October 14, 2014

India to scrap Rs. 6,000-cr deal for minesweepers

Middlemen may have sunk another key defence deal barely 10 months after India terminated a Rs. 3,727-crore VVIP chopper deal mired in corruption allegations.
The NDA government is all set to scrap a Rs. 6,000-crore deal to buy eight mine counter-measure vessels from South Korea amid allegations that the firm shortlisted to supply the minesweepers had hired middlemen to swing things in its favour.
Middlemen aren’t allowed in the Indian defence sector. A top defence ministry official told HT, “The deal is on the verge of being cancelled. It was not above board.”
The decision to scrap the deal will hurt the navy as its minesweeping capabilities are at an all-time low and a fresh tender will add to the force’s agonising wait – the procurement of minesweepers will be delayed by five to six years.
Under the proposed deal, South Korean shipyard Kangnam Corporation was to supply two minesweepers to the navy, while the remaining six vessels were to be built by Goa Shipyard Limited through technology transfer.
These vessels are used for keeping sea lanes mine-free to protect the country’s warships as well as clearing minefields near enemy shores to facilitate offensive action. The navy currently operates seven to eight serviceable minesweepers, acquired from the erstwhile Soviet Union in the late 1970s.
India had picked Kangnam Corporation over Italian firm Intermarine for supplying the minesweepers three years ago after the South Korean shipyard offered a cheaper deal. Negotiations, however, hit a hurdle after Intermarine approached the Central Vigilance Commission alleging irregularities in the process.
The defence ministry had four months ago encashed a Rs. 3-crore bank guarantee furnished by the South Korean firm after the alleged role of middlemen came to light.
After taking over on May 26, the new government has revisited the UPA’s policy of blacklisting defence firms at the drop of a hat. The NDA government appears to be striking a balance between the need to punish defence contractors who may have violated the law and to keep the armed forces battle ready.
In August, the government decided it would not allow Finmeccanica, whose UK-based subsidiary AgustaWestland is facing bribery allegations in the VVIP chopper deal, to take part in future military tenders till further notice. But ongoing contracts with the Italian defence major would continue.
Likewise, India has frozen all contracts with British engineering giant Rolls-Royce (RR) following a bribery scandal but orders for supply of spare parts for aircraft engines are being approved on a case-by-case basis after assessing urgency, as first reported by HT on July 23.
It remains to be seen what action the government will take against Kangnam Corporation.


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