Govt threatens to blacklist Italian firm, asks for details - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Thursday 14 February 2013

Govt threatens to blacklist Italian firm, asks for details

The MoD's detailed chronology of how the AW-101 was chosen

by Ajai Shukla
Business Standard, 15th Feb 13

With the opposition threatening to disrupt the budget session of parliament over allegations that kickbacks were paid in India in the 2010 purchase of 12 VVIP helicopters from Anglo-Italian company, AgustaWestland --- and the BJP stating that this had the “makings of a second Bofors scam” --- the defence ministry (MoD) has issued a detailed brief that makes public the facts in the case.

Such a detailed brief is unprecedented from the MoD, usually the most opaque of ministries. According to the release, the NDA government changed the specifications of the helicopter in 2003. When reports of irregularities began appearing, the MoD urged the MEA to take action, but the MEA said it was constrained by Italian legal processes.

According to the MoD, the process of procuring a new fleet of helicopters for VVIP travel began in August 1999, when the IAF pointed out that the old Russian Mi-8 helicopters in its Communications Squadron (which pilots VVIPs) could no longer operate at night and in bad weather, and to helipads above 2000 meters (6500 feet). To identify new helicopters, the MoD floated a global tender in March 2002 for eight helicopters, mandating that they should be able to operate up to 6000 metres (19,685 feet).

While four vendors submitted tenders, just one --- Eurocopter’s EC-225 helicopter --- met all the conditions laid down. At that stage, as Business Standard first reported (“VVIP helicopter deal comes under CBI scanner”, Feb 13, 2013; and “Brajesh Mishra loosened norms that let AgustaWestland in: Tyagi”, Feb 14, 2013) Prime Minister Atal Bihari Vajpayee’s office (PMO) decided to loosen the specifications, a decision that led to AgustaWestland winning the contract seven years later.

According to the MoD, “On November 19, 2003 a meeting was taken by Principal Secretary to PM [i.e. Brajesh Mishra] on this subject.  In the meeting, Principal Secretary observed that his main concern was that the framing of the mandatory requirements has led us effectively into a single vendor situation.  It was also noted that PM and President have rarely made visits to places involving flying at an altitude beyond 4500 meters.  In the meeting it was decided to make the mandatory requirement for operational altitude 4500 meters.  The higher flying ceiling of 6000 meters, and a cabinet height of 1.8 meters could be made desirable operational requirements.  It was observed that with these revisions, several helicopters which otherwise met all requirements but had been rejected due to the altitude restriction, would now come into the reckoning (emphasis in original).”

The MoD says that Brajesh Mishra followed up this meeting with a letter to the IAF chief on Dec 22, 2003 “stating that it was unfortunate that neither PMO nor SPG was consulted while framing these mandatory requirements.  He suggested that CAS and Defence Secretary may jointly review the matter to draw up realistic mandatory requirements satisfying operational, security and convenience requirements of VVIPs and also set in motion a fast track process for selection and acquisition of the replacement helicopters.”

Accordingly, the IAF, NSA, SPG/PMO and MoD consultatively framed out fresh operational requirements (ORs) from March 2005 to September 2006. They also decided to add 4 helicopters in “non-VIP configuration” to the 8 helicopters in VIP configuration “for security reasons”.

Business Standard understands that the SPG argued for four more helicopters for carrying additional security personnel and equipment.

By then, the Defence Procurement Procedure of 2005 (DPP-2005) had come into effect. Under its provisions, the Defence Acquisition Council (DAC) sanctioned the procurement of 12 helicopters on Jan 03, 2006, under the “Buy” category. A global tender was floated on Sept 27, 2006, which mandated that the supplier would have to fulfill 30 percent offsets.

The MoD says that “Three vendors, namely M/s Sikorsky, USA (S-92 helicopter), M/s AgustaWestland, UK (EH-101 helicopter) and M/s. Rosoboronexport, Russia (Mi-172 helicopter) responded to the RFP.”

Since Rosoboronexport did not deposit earnest money, or a signed Integrity Pact, “their Techno-Commercial offer was not accepted,” says the MoD. Only the Sikorsky S-92 and the EH-101 were called for field evaluation trials.

Interestingly, the field evaluation trials were not carried out in India. According to the MoD, “The Field Evaluation Trial of M/s AgustaWestland was carried out in UK and trials of M/s Sikorsky were carried out in USA from 16 January 2008 to February 2008.  The Field Evaluation Trial team submitted its report in April 2008 and recommended AW-101 helicopter of M/s AgustaWestland for induction into Service.  SPG was also part of the Field Evaluation Trial team.”

