The latest in a series of explosive reports by N Ram on the Rafale deal says lack of bank guarantees — a financial security net for the consumer nation in case the supplier nation fails to stick to the terms of the contract — from the French side made the cost of the Rafale deal more expensive.
As per The Hindu, the seven-member Indian Negotiating Team (INT), in its final report submitted to the Defence Ministry on July 21, 2016, estimated that the cost of loading bank guarantees, which the French commercial suppliers with backing from the French government reportedly refused to do, would be Euros 574 million. Thus, allegedly, the National Democratic Alliance-signed Euros 7.87 billion 36 fly-away Rafale fighter jets deal became more expensive by Euros 246.11 million, as compared to the estimated aligned cost of Rafale deal initiated by the United Progressive Alliance government.
The INT report, in a section titled “Impact of Bank Guarantee,” the INT calculated the commercial impact of bank guarantees for “Advance Payments”, “Performance Bond” and “Warranty and MTBF Linked Bond”, explains how it arrived at the Euros 574 million figure: “The calculations were done at an annual bank commission rate of two per cent, including confirmation charges by an Indian bank, as communicated by the State Bank of India on March 2, 2016. The total impact of bank guarantees came to 7.28 per cent.”
Also Read: ‘Cover Up’: N Ram on Modi Govt’s Defence of Rafale Deal (Watch Video)
As accessed by The Hindu, paragraph 69 of the “Report of the Indian Negotiating Team on Procurement of 36 Rafale Aircraft for Indian Air Force” states: “The final offer of Euros 7,878.98 million (excluding additional mandatory weapons supplies of Euros 10.55 million) is Euros 327.89 million lower than the aligned cost of Euros 8,205.87 million with respect of MMRCA [Medium Multi-Role Combat Aircraft] offer without taking into account the impact of BG [Bank Guarantees], which has been brought out at Para-23 above [emphasis added].”
Furthermore, the INT report reveals that Indian negotiators had repeatedly pressed the French side to provide bank guarantees. The Ministry of Law and Justice, the report added, had advised in December 2015, that government or sovereign guarantees should be obtained from France “in view of the Contract involving huge pay-outs value of procurement price before actual delivery of supplies and services, which de facto meant advance payment.” The French side, however, had flatly refused to accept this demand.
The Hindu noted that the final INT report remained silent on why the commercial impact of loading bank guarantees was not factored into its exercise of comparing the costs of the new deal and the original MMRCA proposal. Further, it noted that “the same failure to explain the substantial missing factor in the aligned cost comparison is encountered in the Comptroller and Auditor General (CAG) of India’s report on the Rafale deal presented in Parliament on February 13, 2019.”
Returning to the case of “parallel negotiations”, N Ram noted that the “INT report reveals the extent to which these parallel negotiations, which continued into 2016 and right up to the time of signing the IGA, weakened the Indian negotiating position and benefited the French side. The latter only had to rely on what had been agreed on along the parallel track with officials of the PMO (Prime Minister’s Office) and the National Security Adviser or cite the draft IGA (intergovernmental agreement) or the Memorandum of Understanding, signed on January 25, 2016, as the effective closure of the deal.”
The Hindu report further adds that with the French side refusing to give a sovereign or government guarantee, the Cabinet Committee on Security made more concessions by waiving the requirement of bank guarantees from the French commercial suppliers and instead, settled for “a legally non-binding ‘Letter of Comfort’ from the French Prime Minister.” N Ram also noted that during the submission of bids for the MMRCA tender to the UPA government, all companies, including Dassault Aviation, had submitted bank guarantees from “first-class banks of international repute.”
Also read: There May Be Vindictive Action Like Denying Advertisement: N Ram on The Hindu’s Rafale Investigation