Modi Govt’s Rafale Deal Was 40% More Expensive Per Aircraft Than Dassault’s Earlier Offer: Report

Modi Govt's Rafale Deal Was 40% More Expensive Per Aircraft
Modi Govt's Rafale Deal Was 40% More Expensive Per Aircraft

While the government remains unwilling to disclose prices for the 2016 Rafale deal, Business Standard has accessed documents that reveal how it paid 40% more for each aircraft against the 2012 deal.

The haze surrounding the Rafale deal finally appears to be clearing up a bit. The price for 36 aircraft purchased by the NDA government in 2016 was 40% higher per aircraft than what Dassault initially offered for 126 Rafales back in 2012, according to a report published in Business Standard.

While Dassault offered each aircraft for Euro 155 million in 2012, during the medium multi-role combat aircraft (MMRCA) tender, the final price that the Modi government paid as part of its inter-governmental agreement with France was 0f Euro 217 million per aircraft in 2016.

Two senior defense ministry officials involved in contract negotiations with Dassault in 2012 have disclosed the initial winning bid amount for 126 medium multi-role combat aircraft (MMRCA) to the Business Standard. 

 

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Dassault reportedly offered to sell 126 aircraft to the government for a total of Euro 19.5 billion in 2012. This included the cost of all the aircraft, technology transfer, indigenization, India-specific enhancements, weaponry, spares and maintenance guarantees.

The quote averaged out to about Euro 155 million per aircraft. At 2012’s exchange rate – when the offer was made – each aircraft would cost around Rs 1,000 crore, inclusive of all the aforementioned specifications.

As per the offer made during the MMRCA tender, 18 Rafales would be fully built in France and the remaining 108 would be built by Hindustan Aeronautics Limited (HAL) in India from kits supplied by Dassault, Thales, and SENECA.  The price of Euro 217 million also factored in HAL’s labor costs.

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In comparison, the NDA government purchased 36 ready-to-fly Rafale aircraft for Euro 7.8 billion in 2016. Based on this, it can be surmised that each aircraft came at a cost of Euro 217 million –  40% higher than Dassault’s 2012 quote, according to the report.

At 2016 exchange rates, that translates to almost Rs 1,600 crore per aircraft.  Significantly, the new deal excluded HAL and gave the offset contract (worth Rs 30,000 crore and a lifecycle contract of 1 lakh crore) to Reliance Defence Limited – a subsidiary of Anil Ambani owned Reliance India Limited – which was formed merely ten days before signing the new deal.

The NDA government, including defense minister Nirmala Sitharaman and finance minister Arun Jaitley, have publicly stated that the 2016 deal for ‘less’ aircraft cost nine– 20% less ‘per aircraft’ than the 2012 deal. They argue that the additional costs included the purchase of weaponry, spares and maintenance guarantees.
However, when Business Standarexamined the 2007 ‘Request for Proposal’ (RFP) – the IAF’s official tender for the MMRCAs, it discovered that those enhancements were already included in the 2012 price.
The details of the RFP reveal the vendor must include the cost of the “bare bones” aircraft, specified enhancements, weaponry, spares and maintenance, oil and lubricants for 40 years into the “total cost of acquisition” price.
Seven specified aspects were required to be factored into the vendors’ bids, which would be totaled up to arrive at the total cost of acquisition. Appendix F states that the vendor with the “lowest cost of acquisition” would be awarded the contract.
According to Business Standard, the price difference between the two deals was even greater. According to the first deal, 108 aircraft had to be built in India, which would add to costs – whereas Dassault would supply 18 aircraft in the flyaway condition, which would cost significantly less.
If the price paid in 2016 includes total costs of acquisition, which is what the terms under the RFP would ensure, then it is evident that the government paid significantly more for each Rafale aircraft than it had to in 2012.
At the Aero 2015 show in Bengaluru, Dassault chief Eric Trappier confirmed that their pricing had not changed since day one of being awarded the contract. Moreover, the Euro 19.5 billion quote remained valid at the time Prime Minister Modi announced the purchase of 36 aircraft in April 2015.
 
On October 31, the Supreme Court ordered the government to furnish all details and information on the pricing and selection process of the offset partner in a sealed envelope in ten days.
The outcome may finally confirm these prices and whether the losses incurred by the national exchequer have profited one private company – Anil Ambani’s RIL.

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