More than two years after India zeroed in on the French Rafale fighter jet-after a tortured 11-year selection process-to replace its ageing MiG-21s, the German-led European consortium which was the runner-up in the race has sought to restart the dogfight by offering a new, cheaper proposal for its Eurofighter Typhoon.
The world's biggest
defence deal is in danger of becom-ing one of the slowest in his-tory.
More than two years after India zeroed in on the French Rafale fighter
jet-after a tor-tured 11-year selection process-to replace its ageing
MiG-21s, the Ger-man-led European consortium which was the runner-up in
the race has sought to restart the dogfight by offer-ing a new, cheaper
proposal for its Eurofighter Typhoon. The Narendra Modi Government,
INDIA TODAY has learnt, is studying the German proposal even as
Hindustan Aeronautics Ltd (HAL) has been nego-tiating with France's
Dassault, the maker of the Rafale, to finalise agree-ments to produce
the aircraft in India. The Rafale deal for 126 jets is esti-mated to
cost 20 billion euros (Rs.1.6 lakh crore) over the next decade and is
considered the biggest global de-fence tender.
Representatives of the German government met leaders of the BJP regime in June, within weeks of the latter coming to power, and the talks culminated in a new commercial pro-posal that seeks to undercut the French bid. The new German offer could bring down the total value of the contract by Rs.20,000 crore over its 10-year duration. The scale of the "discount"-formally offered in early July to Defence Minister Arun Jait-ley-was substantial enough to create ripples at the very top of the Govern-ment, with Prime Minister Narendra Modi also being apprised about the development, sources said.
In terms of the net present value- the hypothetical cost of buying the entire fleet in one go at current pri-ces-the new offer is at a little more than 10.5 billion euros while the French price is estimated to be a billion euros more. Calculated on the basis of the firm fixed price-or the amount India has to pay over 10 years-the German price comes to 17.5 billion euros.
In 2012, it is believed the Euro-fighter was priced at more than 21 billion euros, a difference significant enough for the French to win the race. A long process of consultations has since been going on between Dassault and HAL to co-produce the fighter jet. Although these technical and com-mercial negotiations are learnt to be at an advanced stage, the contract has been hanging fire.
The German offer, which has come through Eurofighter manufac-turer Airbus Defence and Space, has raised doubts over the future of the Rafale deal even though there is no scope for a revised price offer in the defence ministry's procurement rules. Experts believe that while there is no room for renegotiating the con-tract under the rules, the size of the German discount would force the Government to take a fresh look at the price offered by France. The counter-offer is supposed to be the outcome of hectic diplomatic manoeuvring by major European powers that have a high stake in the contract due to its sheer value and the job creation potential that can boost the economy of consortium member nations.
One of the first indications that there could be room for a relook at the mega deal came, it is learnt, after German Ambassador to India Michael Steiner met top functionaries of the BJP Government shortly after it took over in June. After getting feelers that the new dispensation was keen to get an independent assessment of the contract value instead of going by the UPA government's agreement, Berlin is believed to have gathered the sup-port of Britain, Spain and Italy, major partners in the consortium, to be able to make a viable counter-offer. The new offer, significantly, rea-ched the Government in the first week of July, four days after French Foreign Minister Laurent Fabius met Indian leaders in New Delhi and emphasised the importance Paris was giving the Rafale contract. However, the French side was disappointed by the lack of any commitment from India as it was merely informed that due process was on.
Also, a few days before the new offer, Jaitley made his first comment on the Rafale deal on June 24, com-ments that were seen as non-commit-tal at best. He said the government would take a "considered decision" on the contract, a departure from the line of the previous government that always acknowledged that negotia-tions with the French side were in an advanced stage.
It is also believed that one of the reasons the Rafale deal has not progressed rapidly was the reluc-tance of previous defence minister A.K. Antony to sign off on a controver-sial price calculation by the IAF that assumed inflation at a self-derived rate and showed the French bid as cheaper. The competitors in the deal have alleged that the French com-mercial offer was "incomplete" and the price arrived at by the Indian side was based on data presented by Dassault that had to be interpreted by Indian financial experts.
Experts, however, feel it would still be difficult for the Eurofighter to be back in contention due to the lack of renegotiation provisions. "I do not see any possibility proce-durally or politically for a change. The Government can of course do anything it wants but it will neither be practical nor expedient. It would also be difficult and embarrassing for the Government to keep the French side on hold for two years and go with someone else," says Amit Cowshish, a distinguished fellow at the Institute for Defence Studies and Analyses and a former financial adviser (acquisi-tion) in the defence ministry.
India would also have to deal with pressure from Paris, given that Fra-nce has invested a lot of political cap-ital in the deal. France is India's third-largest supplier of defence equip-ment and major deals include the Scorpene submarine line and the up-grade of the Mirage 2000 fleet. But the counter-offer and its financial im-plications can create uncertainty for the Medium Multi-Role Combat Air-craft (MMRCA) project, the technical name of the Rafale deal. And that cannot be good news for the IAF as the project is already two years behind schedule and other replace-ment projects such as the Fifth Generation Fighter Aircraft (FGFA) with Russia and the indigenous Light Combat Aircraft (LCA) have also been crawling.
While the FGFA project could see the jets arriving in the next six to eight years, the formal induction of combat-ready LCA fighters is likely to start next year. The first aircraft from the MMRCA contract would start arriving at least two years after the agreement is signed. The IAF believes the MM-RCA is a vital replacement and is needed at the earliest to maintain its conventional edge in the region.
