CAG On Rafale: Tried To Absolve Modi, Unwittingly Exposed His 'Lies'

All manoeuvres by the Narendra Modi government to justify the scandalous Rafale deal only put the government in further trouble, raising more questions than they answer.

The recent CAG report on the Rafale deal is another such exercise.

The Comptroller and Auditor General (CAG) of India tabled its performance audit report on capital acquisition of the Indian Air Force (IAF) in Parliament on February 13, 2019, the last day of the outgoing government’s session.

The CAG audited 11 capital acquisition contracts starting from 2012-13 to 2017-18 worth approximately Rs 95,000 crore — including the Modi government’s controversial procurement contract for 36 Rafales from Dassault Aviation in France.

Of the 141 pages in the report, 32 are dedicated to the IAF’s fighter jet procurement saga.

Of these 32 pages, 17 are dedicated to the cancelled procurement procedure for the Medium Multi-Role Combat Aircraft (MMRCA) to make us understand why the Modi government cancelled the then on-going negotiation.

The other 15 pages are devoted to making the sceptics understand how the price for 36 Rafale which PM Modi decided to purchase is lower and better.

The CAG says among its main objectives is “To assess whether objectivity, transparency, fair play and integrity is maintained at all stages of procurement and the same is evident in all decision making”.

Also Read : CAG on Rafale: Audit or Cover-up?

The criteria for evaluating the “objectivity, transparency, fair play and integrity” of the procurement process is the “approval process and the provisions of DPP, General Financial Rules (GFR), etc.”

But these are precisely what the CAG report lacks when it comes to the 36 Rafale procurement audit.

Cancellation of MMRCA Deal

In its audit of the cancelled MMRCA deal, the report in its introduction says the government asked the CAG to redact the commercial details of this deal negotiation.

One wonders why the government was afraid to disclose the commercial negotiation details of a transaction that never took place.

The IAF proposed to purchase 126 Mirage 2000 II from France in August 2000 and preferred to start the induction from 2004-05 onward, says the report.

The IAF then suggested two squadrons (42 aircraft) to be procured in flyaway condition from Dassault and the rest to be built in India by the public-sector Hindustan Aeronautics Limited (HAL) under Transfer of Technology (ToT) from Dassault.

The then government shot down the proposal on the ground that the Defence Procurement Procedure (DPP) did not allow the procurement from a single vendor without competition, and asked the IAF to go for competitive bidding. The IAF tried to pursue the same proposal again, twice, but the Atal Bihari Vajpayee government stuck to their earlier reply and asked the IAF to go for competitive bidding.

Also Read : Rafale Deal: Is the Inter-Governmental Agreement a Smokescreen?

The IAF tried its luck again in 2001. This time they suggested it should not be considered as a single vendor situation, but the continuation of the earlier process through which the Mirage 2000 were acquired. Somehow, the Ministry of Defence (MoD) agreed.

The report says, “At the insistence of IAF, technical discussions were held from April to September 2002, between Dassault Aviation of France, HAL, DRDO and Ministry (Finance) to study the operational capability of the aircraft, maintenance aspects and licensed manufacture of the aircraft at HAL. Subsequently, in March 2003, IAF argued before the Defence Procurement Board (DPB) that Mirage 2000 MK II was the best option as in terms of capability and performance it was similar to its contemporaries like Rafale of M/s DA, France, Eurofighter of M/s EADS and Gripen of M/s SAAB, Sweden, but less expensive then these aircraft.”

“IAF also argued that though F-16/F-18 of M/s Lockheed Martin/Boeing USA were in similar class as the Mirage 2000 MK II, it could face difficulties in case sanctions were imposed by USA. Rafale and Eurofighter were technologically superior to the Mirage 2000, but Mirage 2000 MK II could also have the state of art avionics, sensors and weapons suite, developed for the Rafale aircraft.”

The Defence Procurement Board (DPB) deliberated on this for a year and finally in January 2004, while rejecting the proposal, again asked IAF to go for a competitive tendering process as per DPP 2002.

This particular part of the report makes it amply clear that the DPP prohibits procurement from a single vendor without any competition in any situation, even if it is cost-effective.

However, the CAG conveniently forgets to point out that this procedure was not followed for Modi’s 36 Rafale acquisition contract.

