Friday, 23 September 2016

As Rafale agreement is inked, many concerns remain



By Ajai Shukla
Business Standard, 23rd Sept 16

On a warm Delhi evening on April 3, 2015, Defence Minister Manohar Parrikar had left his South Block office and was driving to catch his flight to Goa, when his mobile phone received an incoming call from the prime minister’s office (PMO). Could he come in urgently, an official asked, the PM would like to talk briefly.

When Parrikar reached the PMO, Prime Minister Narendra Modi sprang a bombshell. Parrikar was told that, on Modi’s forthcoming trip to Paris, he and French President Francois Hollande would announce an agreement for India to buy 36 Rafale fighters. During Modi’s nine-day tour of France, Germany and Canada, Parrikar would have to manage the media and field the inevitable questions.

Taken aback, Parrikar still caught his flight to Goa. Over the next week, he batted loyally on behalf of his PM, publicly defending a decision he neither understood nor agreed with, that was taken over his head, and that senior ministry of defence (MoD) officials warned him would be difficult to defend.

Today, 17 months later, most pledges that Parrikar issued in defence of Modi’s Rafale agreement have proven incorrect. He told PTI in Goa that all 36 Rafale fighters would join IAF service within two years; in fact more than six years will elapse before the final delivery is made. He repeated the Modi-Hollande undertaking that the price would be “on terms that would be better than” Dassault’s bid in the now cancelled tender for 126 medium multi-role combat aircraft (MMRCA). It now turns out that India will pay a vastly higher price.

But Parrikar, through 17 months of defending a deal that was not his, has become the face of the Rafale. And after Friday, when he and his visiting French counterpart, Jean-Yves Le Drian, sign an inter-governmental agreement (IGA) for 36 Rafales, Parrikar and not Modi will answer for the purchase.

There is disquiet within the MoD about the acquisition, with officials concerned about subsequent scrutiny by constitutional authorities like the Comptroller and Auditor General. Their key worries are as follows.

Exorbitant cost

A key element in price negotiations is “benchmarking”, or comparing Dassault’s price with other contracts involving the same fighter. With India, Dassault had already established a benchmark in the MMRCA acquisition, where it had quoted a price for 18 fully built Rafales, just like the 36 fighters that India is now buying.

Speaking to Doordarshan on April 13, 2015, Parrikar had revealed Rafale’s bid for 126 fighters, stating: “When you talk of 126 [Rafale] aircraft, it becomes a purchase of about Rs 90,000 crore”, i.e. Rs 715 crore per fighter after adding all costs.

Now Parrikar would be buying 36 Rafale fighters for Euro 7.8 billion (Rs 58,000 crore), which is over Rs 1,600 crore per aircraft --- more than double the earlier price.

True, the current contract includes elements that were not there in the 126-fighter MMRCA tender --- including a superior weapons package with Meteor missiles; and performance-based logistics (PBL), which bind Dassault to ensure that a stipulated percentage of the Rafale fleet remains combat-ready at all times. The percentage is guessed to be about 75-80 per cent, an unchallenging target for western fighter types.

Even deducting Euro 2.8 billion for the weapons and PBL from the anticipated Euro 7.8 billion contract amount, a Euro 5 billion price tag for 36 Rafales puts the ticker price of each at over Rs 1,000 crore. For that the IAF can buy two-and-a-half Sukhoi-30 MKI fighters --- a heavy fighter as capable as the Rafale.

Variation in fighter types

IAF logisticians, who already struggle to maintain, repair and support six different types of fighters --- the Sukhoi-30MKI, Mirage 2000, Jaguar, MiG-29, MiG-27, MiG-21 and the Tejas Light Combat Aircraft (LCA) --- are hardly welcoming the prospect of a seventh fighter type, which would require expensive, tailor-made base infrastructure, repair depots and spare parts chains.

Air power experts say more Sukhoi-30MKIs would eliminate this need, besides being cheaper. Alternatively, fast-tracking the Fifth Generation Fighter Aircraft (FGFA), which Russia and India intend to co-develop, would eliminate the need for Rafales.

