Rafale deal a quid pro quo: French media - Broadsword by Ajai Shukla - Strategy. Economics. Stuff.

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Wednesday, 10 October 2018

Rafale deal a quid pro quo: French media

French news website Mediapart reports internal Dassault document that says partnering Anil Ambani was a quid pro quo to New Delhi for 36 Rafale deal

By Ajai Shukla
Business Standard, 11th Oct 18

French news website, Mediapart, reported on Wednesday that it had accessed an internal document from aerospace firm Dassault, which stated that partnering Anil Ambani’s defence firm was a quid pro quo to New Delhi for winning a Euro 7.8 billion contract to supply 36 Rafale fighters to the Indian Air Force (IAF).

The French website report states: “Mediapart has obtained a Dassault company document in which a senior executive is quoted as saying the group accepted to work with Reliance as an 'imperative and obligatory' condition for securing the fighter contract.” The executive is identified in the Mediapart report as Loik Segalen, a senior member of the company’s aviation group, from whom the document originated on May 11, 2017.

The joint venture referred to was Dassault Reliance Aerospace Ltd (DRAL), which Anil Ambani’s Reliance Group had formed with Dassault, with the former holding 51 per cent and the latter 49 per cent of the equity. DRAL was set up just days before Prime Minister Narendra Modi and then-President Francois Hollande made the shock announcement in Paris, on April 10, 2015, that the IAF would buy 36 fully-built Rafale fighters from Dassault.

Opposition parties in India have charged the National Democratic Allliance (NDA) government with “crony capitalism” – alleging that government pressure was put on Paris to discharge offset obligations – worth 50 per cent of the value of the contract, or Euro 3.9 billion – through DRAL.

This was endorsed by former French President Hollande, who told Mediaparton September 22 that the Indian government had left Paris with no choice but to do business with DRAL.

Asked by Mediapart, “Who selected Reliance as a partner and why?” Hollande responded: “It was the Indian government who proposed this service group (Reliance Group), and Dassault who negotiated with Ambani. We did not have a choice, we took the interlocutor who was given to us."

Hollande was France’s president in April 2015, and he hosted Prime Minister Narendra Modi in Paris when the latter publicly announced his decision to buy 36 Rafales from Dassault in “flyaway” (or fully built) condition.

Paris and Dassault have issued statements indicating that the decision to partner Ambani was taken by them. But none of those carefully worded statements directly contradict Hollande’s explicit allegation.

Now the Dassault document reported by Mediapartreinforces Hollande’s words.

The Rafale deal has come under concerted attack from India’s opposition parties, which have charged the Modi government with paying an inflated price for 36 Rafales; with endangering national security by cancelling an on-going tender for 126 Rafales; and with “crony capitalism” in selecting the Reliance Group as a partner to Dassault. 

Anil Ambani has not denied benefiting from Rafale-linked offsets. However, The Reliance Group – in a series of legal injunctions issued to various media houses – has claimed that it benefited only from Euro 778 million worth of business, not Euro 3.9 billion.

While all 36 Rafale fighters are being manufactured in France, an offset requirement, which is a part of all Indian defence procurements worth more than Rs 2,000 crore (Rs 200 billion), requires French companies involved in the Rafale deal – Dassault, Thales, Safran Aero Engines and MBDA – to plough back 50 per cent of the contract value into Indian defence production.

Dassault’s Press Statement 

(Saint-Cloud, France, October 10, 2018) – Within the framework of the September 2016 Inter-Government Agreement between France and India, Dassault Aviation has sold 36 Rafale aircraft to India. In compliance with the Indian regulations (Defence Procurement Procedure) and as frequent with such a contract, Dassault Aviation has committed to offsets in India worth 50% of the value of the purchase.

In order to deliver some of these offsets, Dassault Aviation has decided to create a joint-venture. Dassault Aviation has freely chosen to make a partnership with India’s Reliance Group. This joint-venture, Dassault Reliance Aerospace Ltd (DRAL), was created February 10, 2017.

Other partnerships have been signed with other companies such as BTSL, DEFSYS, Kinetic, Mahindra, Maini, SAMTEL,… Other negotiations are ongoing with a hundred-odd other potential partners.

In compliance with French regulations, Chief Operating Officer Loïk Segalen informed, May 11, 2017, the Central Works Council of the creation of the DRAL joint-venture in order to fulfil some of the offsets commitment.



