Last week, former French President Francois Hollande’s dropped a bombshell -- he disclosed to a media house in France that the Narendra Modi government did not give any option to Dassault Aviation other than Reliance Defence as offset partner. A rattled BJP and pro-government media have now started a campaign to vilify the critics of Modi’s Rafale deal, claiming that this decision was entirely Dassault’s. Dassault Aviation in its defence, has stated “This offsets contract is delivered in compliance with the Defence Procurement Procedure (DPP) 2016 regulations”. Both these contentions are wrong; or as it might be said, economical with truth.
DPP 2016 came into effect on April 1, 2016, while a Dassault Aviation press release put out on April 23, 2018 says that Dassault Reliance Aerostructure Limited – the joint venture (JV) between Dassault Aviation and Reliance Aerostructure Limited – was created in April 2015. Interestingly, as per the Ministry of Corporate Affairs website, the Indian partner in the JV, Reliance Aerostructure Limited, was incorporated only on April 24, 2015. This means that Reliance ADAG and Dassault either decided to form a JV well before Reliance Aerostructure Limited was incorporated; or the JV was created in the last five days of April 2015!
It needs to be noted that PM Modi’s surprise announcement to purchase 36 Rafale in fly-away condition from France, was announced on April 10, 2015. Exactly 14 days after his announcement, Reliance Aerostructure Limited was incorporated as a subsidiary company of Reliance Defence Limited. Reliance Defence itself was incorporated only on March 28, 2015 – less than two weeks prior to the PM’s announcement. In the month (April 2015) that the JV between Reliance ADAG and Dassault, and the Reliance ADAG company was incorporated, the DPP 2016 was not applicable, rather DPP 2013 was. It is also intriguing how Dassault Aviation created a JV with a company in April 2015, which existed only on paper.
The Modi government is claiming that the French company, Dassault, was free to select the offset partner, and needed to provide these details only later. A press release by Ministry of Defence, dated February 7, 2018 says “…no Indian Offset Partner for the 2016 deal for 36 Rafale Aircraft has been so far selected by the vendor (DA) because as per the applicable guidelines, DA is free to select the Indian Offset Partners and provide their details at the time of seeking offset credits, or one year prior to discharge of offset obligation.”
Is this claim correct? To understand this, let us analyse the relevant sections of the DPP 2013 and DPP 2016.
In April 2015, when Dassault says they formed the JV, DPP 2013 was in force. However, one clause -- para 8.2 in DPP 2013 -- was tweaked in August 2015
Para 8.2 in DPP 2013 reads: “The TOEC (Technical Offset Evaluation Committee) will scrutinise the technical offset proposals to ensure conformity with the offset guidelines. For this purpose, the vendor may be advised to undertake changes to bring his offset proposals in conformity with the offset guidelines. The TOEC will be expected to submit its report within 4-8 weeks of its constitution.”
Interestingly, this clause was amended on August 8, 2015 to suit the deal in question. The amended clause added “If the vendor is unable to provide these details at the time of the TOEC, the same may be provided to DOMW (Defence Offset Management Wing) either at the time of seeking offset credits or one year prior to discharge of offset obligations through that IOP (Indian Offset Partner).”
With this, the government thought they could hide the details from public view. This is the reason why the Modi government keeps saying that the vendor – here Dassault Aviation – doesn’t have to submit the offset proposals to the government till a later date, and has hidden when the actual RAL offset was signed and government informed about it.
However, there are various other clauses in the offset policy of DPP 2013 as amended or in DPP 2016, that needed the Defence Ministry and the Contract Negotiating Committee to be informed about the Indian Offset Partner (IOP). Unfortunately for the Modi government, these were neither amended then nor in 2016.
Para 8.4 starts with the line “The Commercial Offset Offer will contain the detailed offer specifying the value of the total offset commitment components, with a breakdown of the details, phasing, IOPs…”
Para 8.6 in its entirety reads : “All Offset proposals will be processed by the Acquisition Manager and approved by Raksha Mantri, regardless of their value. Offset proposals will also be incorporated in the note seeking approval of Competent Financial Authority (CFA) for the main procurement proposal for information of the CFA. The offset contract will be signed by the Acquisition Manager after the main procurement proposal has been approved by the CFA. Signed copies of the offset contract will be made available to DOMW.”
If the Defence Minister saying the Modi government was not aware who Dassault's Indian offset partner is taken at face value, it means that the Ministry of Defence violated its own Procurement Guidelines and the offset policy. If the Contract Negotiation Committee negotiated the price of the deal with the vendor/supplier, they must have had clear knowledge of the offset proposal submitted by the vendor, and who the vendor’s Indian partner would be. This must have been submitted in the proposal itself, or during negotiations. Otherwise, it was in violation of the DPP and the offset rules. If Dassault did not submit these details to the Contract Negotiation Committee, as prescribed in the DPP, this is reason enough to cancel the contract altogether.
Further, Para 8.17 of the DPP reads: “The Acquisition Wing will submit an annual report to the DAC (Defence Acquisition Council) in June each year regarding the details of offset contracts signed during the previous financial year. DOMW will also submit an annual report to the DAC in June each year regarding the status of implementation of all ongoing offset contracts during the previous financial year.”
Now, this para should be read along with a press release put out by Reliance Infrastructure Limited on February 16, 2017. It mentions “Reliance Infrastructure Limited (RInfra) promoted Reliance Aerostructure Limited’s Joint Venture (JV) with Dassault Aviation Dassault Reliance Aerospace Limited (DRAL) has been incorporated. On 23 September 2016, India and France signed a purchase agreement for supply of 36 Rafale fighter jets at a value of €7.87 billion, or about Rs.60,000 crore. The contract includes a 50% offset obligation to the tune of approximately Rs. 30,000 crore, which is the largest ever offset contract in the history of India. DRAL will be a key player in the execution of offset obligations.” Since this agreement was signed in 2016, as per Para 8.17 above, this information of DRAL and the offset contract would have been submitted to DAC. Didn’t these developments reflect in DAW’s annual report to DAC in June 2017? The government’s argument that they didn’t know who the Indian offset partner of Dassault for Rafale deal was till recently, therefore, does not stand up to serious scrutiny.
According to Caravan magazine (September 2018), this (September 23, 2016) was also the date on which the offset contract between Dassault and RAL was signed: the two contracts were signed on the same date. This also corroborates that the procedure as outlined above was followed, and both these contracts were processed in accordance with the DPP by the Contract Negotiating Committee and the Ministry of Defence, and they were fully aware of the offset partner being RAL.
The cancellation of the original deal negotiated through an open tender, sidelining of HAL’s signed work share agreement with Dassault, the unilateral call of the PM to announce the deal, suppression of information regarding the offset partner, Hollande’s claims that Anil Ambani’s Reliance was the choice of the Indian government -- all these raise serious questions regarding defence deals inked by the Modi government. If Bofors was the Waterloo of the Rajiv Gandhi government, the Rafale deal, termed as a “bigger scam”, seems to be bidding to be the same for the BJP government.
Ravi Nair broke the story of the Rafale scandal and is writing a book on the subject. This is part one of his exclusive article for Newsclick.
(In Part 2, we will deal with the violations of the rules of Department of Industrial Policy and Promotion (DIPP) by RAL).