French got a better deal from Modi Govt on Rafale than from the UPA, reports The Hindu

More questions on the Rafale deal surfaced on Wednesday following a report in The Hindu, which accessed the final report submitted by the Indian Negotiating Team to the Government in July 2016, barely two months before the Inter-Governmental Agreement was signed between India and France for the supply of 36 Rafale fighter jets in September.

The team’s final report, as quoted by N Ram in the report published in The Hindu, made the following points:

• Although Dassault had agreed to provide a bank guarantee when it was negotiating the bid to supply 126 fighter jets, it refused to provide any such guarantee to the NDA Government.
• The French side also turned down the Indian insistence on Sovereign Guarantee as suggested by the Ministry of Law and Justice in December, 2015.
• The Cabinet Committee on Security (CCS) waived the requirement for bank guarantee by the French.
• The CCS settled for a legally non-binding ‘Letter of Comfort’, thus weakening the Indian position.
• The final offer after taking into account the impact of bank guarantee provided by the Indian side pushed up the total cost by nearly Rupees two thousand Crore.

In The Hindu report, N. Ram recalls that a parallel negotiation was being conducted by the PMO and the NSA (National Security Advisor) from 2015 onwards. This had weakened the position of the official negotiating team. As a result, when the official INT demanded a bank guarantee in March, 2016 and cited the advice tendered by the Ministry of Law and Justice to this effect, the French side sidestepped the issue by pointing to the MoU signed in January, 2016 and to the informal negotiations with the PMO.

The report points out that the Government in its submission to the Supreme Court of India had argued that it had secured the Rafale deal on better terms than what had been envisaged in the preceding procurement process. This claim was also mentioned in the CAG’s performance audit report relating to the Rafale deal.

However, the CAG report entered this caveat: “In the offer of 2007 M/s DA had provided the financial and Performance Guarantees, the cost of which was embedded in the offer because the RPF had required the Vendor to factor these costs in the Price Bid. But in the offer of 2015, there was no such guarantee as it was an IGA…Therefore, the total saving of ‘AAB3’ million € accruing to the vendor by not having to pay these Bank Charges should have been passed on to Ministry. Ministry has agreed to the Audit calculations on Bank Guarantees but contended that this was a saving to the Ministry because the Bank guarantee charges were not to be paid. However, Audit noted that this was actually a saving for M/s DA when compared to its previous offer of 2007.”

N Ram also pointed out, “The question of bank guarantees assumes additional importance as 60% of the payments were to be made in advance by the Indian government to the French commercial suppliers. These payments were to be made within 18 months of signing the deal, that is, by March 2018, although the first Rafale fighter jet would arrive in India only after 36 months, that is, in September 2019.”