12 comments:

  1. There are many who think that the $8.8 Billion is far too expensive for 36 Rafale jets. Let's take a look shall we?

    ~ The fly away cost for a single Rafale airframe is $85 Million (according to official french documents)
    So for 36 Rafales = 36 x 85 = $3.06 Billion

    ~ IAF is getting two types of air to air missiles as well as two types of air to ground missiles. So the weapons package per Rafale costs around $25 million (average) = 36 x 25 = $900 Million

    ~ Setting up of two bases and maintenance depots costs $1.2 Billion

    ~ The deal said that it would cover 10 years of maintenance and spares. The total LCC is calculated for 40 years and it comes to around 2.5 times the price of airframes (average).
    Hence, for 10 years = 2.5 x 3.06 / 4 = $1.92 Billion ($53.4 Million per Rafale)

    ~ So far, the total adds upto $7.08 Billion.
    The remaining 8.8 - 7.08 = $1.72 Billion is for ToT and covers the 50% offsets (that means, 8.8 / 2 = $4.4 Billion will be re-invested back in India)

    Quoting $245 Million/ Rafale is just plain stupid. What people don't understand is that if India goes for remaining 90 Rafales for MMRCA, we'll have to pay only for the airframes, weapon and maintenance, since the two bases being set-up can handle three squadrons each without major expenditure.

    That is 90 * ( 85 + 25 + 53.4 ) = $14.7 Billion excluding another $500 Million for upgradation of the bases. (again with 50% offsets)

    So the total cost for 126 Rafales will be $24 Billion (pretty close to the $20 Billion quoted in the original MMRCA deal adjusting for inflation and ToT)

    (Note - The figures are estimates and only provided to give you an idea as to the real cost break-up structure. The cost for 90 remaining jets will increase due to the 'Make in India' initiative for setting up assembly line. But the re-investment will compensate most of the additional cost)

    ReplyDelete
    Replies
    1. Good approach but not correct.

      Weapons for Rafale will be same as carried by Mirage. India has a good stockpile of Matra and allied French missiles. Furthermore, with the Mirage upgrade,USD 1 Billion worth additional missiles have been purchased.

      For reference, SU-30 MKI fly away price is 40 Mill. For armament cost to be 25 Mill is not practical and is huge.

      Bases are already present. Kalaikonda is going to be the Rafale base. The second base will be Gwalior..not confirmed yet. No one is spending $1.25 Billion there. Also, it does not cost that much to make a military airport.

      Third. Rafale maintenance is not 2.5X product price as french aircraft have low maintenance spend unlike Russian aircraft. Moreover, no aircraft purchase comes with lifelong support clause and first 3 years support is inclusive in fly-away price

      Much as you would want to explain it, reality is there is a huge extra payment done- only question is whose pocket it has gone to.

      Delete
    2. Sir, so cost if Tot and Offsets is 25% of base price (1.72 billion over 7.08 billion). But you never mentioned 25% extra which would be charged for TOT and offsets for next 90 aircraft ie 25% over and above 14.7 billion + 500 million $ ie 4.5 billion $ . India was supposed to get source code and sarkozy promised complete transfer of technology in every respect.
      Now that goes to above 30 billion $ . Now you want to add another few billion for setting up assembly line.Going with example of sukhoi it would add another 5 billion.

      So it's about 35 billion for the same deal which was to come for 20 billion.
      And why are you misleading us about inflation when rupee has actually fallen and dollar has severely appreciated so actually we are going to pay around 40 billion in those real terms.

      So sir even without it you have yourself enhanced the cost by 75% and now it comes to near double.
      And yes Ambani are the best person available for offsets and defence minister would never have to sign their acceptance as offsets providers

      Do u even realize how much difference is that 15-20 billion would have made to entire education and healthcare system of india.

      I now understand for a fact that for you we are second grade indians when it would come about ambani/adani.

      We have to sell our mothers and sisters in open haat just to fill their coffers just because they are favourites of 56 inch deity...

      IAF is getting obsessed with two front war. It is in absolute love with Rafael and then it would have liked to choose gripen never mind the Adani connection so as to destroy tejas like they did to HF24 Marut and favouring Jaguars.

      It's just India could have never afforded none of these aircrafts but only tejas may be it took other 20 years to get it.
      When the nation could afford 20 year delay in financing a proper education system and also can afford similar delay in our healthcare system which this 35-40 billion $ would have brought to india, we could definitely afford another 20 year delay in acquisition of aircraft.