Even if the IAF exercises an option clause for 18 more Rafales, there would be just three operational squadrons, like with the Mirage 2000. Besides the options clause, nine more Rafales would be needed, since an IAF squadron has 21 fighters.

Sovereign guarantees

While New Delhi is negotiating the Rafale purchase directly with private vendor, Dassault, the MoD wants sovereign guarantees from the French government, of the kind that come with American equipment bought through the Foreign Military Sales (FMS) route. In a FMS procurement, e.g. India’s C-130J Super Hercules purchase, the US Department of Defense (the Pentagon) sets up a dedicated “project management team” that negotiates on the buyer’s behalf, beating down the price, establishing training and logistics support, and providing assurance that the buyer gets everything needed to operate and maintain the product.

Alongside FMS support, corruption is deterred by the stringent US Foreign Corrupt Practices Act, which vendors seldom dare to violate. This provides comfort to Indian MoD officials against subsequent allegations raised against a deal.

Paris, in contrast, is only willing to give a lukewarm written assurance of support with the Rafale --- something that the MoD refers to disparagingly as a “comfort letter”.

Piecemeal contracting

India needs some 200-300 fighters to replace the MiG-21 and MiG-27 fleet that is being phased out of service. Just 36 Rafales provides little cover, so the IAF hopes to buy not just 18 more under the options clause, but perhaps another tranche later.

MoD officials complain that piecemeal contracting provides little leverage for beating down prices. The same problem will afflict the procurement of Gripen NG, or F-16s, which the MoD is weighing as possible options to replace retiring fighters.

With an IGA in the offing, and a formal contract yet to be negotiated, New Delhi would still have the opportunity to address these issues, say MoD officials. Yet, the IGA on Friday will be celebrated in the IAF as a giant step towards a fighter they have pursued tenaciously for 15 years. 

13 comments:

Anonymous said...

Firstly in addition to cost per fighter combat edge is rarely talked about. whatever Russians make will be available to the Chinese e.g SU 35, S400 etc. If the rafale is costly it does give you an enormous edge which the pakis and Chinese lack say meteor missile, cutting edge AESA radar and sensor fusion. Moreover it carries as much load as SU 30 MKI and is a deep penetration fighter with excellent combat radius and much less radar footprint than SU 30 MKI. Tomorrow Russians will only be glad to sell PAK FA to Chinese whom they view as an important customer like India. We need rafale to retain air superiority in our neighbourhood. Mig 21 and 27 are on their way out so we need more fighters too. We need to set up an assembly line of single engine fighters like GRIPEN NG which have possibilities of future upgrades and at same time upgrade SU 30 MKI to super Sukhoi standards and also focus on LCA to make up for shortfalls. As far as PAK FA is concerned it's still along way off even Russians appear not fully convinced with it at the moment. That leaves us with AMCA which looks of it is a non starter. Cost of rafale only worries our media actually lesser countries like Egypt ,Qatar and UAE are ordering them without any financial issues.We have no financial planning when it comes to defence acquisitions and that is the problem , we attach so little importance to the defence acquisition budget. China has increased its acquisition budget to reportedly 136 billion dollars and we are at one fourth of it. Over on top of it we aspire to be a regional superpower. The gap between us and pakis are narrowing emboldening them to repeatedly target us. With China the gulf is huge in their favour. We have huge obsolescence issues with Russian equipment that has to be addressed

Anonymous said...

eight and a half... considering... hawk... 1/2

Lingaraj said...

