged in these confabulations. A businessman of Indian origin with interests across the world, especially in Europe, also threw his weight behind this exercise.

Among the biggest accusations was that Reliance Defence hit pay dirt through a Rs 30,000-crore offset contract from Dassault. As Open has found out, this sum is to be shared largely with four French partners through a set of business arrangements: Dassault (Rs 6,500 crore for upgradation of aircraft), Thales Group (Rs 10,500 crore for avionics), Safran SA (Rs 7,500 crore for engines) and MBDA (Rs 3,500 crore for missiles). More companies would be beneficiaries of this offset contract that extends almost 10 years. Apparently, what has upset the Reliance Anil Ambani Group are reports that it set up its defence unit only 12 days before the Government signed the 36-aircraft pact. The entity was created 18 months before the Dassault contract was signed.

SEPTEMBER 11TH, ARMED with fresh inputs, former NDA Union ministers Arun Shourie and Yashwant Sinha, together with the lawyer-activist Prashant Bhushan, launched an attack on the Modi Government and the Prime Minister himself for ‘compromising national security’—as they alleged—by reducing the number of jets to 36 from the original proposal of 126 in the Dassault deal. The trio also charged the Centre with using men in uniform to defend the pact, referring to Air Marshal SB Deo’s earlier comments on Rafale. Alongside, the opposition Congress levelled accusations of impropriety in the revised Rafale agreement, claiming that the Government was procuring each aircraft at a cost of over Rs 1,600 crore as against Rs 526 crore finalised by the UPA. The opposition also accused the Prime Minister of denigrating HAL in favour of a ‘crony’ businessman.

One allegation was that Anil Ambani was enriched by a Rs 30,000 crore offset contract for Reliance Defence from Dassault. This sum, it turns out, is to be shared with four French

The Government, for its part, denies the charges and sees all these accusations as a global conspiracy to further delay India’s defence modernisation, a process that had progressed at a snail’s pace under UPA defence ministers, especially on AK Antony’s watch. Finance Minister Arun Jaitley tells Open, “Rafale was the preferred choice of the Indian Air Force. It adds to the combat strength of the Air Force because of its capacity to hit targets from a distance. It is the result of a government- to-government agreement and an absolutely clean deal. Rahul Gandhi represents the most corrupt party of Indian politics. The objective behind his misinformation campaign is to manufacture an argument: ‘We are dishonest, so are the others’.”

Displeased about missing big business opportunities, people with malicious intent are out to hurt the country’s defence preparedness, says a Defence Ministry official, who argues that the aims of this “conspiracy” are many. According to him, these include forcing a cancellation of the current pact with Dassault so as to get the French company blacklisted, and reducing competition in another new bid for 111 Naval utility helicopters valued at Rs 24,000 crore. A major aerospace company that has been trying to discredit the Dassault deal is under the Ministry’s scanner for allegations of graft against it. Türker’s name is said to appear prominently among those allegedly resorting to underhand practices. His employer Airbus couldn’t be immediately reached for comments.

We have got a good package, got a lot of advantages inthe Rafale deal - Air Chief Marshal BS Dhanoa

OPPOSITION AND THE ruling coalition are now engaged in claims and counterclaims, particularly over the exclusion of HAL, which was set up in 1940 and later became a state-run monopoly in the defence and aerospace sector during the Soviet era. Despite its long history of being in the business and handling Russian aircraft, HAL has acquired a reputation over time for red tape and sloppy progress in manufacturing supplies for the country’s defence forces.

Edward Luttwak, the US-based defence historian and strategy analyst who has watched HAL for long, had referred to HAL in an interview some years ago as a “fossil of a company”. It was “famous for not delivering operationally ready Tejas Light Combat Aircraft after 30 years of trying”, he said. According to a former Boeing official, HAL often complains of having an overloaded order book, while the truth is that it is manned by people untrained in modern ways of “working in a competitive environment”. With new private players entering the field, thanks to changes in policy that now permit private participation, it was only a matter of time before competitive companies would forge technology partnerships with global specialists and create capacity for the domestic manufacture of defence products. HAL, meanwhile, has also incurred criticism for supplying inferior products.

The Defence Minister Nirmala Sitharaman said it was because of the UPA's inefficient ways that the deal with Dassault got hobbled and so the government had to renegotiate the terms of the agreement

While the names of several business hotshots and politicians are making the rounds as being part of the conspiracy to derail the Dassault contract, what has complicated matters for the Government are allegations over differences in prices between the reworked Dassault pact and the earlier one. Even worse was the statement by Hollande that Anil Ambani’s defence company was chosen over HAL at the insistence of the NDA Government. The former French president had said in an interview to the investigative website Mediapart that his country had no say in choosing its Indian commercial partner in the deal, placing the burden of explaining the alleged preferential treatment of the Indian company on the Modi Government. “We did not have a choice, we took the partner who was given to us,” Hollande said in that interview. That the deal has worked to the disadvantage of HAL became a talking point once again. A day after Hollande’s disclosure, the Government refuted his claims, arguing that it had no say in the selection. The Defence Ministry said an unnecessary controversy was being sought to be created following media reports of the statement purportedly made by Hollande concerning the selection by Dassault Aviation of Reliance Defence as its offset partner. ‘The Government had stated earlier and again reiterates that it had no role in the selection of Reliance Defence as the offset partner,’ stated the Ministry. Dassault said that its joint venture with Anil Ambani’s Reliance Group—Dassault Reliance Aerospace Ltd—to make parts of Falcon and Rafale aircraft was its own decision. Created in February 2017, this venture, in which Dassault has a 49 per cent stake, has a plant in Nagpur.