"The LCA has still not got its full combat clearance," says retired air vice marshal M. Bahadur, a distinguished fellow at the Centre for Air Power Studies. "Reversing the MMRCA process is very difficult and can be done only if it emerges that the process to arrive at the L1 cost itself in 2012 was faulty."
Clearly, the high-stakes deal has got a twist in the tale. But it would only be in India's interest to ensure this does not further prolong the modernisation of the air force.
Representatives of the German government met leaders of the BJP regime in June, within weeks of the latter coming to power, and the talks culminated in a new commercial pro-posal that seeks to undercut the French bid. The new German offer could bring down the total value of the contract by Rs.20,000 crore over its 10-year duration. The scale of the "discount"-formally offered in early July to Defence Minister Arun Jait-ley-was substantial enough to create ripples at the very top of the Govern-ment, with Prime Minister Narendra Modi also being apprised about the development, sources said.
In terms of the net present value- the hypothetical cost of buying the entire fleet in one go at current pri-ces-the new offer is at a little more than 10.5 billion euros while the French price is estimated to be a billion euros more. Calculated on the basis of the firm fixed price-or the amount India has to pay over 10 years-the German price comes to 17.5 billion euros.
In 2012, it is believed the Euro-fighter was priced at more than 21 billion euros, a difference significant enough for the French to win the race. A long process of consultations has since been going on between Dassault and HAL to co-produce the fighter jet. Although these technical and com-mercial negotiations are learnt to be at an advanced stage, the contract has been hanging fire.
The German offer, which has come through Eurofighter manufac-turer Airbus Defence and Space, has raised doubts over the future of the Rafale deal even though there is no scope for a revised price offer in the defence ministry's procurement rules. Experts believe that while there is no room for renegotiating the con-tract under the rules, the size of the German discount would force the Government to take a fresh look at the price offered by France. The counter-offer is supposed to be the outcome of hectic diplomatic manoeuvring by major European powers that have a high stake in the contract due to its sheer value and the job creation potential that can boost the economy of consortium member nations.
One of the first indications that there could be room for a relook at the mega deal came, it is learnt, after German Ambassador to India Michael Steiner met top functionaries of the BJP Government shortly after it took over in June. After getting feelers that the new dispensation was keen to get an independent assessment of the contract value instead of going by the UPA government's agreement, Berlin is believed to have gathered the sup-port of Britain, Spain and Italy, major partners in the consortium, to be able to make a viable counter-offer. The new offer, significantly, rea-ched the Government in the first week of July, four days after French Foreign Minister Laurent Fabius met Indian leaders in New Delhi and emphasised the importance Paris was giving the Rafale contract. However, the French side was disappointed by the lack of any commitment from India as it was merely informed that due process was on.
Also, a few days before the new offer, Jaitley made his first comment on the Rafale deal on June 24, com-ments that were seen as non-commit-tal at best. He said the government would take a "considered decision" on the contract, a departure from the line of the previous government that always acknowledged that negotia-tions with the French side were in an advanced stage.
It is also believed that one of the reasons the Rafale deal has not progressed rapidly was the reluc-tance of previous defence minister A.K. Antony to sign off on a controver-sial price calculation by the IAF that assumed inflation at a self-derived rate and showed the French bid as cheaper. The competitors in the deal have alleged that the French com-mercial offer was "incomplete" and the price arrived at by the Indian side was based on data presented by Dassault that had to be interpreted by Indian financial experts.
Experts, however, feel it would still be difficult for the Eurofighter to be back in contention due to the lack of renegotiation provisions. "I do not see any possibility proce-durally or politically for a change. The Government can of course do anything it wants but it will neither be practical nor expedient. It would also be difficult and embarrassing for the Government to keep the French side on hold for two years and go with someone else," says Amit Cowshish, a distinguished fellow at the Institute for Defence Studies and Analyses and a former financial adviser (acquisi-tion) in the defence ministry.
India would also have to deal with pressure from Paris, given that Fra-nce has invested a lot of political cap-ital in the deal. France is India's third-largest supplier of defence equip-ment and major deals include the Scorpene submarine line and the up-grade of the Mirage 2000 fleet. But the counter-offer and its financial im-plications can create uncertainty for the Medium Multi-Role Combat Air-craft (MMRCA) project, the technical name of the Rafale deal. And that cannot be good news for the IAF as the project is already two years behind schedule and other replace-ment projects such as the Fifth Generation Fighter Aircraft (FGFA) with Russia and the indigenous Light Combat Aircraft (LCA) have also been crawling.
While the FGFA project could see the jets arriving in the next six to eight years, the formal induction of combat-ready LCA fighters is likely to start next year. The first aircraft from the MMRCA contract would start arriving at least two years after the agreement is signed. The IAF believes the MM-RCA is a vital replacement and is needed at the earliest to maintain its conventional edge in the region.
"The LCA has still not got its full combat clearance," says retired air vice marshal M. Bahadur, a distinguished fellow at the Centre for Air Power Studies. "Reversing the MMRCA process is very difficult and can be done only if it emerges that the process to arrive at the L1 cost itself in 2012 was faulty."
Clearly, the high-stakes deal has got a twist in the tale. But it would only be in India's interest to ensure this does not further prolong the modernisation of the air force.
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