May I ask Mr Shukla why you are peddling such erroneous reports? As a former military man this is totally unacceptable to belittle your own country. Criticise yes, but please don't fire up people giving false information. a) MiG 21 is not to be replaced by Rafale but Tejas and yet you cited elsewhere Rafale is monstrous and no need for that to replace MiG 21! b) Exorbitant cost: have to considered what is included? It is not just the planes but after sales, training, repairs. In fact the Indians have done a great job getting such a deal. c) You keep saying Indian's will look at Gripen NG and F-16. Do you not know the IAF QSR calls for a twin engine plave which knocks out any chance of these two planes? Gripen and Tejas will have so much common do you reckon India should mothball Tejas then? d) you make people believe Parrikar is against Rafale and what he said about scrapping the 126 fighters is true. In fact this is taken out of context PLUS this man doesn't seem to understand IAF needs. The 36 Rafales are bought as a quick fix all made in France. Follow on orders and their pace will be determined in the near future. Total estimated figures are 189 or so because Rafale will fulfil a very specific role. There are more errors but hope a sample here is enough.

Guru said...

If you see the price break-up of the Rafale deal as available on TOI, "vanilla price" of just the 36 aircraft is about 3.42 billion Euros. The armaments cost about 710 million Euros while Indian specific changes, including integration of Israeli helmet-mounted displays, will cost 1,700 million Euros. Associate supplies for the 36 fighter jets will cost about 1800 million Euros while performance based logistics will cost about 353 million Euros.

Question is, did we really need 1,700 million Euro Israeli helmet mounted display and why couldn't we have taken the "stock" French equipment? Why this IAF obsessions of "Ferrari" like equipment? Could we not have ordered 18 more Rafales (another squadron) by just not ticking all options like buying a Ferrari/BMW when 60% of our fleet is 30 years old? Net, we will have 2 squadrons of Ferraris(Rafales) and 22 squadrons of Ambassadors (Mig 21/23/27)...We are buying to defend our self-primarily against Pak/China, not go fight a war with US (which we will lose)

Same goes for buying 10 C-17's for USD 4.5 Billion. Is India going to fight a war in another continent for which the C-17 is needed (US uses them for that). What is the C-17 being used for in the IAF today? Could not the $ 4.5 B (INR 30,000 crores) be used to buy much needed fighter aircraft? Same goes for the USD 2.5 Billion upgrade of the 50 Mirage 2000's (30 year old airframe today)? Do you sell your CRT TV to buy a LED TV or do you "upgrade" your CRT TV so that the front is LED and the back is CRT? Why not buy 24 Rafales instead (even if it means putting in some more money)?

We remain a banana republic, whoever is the Govt, spending money without any alignment to strategic objectives!! And yes, the Army sleeps peacefully at the borders, 6 kms away from the Pakistani border, with an intelligence alert of infiltration...Jai Hind!!

Ant said...

How can u say ,a force with it's main fighter jets should be completely dominated by one fighter jet and one country, whose political relationships nowadays more with our rivals than us.Even US airforce with their complete iventory sourced from their own keeps two types per mission. This is a thing of credibility. Yes,the rafales are costlier.But there is a point you must also consider.It's predeccors, the mirage,also comes under this type of scrutiny with cost factors.And its follow on orders are scrambled in favour of mig 29.But during kargil war,none of these machines saved us only mirages...So the iaf has an image of credibility with french fighter jets.Ofcourse we couldn't buy a larger number.60-65 will be more sure.

Suren Singh Sahni said...

Russian fighters have engine problems after 700 hours.Hardly 50% of Sukhoi are combat ready.

Anonymous said...

Hello Ajai, it looks like in your enthusiasm to criticise the govt has resulted in a totally flawed analysis. see below some examples....
firstly the original mmrca deal was a nonsensical deal which never reached cost negotiations so you can't compare price we pay in 2016 to notional numbers of 2012. also the assumptions and terms and conditions are totally different.
secondly the contract fine print is not in public domain so how can you assume that deliveries will be made in 5 years and start only after 3 yrs?
Thirdly, how can rafale be compared to mig's and sukhois? all are different classes of aircrafts!! the very fact that iaf is buying new fighter is because it is different to its inventory!! rafale has aesa radar, meteor and scalp, smallest rcs in 4th gen fighters, damocles irst, which sukhoi or mig has this??
fourthly, whats the big deal in having multiple aircraft type in inventory!! usaf has this, russia has this, chinese have this...... what about helicopter inventory of iaf!! what about transport fleet!! you have conveniently overlooked this in your biased analyses.
fifth, rafale is expensive so no way we can have 200 of them, we need bare minimum and so 36 is good enough. even if 200 is made in india, what will be the cost in 2020 prices when realistically they can start producing them in india!!
sixth, in the next 5 yrs, iaf will get at least 40 lca's, 36 rafales and at least 54 sukhois plus ajt's and fgfa's so at least 8 squadrons will join while 200 may be phased out so yes there will be shortfalls for some time but this is a legacy issue. let's hope we can sort out some alternatives by then. but anyways we can't criticise govt just for the sake of it