And to justify their conscious avoidance, they toe the government line that the Modi government rejected the offer submitted by the European Aeronautic Defence and Space Company (EADS)—manufacturers of the Eurofighter Typhoon—as it was unsolicited, hence not considered. The offer by EADS was not only 20% cheaper than the proposal submitted by them in 2007, but they were also ready for discussions without incorporating the cost escalation in 2011.

This also shows the preference the IAF had for Dassault for reasons only the IAF can explain.

What’s more, the part of the report unwittingly belies the Modi government’s claim of the previous governments’ failures in acquiring the 126 aircraft that the IAF had wanted since 2000. The report blames the IAF for taking for so long to finalise the aircraft they wanted in 2012.

Also Read : Did Modi Unilaterally Also Fix Rafale Price in April 2015?

The report says, “Air Staff Qualitative Requirements (ASQRs) was finalized and Defence Acquisition Council (DAC) accorded Acceptance of Necessity (AON) in June 2007 for procurement of 126 MMRCA.” Somehow, the CAG forgot to check when the ASQR was finalised and AON was accepted by the DAC for the procurement of 36 Rafale.

For those still wondering what the now famous “India Specific Enhancements” is, the CAG report gives the explanation.

Out of the six participants in the MMRCA tendering process, five could not fully qualify the complete ASQR parameters and the number of deviations varied from two onwards, and Rafale with 14 deficiencies topped the chart. To overcome this, Dassault Aviation submitted a separate proposal, agreeing to incorporate all the specifications the IAF wanted in the aircraft at an additional cost and it was mentioned as “India Specific Enhancements.”

Dassault Aviation had faltered on many counts, starting with the deviations from the RFP-specified requirements to not submitting the data of spareparts and costs. And its bid was rejected twice. Still, the company “suo motu” submitted renewed proposals.

The report says “M/s DA was allowed to bring about enhancements of 14 parameters which, ultimately was to cost over ‘XX’ million €. Hence M/s DA was treated preferentially. The firm attributed these modifications to the unique requirements of the IAF and called them Indian Specific Enhancements (ISEs). However, Audit noted that the Indian requirements, while they might not have been available in Rafale, were not unique because most of these features were available in the other 5 aircraft that were evaluated. For instance, Helmet Mounted Display 62 was available in all modern fighter aircraft including Eurofighter.”

It says the IAF conducted the actual field trials of only four of the six participating aircrafts and the two finalists—Rafale and Eurofighter—“were cleared based on their presentation in the lab as to how they proposed to meet the shortcomings in meeting certain ASQRs. Therefore, the aircraft were technically accepted without evaluating the significant modification/ enhancements made on them.”

Another finding says when the RFP mandated the bidders to submit a firm and fixed price with two-year validity, Dassault Aviation submitted a basic price of 2007 subject to escalation and when EADS submitted a price for the aircraft and other equipment, its sub vendors quoted non-firm cost with index-based escalation formulae for the weapons.

The CAG suggests, both these were not valid and their quotes should have been rejected as it is against the RFP mandate.

The report lists a number of discrepancies in the bid—both technical and financial—submitted by Dassault Aviation and EADS. In comparison, Dassault’s bid had more violations of the RFP terms than the EADS bid.

In short, these bids should have been rejected in the initial stage itself, but they were selected as the final two on technical parameters, without having an actual field trial by IAF.

Due to the serious inaccuracies in the financial bid submitted by the manufacturers of Rafale, the committee which had to decide the lowest bidder (L1) faltered in comparing the prices of both finalists.

Also Read : Rafale: Do French Senate Documents Nail Modi’s Lie?

For example, the report says, Dassault Aviation did not mention the capital expenditure for the licensed production in India. All these prompted the committee to reach into their own assumptions on many of the costs that would have accrued.

The report reiterates the claim of the Modi government for the failure of the negotiation with Dassault Aviation and uses the same word—‘stalemate’—used by the government to describe it.

It says Dassault was not ready to give the guarantee for the 108 aircraft built by HAL in India while the Contract Negotiation Committee insisted that Dassault Aviation should take responsibility for all 126 aircraft as mandated in the RFP. These “two issues led to a stalemate in negotiations,” says the report.

But the CAG stopped short of saying Dassault was not the actual L1 (lowest bidder). To fire such a shot, they used the shoulder of a committee constituted by former Defence Minister AK Antony in 2012.

In 2012, there were many allegations raised on the commercial evaluation process, and MoD on the order of AK Antony constituted a committee in May that year, called the “Independent External Monitors” (IEM), to oversee whether compliance with the integrity pact was breached or not.