[The AgustaWestland helicopter was called the EH-101 till 2006-07, but known as the AW-101 thereafter].

According to the MoD, the S-92 helicopter failed on four counts: it did not have a suitable “Missile Approach Warning System”, which would warn the helicopter pilots about any missile fired at them; it could operate only up to 4500 metres; it had problems with its “Drift Down Altitude”; and it could not hover high above the ground. The MoD says, “Staff Evaluation Report assessed the VVIP helicopter AW-101 to be fully compliant with all SQRs (emphasis in original).”

From Sept 19, 2008 to 21 Jan 2009, the Contract Negotiation Committee (CNC) negotiated the terms of the contract with AgustaWestland. During this period, Air HQ, recommended inclusion of Traffic Collusion Avoidance System (TCAS-II) and Enhanced Ground Proximity Warning System (EGPWS) for all 12 helicopters and SPG/PMO recommended inclusion of Medevac System for 8 VVIP helicopters.

Accord to the MoD release, “The CNC, thereafter, recommended conclusion of the contract at a negotiated price of Euro 556.262 million.” This is just under Rs 4,000 crore at today’s exchange rate. The Cabinet Committee on Security (CCS), the final approving authority for such contracts, approved the purchase on Jan 18, 2010. The contract for the supply of 12 AW-101 VVIP helicopters was inked with M/s AgustaWestland, UK on Feb 08, 2010.

The MoD notes that the contract with M/s. AgustaWestland includes specific contractual provisions against bribery and the use of undue influence, and spells out the articles that can be invoked in case wrongdoing is detected. In addition, the MoD notes that AgustaWestland has signed an Integrity Pact that is effective for five years from the date of signing, or till the contract is executed, whichever is later. The penalties include “forfeiture of the earnest money, performance bond, cancellation of the contract without giving any compensation, to recover all the sums already paid with interest, to cancel any other contracts with the bidder and to debar the bidder from entering into any bid from the Government for a minimum period of five years which may be extended, etc.”

The MoD release also details the action it has taken since the first reports of alleged corruption appeared in the media in February 2012. The day after, “MoD sought a factual report in the matter from our Embassy in Rome.” The MoD wrote again to the embassy in April 2012, which sent a “detailed report on the status of the case” the next month, making it clear “that there are inherent difficulties in obtaining formal details of the case given the independence of the judiciary from the executive in Italy.”

Eventually, “A formal request was indeed made by the embassy to the Naples prosecutors office on July 16, 2012 (emphasis in original).”

The release notes that “MoD received more than one communication from M/s AgustaWestland confirming that the statements in the press are “completely unfounded and have been issued with malicious intent” and that “no commissions whatsoever were paid” in the case.”

The MoD says that it was also impressing on the foreign ministry (MEA) the need to press the Italian authorities on the issue. According to the release, “Defence Secretary wrote to Secretary (West), MEA, in October 2012 reiterating the importance of the need to get information from the Italian authorities so that MoD could take further necessary action in this regard.”

The MEA responded that the “matter had been taken up with the Italian side and the position conveyed for the need for ‘reliable information’, for “news reports alone could not be the basis for the Ministry of Defence to make any preliminary determination”.

In October 2012 Defence Secretary also wrote to Secretary (West) to take up the matter with the Government of UK in view of the alleged involvement of a British citizen and the fact that the contract was signed with M/s AgustaWestland, U.K. The next month, “Secretary (West), MEA, replied to Defence Secretary stating that ‘the U.K. authorities were waiting for the results of the Italian investigation in order to ascertain whether there are further actions to take’.”

The MoD notes that it was willing to take action even on the basis of press reports. However, “As soon as information was available of one concrete step having been taken by the concerned foreign investigative authorities, namely, the arrest of Mr. Giuseppe Orsi, CEO, Finmeccanica on Feb 12, 2013. MoD handed over the case to CBI for investigation and put on hold all further payments to AgustaWestland.  Besides this, the Indian Embassy has been requested to provide the factual position and any other relevant information.  The CEO of M/s AgustaWestland has also been asked to categorically state the clear position in view of the current developments indicating specifically if any financial transaction has taken place with any Indian individual / entity which would be violative of the Integrity Pact or any other terms and conditions of the contract (emphasis in original).”


  1. I wonder who is going to benefit from the peak of the table are those who are at an advantage with the balance of power vis a vis armament of Indian, Pakistan and Chinese armed forces...and do not want India to be at a position to not let her be dictated in the coming future when US leaves Afghanistan....