Rafale adds to the combat strength of the Air Force because of its capacity to hit targets from a distance. It is the result of a government-to-government and an absolutely clean deal - Finance Minister Arun Jaitley

As regards the dispute over the aircraft price difference between the old and renegotiated deals, the Government has argued that the benchmark price was revised upwards to ensure that the overall cost borne for 36 aircraft with India-specific enhancements would work out lower. According of Jaitley, who has held the Defence portfolio in the past, even after factoring in the escalation clause of the old deal, the basic aircraft is 9 per cent cheaper under the revised agreement than the previous one. Besides, a Ministry official says, the agreement lays down the provision that the French company must spend half of the estimated $8.7 billion deal value on the Indian defence industry. The long- term goal of the offset policy is to wean Indian forces off imported hardware.

Jaitley has said that the Congress party is culpable of lying to the Indian public about the issue. The revised calculations, the Modi Government avers, were made to ensure that negotiations reached their final stages—and that all these were approved by the Defence Acquisition Council (DAC) and Cabinet Committee on Security (CCS). The Airbus offer of a discount was rejected because it was ‘unsolicited’ and against specified acquisition norms, officials said, adding that while calculating the revised benchmarking prices, the Centre had to take care not to flout norms that would result in cancellation of the contract.

On September 11th, Prashant Bhushan, Arun Shourie and Yashwant Sinha accused the Modi government of 'compromising national security' by reducing the Rafale order from 126 to 36 aircraft

Defence Minister Nirmala Sitharaman has also spoken of an international conspiracy aided by the country’s opposition and various other players to tarnish the Central Government’s reputation. She said that the intent of these people is to demoralise the country’s defence forces, restrict their capabilities and endanger India’s security. She also said that it was because of the UPA’s inefficient ways that the deal with Dassault was hobbled over price and other guarantees, which was why the Modi Government had to renegotiate the terms of the agreement.

On October 3rd, amid the noise of the row over Rafale, India’s Air Chief Marshal BS Dhanoa said that the aircraft deal will be a game-changer for the Subcontinent, adding that it was Dassault Aviation that selected the offset partner and the Government and Air Force had no role in it. “We have got a good package, got a lot of advantages in the Rafale deal,” India’s air chief marshal told reporters.

IS NO SECRET THAT Hollande and his former protégé, current French President Emmanuel Macron are not on the best of terms. It is this friction that explains why Hollande would make a statement about Rafale that has the potential to upset bilateral ties between India and France. Recently, he attacked Macron, his former economy minister, for his style of working and what he termed “excessive behaviour”. According to a Reuters report, Hollande said the following of Macron in an interview to L’Obs magazine: “I never signed up to the monarchical conception of the Fifth Republic’s institutions. Those who say the people are looking for a king should never forget they’re in a country where the monarch had his head cut off.”

Officials say that Mahmut Turker of Airbus held many meetings with politician who would have been disposed to voice concerns over the Rafale Deal and tarnish the image of the government

Whatever the nature of cold vibes between the two French leaders, that charges against the administration in Delhi have arisen less than a year before the next General Election come as an embarrassment for a government that came to power promising change. The Modi Government isn’t one to endure such allegations of wrongdoing without hitting out at its critics. Its leaders have drawn attention to the Congress and the charges that have trailed the party of favouring cronies when it was in power for ten years. The UPA in its two terms from 2004 to 2014 is said to have favoured arms agents and others close to the party establishment. Some of the biggest beneficiaries of defence offset contracts at the time have been revealed to include Sanjay Bhandari, Sudhir Choudhrie, Vipin Khanna, UPA minister Santosh Bagrodia’s family and others. According to officials pursuing these cases, Bhandari secured offset contracts worth more than Rs 6,000 crore when the Congress was in power through his company Offset India Solutions. Bhandari, who is alleged to have stolen documents from the Defence Ministry to hand over to overseas defence players for hefty fees, is now a fugitive. From 2005 to 2014, as officials estimate, the UPA handed out offset contracts worth Rs 80,000 crore. The name of Bhandari’s firm appears in multiple deals listed in an official dossier reviewed by Open.

Choudhrie, an arms dealer who left the country around 2007 fearing arrest, is also a suspected beneficiary of Congress largesse in awarding defence contracts. He is found to have won contracts to the tune of Rs 1,000 crore through his front company Alpha Design Technologies. He is said to be currently based in London and has other business interests across various sectors such as real estate and hospitality. Many of those who received such contracts have been under investigation by enforcement agencies for their illicit activities and links with shady operators working as agents for the global arms industry. Vipin Khanna, the London-based promoter of Defsys Solutions, has come under the scanner for some deals. He had also secured offset contracts during the UPA’s terms in power. The CBI has registered cases against him for allegedly taking kickbacks for an aircraft acquisition deal in 2008 that reportedly involved Embraer and another Brazilian company. The 86-year-old has been under inquiry for the oil-for-food scam during the Iraq War as well. His son is a Congress leader from Punjab. The list goes on.

For now, the BJP-led Government believes that the Rafale controversy didn’t surface out of the blue, but is a result of a ganging up of vested interests, especially conglomerates that have deep pockets and see the new dispensation in Delhi as unfriendly towards them. Defence officials who Open has spoken to say that leaders in the Government feel this bid to sully the administration’s image is the outcome of a perfidious plan motivated by prospects of power, money and influence as 2019 approaches.

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