And the IEM did not find any wrong doings in the process (“presumably on the basis of MoD’s inputs”, says the CAG) and stated it is “reasonable and appropriate.”

But to ensure the integrity of the deal and the process, AK Antony had asked the MoD officials to examine the matter again.

For some strange reasons, those unnamed officials took nearly three years to submit their report to the Modi government. The CAG is silent on why it took 34 months for the MoD officials to cross-check the integrity part of the selection process and who these officials are. The findings of these officials are mentioned in the CAG report as follows:

• At the stage of TEC (tender evaluation committee), the proposal of M/s DA was non-compliant to the RFP with respect to the ASQR, Warranty clause and option clause. The proposal of the vendor should have been rejected at the TEC stage itself.

• The acceptance of additional commercial proposal after bid submission date for capabilities, which were already prescribed in the RFP, was unprecedented and against the canons of financial propriety.

• The price bid of M/s DA was non-compliant as it was incomplete and not in the prescribed format.

• The L-1 sub-committee had filled up the incomplete entries by culling out figures given elsewhere under different headings of the price bid. While doing so, the members of the committee made certain assumptions. Calculation of L1 based on incomplete commercial proposal and based on assumption was incorrect and as such determination of L1 was faulty and not as per laid down procedure.

• M/s DA is not the L1 and therefore contract cannot be concluded with them.

• The proposal of vendor, M/s EADS was also not compliant with the RFP.

For these reasons, the “committee” recommended that the government withdraw the RFP which was floated in 2007 and government started the process of withdrawal immediately.

The CAG did a detailed audit of most of the files related to the MMRCA deal; checked the process in minute detail and at last used the report of a nameless committee filled with anonymous officials to say Dassault Aviation’s bid was not the lowest and that prompted the government to withdraw the RFP.

But it seems the government did not submit the workshare agreement signed between HAL and Dassault Aviation for the audit because the report is silent on the existence of such an agreement.

Improper Audit of Rafale Deal

From this point, the CAG report starts to explain the “Acquisition of 36 Rafale Aircraft through IGA” (Inter-Governmental Agreement).

While the introduction to the MMRCA portion of the audit report started with the background leading to the process of the MMRCA tender — “Acquisition of 36 Rafale Aircraft through IGA” starts with Modi’s announcement from France.

The CAG’s silence on the process which led to Modi’s announcement is absolutely shocking, but gives an idea of what can be expected from such a report.

As mentioned earlier, the CAG says one of the objectives of the performance audit is “to assess whether objectivity, transparency, fair play and integrity is maintained at all stages of procurement and the same is evident in all decision making.”

And the criteria for evaluation is “Approval process and the provisions of DPP, General Financial Rules (GFR), etc.”

But the CAG not only avoided the main objective of the audit, but changed the criteria and subjects of evaluation. Maybe that is why they obscurely stated “a review was undertaken to examine the Indian Negotiation Team’s process for alignment of costs in these two offers.” Here, it is explained, this is not a normal CAG audit.

The report just copy-pasted the joint statement issued by Modi and the then French President, Francois Hollande, after Modi’s announcement from France.

• The 36 Rafale jets would be acquired as quickly as possible

• An IGA would be signed for the supply of the aircraft on terms that would be better than conveyed by M/s Dassault Aviation as part of a separate process underway

• The delivery would be in time frame that would be compatible with the operational requirement of IAF

• Aircraft along with weapon and associated systems would be delivered in the same configuration as had been tested and approved by IAF and with a longer maintenance responsibility by France

By doing this, CAG consciously avoided touching the procedure.

When it is mentioned that Modi’s announcement was “part of a separate process underway”, the CAG must have evaluated that ‘process’, but apparently it did not.

In Chapter 3 para 3.1, the report mentions the government response while explaining the Provisions for Single Source Procurement as “Ministry further stated that the provision of ab initio single vendor is mentioned in the DPP. It is seen that a provision for processing a single vendor proposal is available in DPP 2016 but it has not been stated by the Ministry whether in cases the same has been applied and, if so, in how many such cases.”

This response of the government is contradictory to what it told the Supreme Court (SC) as their reply.

In the SC reply, the government stated that all procedures starting from ASQR to approval of CFA was done according to DPP 2013.

But CAG says the provision of ab initio single vendor is mentioned in the DPP 2016, not in 2013.

