By Ajai Shukla
Business Standard, 1st Jan 14
The ministry of defence (MoD) has unilaterally terminated a Euro 556 million (Rs 4,730 crore at today’s exchange rate) contract with Anglo-Italian helicopter company, AgustaWestland, for 12 high-end AW-101 helicopters to ferry top leaders and high officials in safety and comfort.
The MoD announced on the evening of January 1, “The Government of India has terminated with immediate effect the Agreement that was signed with M/s. AgustaWestLand International Ltd. (AWIL) on 08 February, 2010 for the supply of 12 VVIP/VIP helicopters on grounds of breach of the Pre-contract Integrity Pact (PCIP) and the Agreement by AWIL.”
MoD procurement policy requires every overseas defence vendor to sign an “Integrity Clause”, strictly prohibiting the bribing of Indian officials to win a deal.
The decision comes almost 11 months after Italian prosecutors in Milan arrested Giuseppe Orsi, the boss of giant Italian defence corporation, Finmeccanica, on February 12, 2013, for allegedly bribing Indian officials to win the deal. Orsi had headed AgustaWestland in 2010, when the IAF contract was signed.
The MoD responded immediately by freezing the contract, suspending payments to AgustaWestland, and initiating a Central Bureau of Investigation (CBI) enquiry. A senior MoD official was despatched to Italy to obtain evidence of wrongdoing that could have influenced the award of the contract.
The MoD has since stonewalled AgustaWestland’s requests to discuss the issue. The one face-to-face meeting between the two parties on November 20 was treated by the MoD as a “final hearing” rather than as a discussion. The Anglo-Italian company invoked legal arbitration on October 4, but Defence Minister AK Antony said on November 26 that the government would not accept arbitration. After Mr Antony public declared on October 30 that AgustaWestland had “violated the contract”, the company responded combatively that “the outcome of the proper legal processes should be awaited.”
Today, while terminating the contract, the MoD is attempting to minimise collateral damage. A “termination” means that the Indian Air Force (IAF) will retain the three AW-101 helicopters it has already taken delivery of. Payment for these will be adjusted from the amount India has already paid to AgustaWestland, that is about 45 per cent of the contract value.
“Cancelling” the contract would have required New Delhi to return the three helicopters and encash bank guarantees for the full amount paid, something that AgustaWestland had already signalled it would contest with all its might.
The MoD was also measured on Wednesday in its response to AgustaWestland’s arbitration request. While contending that a violation of the Integrity Clause did not merit arbitration, the government went ahead and named its arbitrator.
The MoD announced today: “Based on the opinion received earlier from the Attorney General of India, it has been the view of the Government that integrity-related issues are not subject to arbitration. However, AWIL has since pressed for arbitration and appointed an arbitrator from its side. In view of this, MoD sought afresh the opinion of the Attorney General. With a view to safeguard the interests of the Government, MoD has nominated Hon’ble Mr Justice BP Jeevan Reddy as its arbitrator.”
On November 20, AgustaWestland had named former Supreme Court judge, Justice B. Srikrishna, as its arbitrator on this issue. According to the Indian Arbitration and Conciliation Act 1996, which governs this contract, a third, neutral arbitrator is also to be appointed by mutual agreement.
Contacted for a comment, Jackie Callcut, CEO of AgustaWestland India, says: “We haven’t received any communication from the MoD yet. We have no comment to offer other than to deny any wrongdoing and to reiterate that AgustaWestland will robustly defend the company’s reputation.”
In parallel with the Italian investigation, the CBI is pursuing its own probe. It has registered an FIR against a former IAF boss, Air Chief Marshal SP Tyagi, and 14 others.
While the CBI has not produced clinching evidence yet, Italian investigators in Milan have presented before court a “budget document”, that key middleman, Guido Haschke, allegedly prepared in 2008, along with his accomplice, Christian Michel. Reports from Italy say this budgets for payments to politicians (“POL” in the document) and some 15 million Euros to a family (annotated as “FAM”).
According to the Italian case, AgustaWestland paid some 51 million Euros to Haschke, Michel and another accomplice, Carlo Gerosa to seal the deal. The money was allegedly funnelled through software companies, Mohali-based IDS Infotech and Chandigarh-based Aeromatric Info Solutions Pvt Ltd.
Aug 1999 : IAF proposes purchase of 8 VVIP helicopters, to replace outdated Mi-8 choppers
Mar 2002 : Global tender floated, requiring helicopters to fly up to 6000 metres. Only Eurocopter EC-225 qualified in trials
Nov 2003 : Brajesh Mishra, Principal Secretary to PM Vajpayee, convenes a meeting to suggest that the helicopter’s operational ceiling be lowered from 6,000 metres to 4,500 metres to make more choppers eligible.
Nov 2003 to Sept 2006 : This issue and others like raising cabin height discussed between IAF, NSA, PMO, SPG and MoD. Helicopter numbers also increased from 8 to 12.
Sept 27, 2006: Fresh Request for Proposals (RfP) issued to six vendors. Three respond --- Sikorsky (S-92 helicopter); AgustaWestland (AW-101) and Rosoboronexport (Mi-172).
April 2008 : After field trials, AW-101 recommended for purchase.
Feb 2010 : Contract concluded with AgustaWestland for 12 AW-101, including “Integrity Clause” banning use of undue influence, and middlemen.
Feb 12, 2012 : Media reports appear on Italian investigation into bribery in AW-101 contract with India. The MoD freezes the contract, with three choppers delivered.
Oct 2012 : AgustaWestland invokes arbitration. The MoD is required to name its arbitrator by Dec 3, but does not.
Jan 1, 2014 : MoD “terminates” contract. Names arbitrator