Anonymous said...

NSR says ---

I agree with Guru completely about Helmet Mounted System...
However, if it would make India to for its BVR, Nuclear, and Brahmos missile, then we may need to have it...


We should have been happy to get additional 18 fighters and whatever French using for the helmet system...
Sooner or later they too will add/improve HMS system...or India and France can work together to develop one...


It is not too late to cancel the HMS system and ask for delivery of additional 18 Rafales...


So 3 squadrons can be placed strategically important locations to deter Pakistan and China...

Subho said...

Col., we all know that math is not your strong suit, so I will excuse you for getting the numbers all mixed up.

For starters lets get the numbers straightened out for you and others who frequent your blog once and for all below:

Aircraft (Fly away cost for all 36 units) : € 3.31B
Customer (IAF) specific enhancements: € 1.7B
Spares & Supplies: €1.8B
Performance based Logistics: 0.353B
Weapons package: 0.71B
_______________________________
Total deal value: € 7.873B

Now, the 36 Rafales under current contract costs € 3.31B. Under the old RFP the price for 126 Rafales ( sans weapons, spares, maintenance contracts and India specific enhancements) was quoted at € 13.12B. So, a back of the napkin calculation yields the price of 36 Rafales as € 3.75B per the old contract price.

The current contract therefore has scored a 11.7 % discount over the original RFP price per unit. And that is just one of the many wins that this team has achieved through this negotiation. The other big win is that this includes a 50% offset obligation stipulation against an order that is much smaller than the original order. Finally the weapons package is way better than what was originally being proposed. All in all the total savings total over € 700M and that is hardly chump change.

Clearly then, the assertions that you make in your blogpost are inaccurate and misleading.

Anonymous said...

The same old story being played out over and over again...defence acquisitions at hugely inflated prices....the country suffers,,,,

anonymous said...

Guru, I agree with each and every word you said... Except the last jibe on the army. No soldier wants to sleep at the border...

They paid their mistake with their lives and the lives of their comrades....respect them...
You n me read up stuff online and just comment.. Not cool....trust them!
No army in the world can prevent 100% attacks

Anonymous said...

Rafale is good deal. I think it has become a fashion to criticise the government. Let us not waste money on 108 manufacturing, do,you think,HAL could have ramped up quickly ? Look at the respect HAL gives to,time :
We need to,appreciate that things are moving from MoD. Our RM and PM deserve all the credit.
I do hope the government is turning the screws on HAL to begin delivering light helicopters quickly either Kamov or own LUH. I do not think Army cares .
Same with HTT, you think IAF could have continued to wait for it giving up basic flying traing for its pilots ? it was very good they bought Pilatus & are happy with it.
HAL can now take its time delivering HTT, it is anyway inspired by a copy of Pilatus ! So much for your criticism of Pilatus.
LCA SP are delayed, we should have had 4 flyng in formation next week. LCA has been flying since 2001, HAL has no exuse to setup the production line up,so late and even then so unprepared.
LCH ? Should have entered prouction now ?
You are so blinded and seem to have personal agenda, you never write on the impact of such delays.
I do hope HAL is put on mat for these. They operate on a cost plus model that is very in efficient. How much taxpayers money is lying with them in the name of advances & how long ? A recent report said 50000 crores, strange you never wrote on it.

Guru said...

Sukhois have a 60% availability rate. The Rafale has a 75% availability rate. 1 Rafale costs same as 3 Sukhois.