The DPP 2016 came in to effect only after April 2016 and PM’s announcement from France was on 10 April 2015.

This means that even if we believe the government followed the process starting from ASQR for 36 Rafale procurement, they should have evaluated the proposal from more than one vendor and the government itself says it did not.

So the Modi government violated the DPP and blatantly lied to the highest court of the country.

And instead of questioning this procedural violation, the CAG decided to simply ignore it.

In Audit Findings, in para 2.1, the CAG mentions the offer submitted by EADS which was 20 per cent cheaper than the fixed price they had submitted in 2007.

The report says,

“In this offer, EADS also offered to enhance the ToT process through a comprehensive training and support programme to be combined with creation of Eurofighter Typhoon Industrial Park in India. Ministry did not accept this offer stating that it was an unsolicited offer.”

The MoD responded to CAG by saying there were “factual inaccuracies” with EADS’ offer, but CAG did not elaborate what that was and stayed silent on the mention of “EADS offer with 20% discount was absolute without any escalation” in the dissent note put out by three technical members of INT (Indian Negotiating Team).

The Modi government again contradicted itself when they said Rafale was chosen because it was L1 in the MMRCA selection process.

This argument has a huge problem because the government themselves said the MMRCA RFP was withdrawn because the report of the committee of MoD officials said Dassault was not L1.

This report was submitted in March 2015 and that it prompted the PM to make such an announcement on 10 April 2015 was the version both government and CAG adopted in earlier pages.

This raises another issue.

The government submitted to the SC in November 2018 that it had decided to go ahead with Rafale because it was selected as L1. But the government was aware since March 2015 that the Dassault Aviation was not L1, yet they intentionally misled the SC by giving a false statement, which is a criminal offence.

The CAG says there are no provisions in the DPP to conclude an IGA with the L1 bidder, but still they considered this argument for the sake of audit to determine the claim of better price and better delivery.

The CAG actually erred in accepting this argument because

a) CAG themselves accepted that Dassault was not L1, and

b) Dassault’s bid was not a complete one as it omitted a lot of things which the RFP asked for.

Another anomaly in the report is in the price comparison. The CAG compared the aligned price calculated by the INT with the contracted price in the IGA. They mention the total cost includes six packages, namely “Flyaway Aircraft Package, Maintenance Package, Indian Specific Enhancements, Weapon Package, Associated Services and Simulator Package.”

Even though the CAG did not mention the price in its report, the INT dissent note published by The Hindu mentions that Dssault charged 1.4 billion Euros as the cost of India Specific Enhancements.

But the CAG report earlier said, “Audit noted that the Indian requirements, while they might not have been available in Rafale, were not unique because most of these features were available in the other 5 aircraft that were evaluated.”

Here, while doing the “review”, the CAG did not calculate the impact of price variation if the government had considered EADS’ proposal. Such a comparison would have conveyed the actual impact of the loss Modi’s decision had caused to the exchequer.

Though the CAG estimates a total saving of 2.86 per cent in the Modi-announced deal in comparison with the 2007 RFP bid, it did not mention the impact on the price if the Bank Guarantee charges were factored in.

If we calculate the INT dissent note numbers mentioned as bank charges, the price would have been 5.3 per cent higher.

And if we factor in the avoidable cost of a number of India Specific Enhancements which only Rafale did not have, the government’s argument and CAG’s support to that claim will fall flat.

The CAG report validated many earlier findings, including what Newsclick had published well before the release of this report. It points out that there is no sovereign guarantee from France; no bank guarantee from the vendors; if the vendor falters in delivery or in any other parameter India has to engage in arbitration with the vendor to recover the money which we paid in advance, etc.

It is clear that the CAG did not properly audit the Rafale deal—from the decision-making process to not evaluating Dassault Aviation’s quote in comparision with other available competitive offers to find out the exact financial implications.

But even as the CAG tried to absolve the Modi government with an improper audit, it has unwittingly highlighted the blatant lies that the Modi government told the Supreme Court to escape legal scrutiny of Modi’s unilateral decision to help his businessmen friends.

And it inadvertently exposed the lies spread by the government in terms of the discount obtained from Dassault in this deal and the accelerated delivery period where, as the CAG suggests, there is no difference in the delivery schedule from the earlier negotiated deal.

Let us hope the Supreme Court will read the CAG report and take suo motu cognizance and recall its judgement on Rafale, which was based on the lies propagated by this government.