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Issue No.: 561 | March 2014

The Case of Helicopters for VVIPs

Suresh C. Sharma
The Augusta Westland helicopter has been the only case of accepting equipment still under development.

In 1999, the IAF forwarded Request for Proposal [RFP] for procurement of helicopters to eleven vendors to replace the aging MI 8 machines. The helicopters were required for use by VVIPs like the President and Prime Minister [PM]. The list of vendors is proposed by the Service HQ and the Ministry of Defence [MOD] may add or delete any names. The Service HQ define the Services Qualitative Requirement [SQR] against which the offers by the vendors are examined. 

EC 225 machine of Eurocopter was found to be suitable. When the National Security Advisor [NSA], Brajesh Mishra, pointed out that the President and PM did not usually fly above 4500 metres, the SQR was revised to replace the altitude requirement from 6000 metres to 4500 metres and the number of helicopters was increased from eight to twelve. The revised SQR was sent to six out of the earlier list of eleven vendors. It needs to be checked whether Eurocopter whose machine EC 225 was judged suitable was included amongst the six vendors. Three vendors qualified for the helicopters. The Russian vendor declined to sign the integrity pact assuring that no middlemen were involved and was disqualified. Insistence by the PMO for a minimum cabin height of 1.8 metres eliminated all competition in favour of the chosen vendor – Finmeccanica.

Bending Procedures

Next steps in the procurement process are field trials, review by Technical Oversight Committee [TOC] to check compliance for projects of Rs. 300 crores or more with laid down procedure and price negotiations. Field trials are conducted in conditions where the equipment is planned to be used and claims of the vendors verified. It follows that trials would be conducted in India. An exception was made in the case of these helicopters and trials were carried out in the USA and UK in January-February 2008. The helicopters of Augusta Westland were still under development and shockingly, the trials were conducted on two representative helicopters and a mock up of the passenger cabin. A different methodology was used to evaluate helicopters of other vendors. It has been the only case of accepting equipment still under development. 

The TOC comprising representatives of IAF, Defence Research and Development Organization [DRDO] and a Defence PSU not involved with procurement of the helicopters reported that the evaluation process of vendor selection, conduct of trials and compliance with SQR was in order. By now, it was clear that AW101 helicopter was the winner. Instead of asking the vendor to extend the validity of their quotation, the MOD asked for fresh commercial quotes. A benchmark figure is decided by the MOD and if the quotation of the vendor is lower than the benchmark, no negotiations need be carried out. 

For Vendor’s Benefit

In 2006, the IAF had estimated the price to be Rs 793 crore. In 2008, the negotiating team set up by the MOD placed the benchmark figure at Rs 4,877.5 crore. It was more than six times the earlier figure. The vendor asked for a price of Rs 3,966 crore. It shows that the MOD was prepared to pay an exorbitant price. Contrary to the established procedure, the IAF demanded additional systems during price negotiations which gave an opportunity to the vendor to demand higher price. A contract for supply of twelve 3-engine based AW 101 helicopters was signed in February 2010 with the UK based subsidiary of Finmeccanica for Rs 3,546 crores. An offset contract of Rs 1,118.09 crore was signed along with the main contract. 

In 2012, allegations of giving bribes of Rs 375 crore by Haschike, Carios and Michel, executives of Finmeccanica surfaced in Italy. In February 2012, CEO Giuseppe Orsi was arrested. The Government of India took action only after the arrest of the CEO and refered the case to the CBI who has named the former Air Chief Tyagi in the FIR. It is understood that the Italian prosecutors have documents referring to kickbacks paid to Indian politicians, bureaucrats and military officers. The contract was cancelled in December 2013, almost a year after the allegations surfaced in Italy. Three helicopters have already been delivered and 45% of the contract amount already paid. The contract has been terminated for violation of the integrity condition of not employing any middlemen and the vendor has been blacklisted. The contract obligations provide for cancellation of orders, recovery of payment and penal action. 

According to the report by the CAG, not a single provision of the offset agreement has been implemented. Works which had been completed before signing the contract have been shown as offsets against this order and unauthorized items have been included under this agreement. The penalty for not fulfilling the offset provision could be 10 to 15 percent of the value of the main contract. Obviously, an advantage has been given to the vendor.  

The vendor has asked for arbitration and has appointed former Supreme Court Justice Shrikrishna as its arbitrator. The Attorney General has advised that the integrity related issues are not subject to arbitration but has nominated Former Supreme Court Justice B. P. Jeevan Reddy as its arbitrator to safeguard own interests. Augusta Westland has taken it to be Government of India’s willingness to accept arbitration. It could be another step to help the vendor. 

The CAG in its Report has found that the entire process of acquisition of helicopters had not followed the laid down procedure. It lacked transparency and accountability. The report was presented to the Parliament on 13 August 2013. The CAG has pointed out that deviations from the laid down procedure can be approved by the Defence Minister only in exceptional circumstances and has questioned the rationale of granting deviations on eight counts. In all these cases, the deviations were beneficial to the vendor and detrimental to India. 

Reports of kickbacks by Augusta Westland have surfaced in another case too; of purchase of 197 helicopters for the Army Aviation Corps. There have been no allegations of bribes in deals with UK and Norway. The fault lies with us and not with the vendor. The black-listing of the company will make supply of spares difficult for the three machines already received. This difficulty has been experienced in previous cases of blacklisting of suppliers. Spares for Bofor guns and HDW submarines had to be procured from dubious sources. It is strange that the bureaucrats responsible for lapses in the procurement of these equipment did not get punished.    

The deal should be investigated for lapses in procurement process, failure of the TOC to point out deviations from the procedure, amendments to SQR during price negotiations and granting deviations from procedure on eight counts. There was delay in taking action immediately after allegations of bribes surfaced in Italy in February 2010. The investigating agency should check reasons for sending enquiries only to six vendors and the rationale of fixing the benchmark price at the high figure of Rs 4877.5 crore. The number of machines required was increased from 8 to 12. Who all are likely to use it? The Ministry of Finance [Defence] examines any requests for purchase minutely. Did they call for the list of VVIPs? Did every one agree to the enhanced figure to enjoy free rides?     

BRIG. SURESH C SHARMA (Retd.) is adviser to the telecom industry 
and a member of the Advisory Board of Freedom First.






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