    After all the Bofors scandal was raked up when India could dictate terms in Asia and was mighty enough to call china and pakistan a "rat" due to their sniping at India's tails....

    The G5 al;so were not very happy as it lowered NATO and its counterparts role in srilanka, maldives and the string of pearls that time India also didnt need to go over with a begging bowl to the U.S crying over terrorist attacks on her soil but could easily threathen off the attacks by her own might...

    Alas when the Indian layman could understand that economic growth goes hand in hand with its protection....and thus spending money to update our inventory is more usefull even at an economic slowdown, as not being able to fight a war and losing one at this juncture would put an all stop to Indian economy as a whole, the finance minister started by pulling the plug stating economic reasons to become weaker and then this game.....
    Now a brigadier is funny or ironic actually that no IAS BABU or politician name has cropped up in these reports...that itself makes it fishy.....and im sure the babu who wants to deny the armed forces its OROP, or any opposition frm the army with regards to AFSPA or the armed forces not being bullied by HAL/DRDO emotional atyachaar or indegenissation and thus no procurement or update of the inventory by contradicting the MoD, this whole game smells of something more murkier

  2. dude stop being a shill for the congress party. you are fast losing your credibility which took you the past 4 years to build. granted your shukla khandaan are basically INC supporters which allowed you great access to the MOD, but dont wear your party affiliations so openly

  3. DM and MoD... what were they wishing... it will vanish by itself... it's parmount... equals... aiding and abetting... bribe... justice delayed... non pursuit of justice... is justice denied...

  4. Blacklisting a firm is no solution. Its just a way to avoid holding individuals accountable and prosecuting them. It would lead to rotting of the three choppers already received and the country's defense will be the ultimate and only victim as always.

  5. A.K Anthony once again shows that he can kick some serious ass ! He waited longer that he should have on this one but he's had 'nuff and hopefully defence contractors the world around will sit up and take notice that "under the table" will not work going forward in India any more!

  6. MOD is cancelling the has already paid 30% of the contract money to Italians and if it cancels what happens to the orders and the 30% money paid. More importantly this will kill the investigation and allow Rajmata and the retard to walk free with the loot..AK Antony is the worst Defence Minister after Krishna Menon..incidentally both are from Kerala

  7. From all the facts and figures emerging out of the investigation in Italy, it is amply clear that Christian Michel, the chief protagonist in the case received the lion's share of the payments and it also appears that he used some of that cash to influence not just people inside the Indian defense establishment and ministries but that some of that cash went to fund sponsored articles in the Indian press !
    Sad as that is, that's just a fact of life these days.
    Col. Shukla, I hope is an exception (?).....

  8. Catch and punish the individual culprits if any. Blacklisting of the companies boomerangs and hits back at the projects and others in many aspects. Faulty companies can be made to pay the requisite penalty in financial terms.

  9. I think it's a good helicopter and fits India basic requirements in physical and tech. So punish the bribed and move on. What other choice does India have when 3are already delivered...

  10. Afghanistan: Why doesn't GoI/HAL/DRDO consider Afghan Air Force as prospective customer for Tejas fighter jets. This will allow India a sorely needed footprint in Afghanistan and ready market for a needy customer. Just a thought... I hope our NSA is reading and bold enough to make leadership decisions. Although I doubt our leadership actually has any spine in them.

  11. If our leadership is spineless, atleast it should allow USAAF an airbase to maintain Air cover for Afghan Army. If US pulls Air cover for Afghan forces, everyone (Pakistanis & US) knows that Afghanistan is a cake-walk for Taliban and Haqqani Network. Does our NSA ever think proactively, instead of making skirmishes at the LoC?

  12. to anon 8.47,wow what a dream.why any country will buy a fighter which is not even ready after 3 decades and may i remind you that tejas mk1is going to cost around $30million and a state like afghanistan is not in a position to splurge that much amount of money on a plane which is still not combat ready and god knows how much time it will take to join iaf.iaf cheif said in an interview that tejas is a 3rd gen plane or atmost 3+ and it has still a lot to achive.mk2 is still on stop dreaming.first of all it has to be combat ready plane.

  13. to annon 8.51,Thank god you are not the decision maker.And as far as i know if india wants to do any thing then it is capable to anything you have mentioned.Now look the aftermath in afghanistan after withdrawal of NATO in 2014.US as well as Afghanistan will seek for the help of indian forces as afghanistan president karzai had already told pak to leave FATA.If pak any any insurgent inside it's territory and even political leaders in pak does any thing wrong then they have to get ready for dire consequences.


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