(Reuters) - India
and France are speeding up negotiations on a $10 billion deal for 126
Rafale aircraft following disagreements over the cost of building them
in India, which caused months of delays, two Indian Defense Ministry
officials told Reuters.
India started exclusive talks with French Dassault Aviation's (
AVMD.PA) Rafale for a 126-plane order in January 2012, over the competing Eurofighter Typhoon (
EAD.PA) (
SIFI.MI) (
BAES.L). The two sides still have to sign a final contract.
French
President Francois Hollande discussed the deal with Indian Prime
Minister Manmohan Singh on Thursday, the first day of a two-day visit to
India.
"We've seen progress in
these discussions and I'm hopeful that they will succeed," Hollande said
after the talks. Singh said discussions on the sale were "progressing
well".
The deal is being negotiated against the backdrop of the arrest of the chief executive of Italy's Finmeccanica (
SIFI.MI)
this week after allegations kickbacks were paid during the sale of
helicopters to India. India has suspended the deal pending
investigation.
There were no immediate indications the fallout from the Finmeccanica investigation would affect the French deal.
Indian
Defense Minister A.K. Antony said on Wednesday that the kickback
allegations were likely to cause an "initial setback" to India's push to
modernize its weaponry.
DEAL FINALISED IN JULY?
The
talks on the Rafale sale have progressed slowly because of differences
about how to price the transfer of technology, sourcing of spares and
the selection of an Indian partner, two Indian Defense Ministry
officials said.
"There are three
issues of contention - pricing of transfer of technology, sourcing from
India and the joint venture with Hindustan Aeronautics Ltd (HAL)," said
one of the ministry officials, who said negotiations had been delayed by
a few months, largely because of those issues.
The other official said the contentious points had been mostly resolved and the deal could be finalized as soon as July.
Dassault declined to comment.
The
second official said Dassault had earlier asked India to pay up to $2
billion more for the future upgrading of technology that would be
transferred over the 30-year life-cycle of the deal.
At an air show in Bangalore last week, India pledged not to let defense cuts stand in the way of efforts to finalize the deal.
Following
India's strong objections to the cost escalation, France has broadly
agreed to review its decision but negotiations were still going on for
calculating the price for the maintenance and life-cycle cost of the
planes, the second official said.
COMMITTED TO A DEAL
Under the Rafale deal, Dassault is expected to send 18 ready-made jets, then manufacture the rest in India.
India
expects the deal will provide business of $4 billion to $5 billion to
Indian companies, said the second ministry official, who has knowledge
of the talks.
Both officials said
another contentious issue in the negotiations was the selection of
India's state-run Hindustan Aeronautics Ltd (HAL) as partner of Dassault
to manufacture planes in India.
Rafale
has expressed doubts about the technological capability of HAL to
manufacture such a sophisticated fighter jet, the official said. A HAL
program to manufacture advanced jet trainers is running years behind
schedule.
However, India has told
French negotiators that provisions of entering into a joint venture with
the HAL to produce fighter jets was non-negotiable and there was no
question of involving any private company in the deal, the officials
said.
The second official said both
countries were committed to the deal, and India's defense minister,
A.K. Antony, and the Indian air force chief, N.A.K Browne, were making
it a top priority during the upcoming fiscal year that begins in April.
President Hollande, accompanied by ministers and corporate delegates, also discussed the sale of nuclear plants to India.
That included the Jaitapur nuclear plant being built by France's Areva (
AREVA.PA), which is still under negotiations and has been hit by protests in the Indian state of Maharashtra.