      IAF was extremely cruel in choosing an aircraft which our economy could never have afforded when purchased in any suitable number let alone it's TOT.
      After spending so extravagantly on developing infrastructure for a costly aircraft we are stuck with it now as if we didn't choose it in future the entire investment made would go underutilized.
      India is actually financing French war machinery as we did with Russians.
      France would never have supported our nuclear programme if they did not wanted to sell their mirage 2000 production line.

      Colonialism is still alive.

      For if India decides that IAF would never be allowed to purchase another piece of imported equipment, india would have developed it's own with in a term of 20 years like that of navy.

      But for the corrupt hierarchy of IAF which is busy minting favours especially scholarships for their kids.

      Only an idiot would deny healthcare and education to its populace and prepare for a two front war.

      Traitors in uniform.....

      Delete
  2. Here we go..... the only question now left to ask is how much Mr Ambani is paying to the BJP election kitty out of his abundant takings (778 million Euros) from the offsets. I feel sorry for the hapless Indian taxpayer and the hard-pressed IAF, whose hopes of adding further Rafales are doomed to failure.

    ReplyDelete
  3. Text Size: A- A+
    New version of Dassault statement indicates it may have been misinterpreted as being forced to pick Reliance Defence for Rafale offsets.

    New Delhi: Has a Dassault Aviation document that said it was “imperative and mandatory” to move one of its assembly lines to India as part of the Rafale deal offsets condition been misinterpreted as the firm being forced to pick Anil Ambani’s Reliance Defence for the offsets?

    That is the question that arose Thursday after a French journalist indicated that a Dassault document on the controversial deal may have been lost in translation, sparking a fresh political furore in New Delhi.

    Also read: Actually, the Indian Air Force has never been without a Dassault aircraft

    The Dassault document of May 2017 was first reported by French news portal Mediapart Wednesday evening. It said Dassault Aviation, the maker of the Rafale, had told its workers that it was “imperative and mandatory” to choose Reliance Defence as its offsets partner.

    The document was referring to the decision of the company to transfer its assembly line to produce the Falcon business jets to the joint venture Dassault Reliance Aerospace Ltd facility being built in Nagpur. And Dassault had to explain to its workers why it was not creating jobs for French labourers. Dassault identified Reliance as “counterpartie” or “counterpart” in the document.

    The Mediapart report said: “At Dassault Aviation, according to a document obtained by Mediapart, the alliance with Ambani was indeed presented as a ‘counterpart’ to the Rafale sales contract.

    “Dassault Aviation’s deputy chief executive officer, Loik Segalen, made this clear on May 11 2017 during a presentation of the Nagpur Dassault Reliance Aerospace joint venture to the staff representatives: ‘It was imperative and mandatory for Dassault Aviation to accept this counterpart, in order to get the export contract from India,’ said the no.2 (of) the group, according to elected staff,” the report added.

    But Julien Boussiou, the South Asia correspondent of French newspaper Le Monde, interpreted the Dassault comment in the document differently. In a series of tweets Wednesday, Boussiou said Dassault was required to communicate important business decisions to trade unions in keeping with French labour laws.

    “In May 2017, Dassault informed French trade unions about the construction of a plant in Nagpur, and explained to them why that plant could not be built in France (because of the offset),” he wrote.

    Boussiou said the Mediapart report only pertained to the explanation Dassault gave workers on why the facility in question was being built in India. The explanation, he added, was “about French laws, not so much about Anil Ambani”.

    ReplyDelete
  4. How will GoI defend Rafale pricing? 36 Jets with a fly away cost of USD 90 Mill in 2015/16 amount to 3.25 Billion. We paid USD 8.6 Billion. What did we get for the difference of 6 Billion dollars?

    Cannot be India specific customization as airframe, avionics and power plant stay the same. Helmet mounted targeting systems are not customization and Israelis do not price it at billions...

    Cannot be support price as French aircraft have very high reliability and the primary reason they are more expensive than a SU-30 MKI which costs USD 45 Million odd is less spend in maintenance and higher reliability

    Weapons...India purchased 1 billion dollars of French missiles/armaments with the Mirage 2000 upgrade which will work with Rafale....If we indeed purchased missiles worth 6 Billion...what did we purchase?

    Where did the extra money go? Why cannot any journalist ask the defence minister this??

    ReplyDelete
    Replies
    1. Lol. Before asking others, just do some basic search to find out breakdown of the contract.

      Delete
    2. "How will GoI defend Rafale pricing? 36 Jets with a fly away cost of USD 90 Mill in 2015/16 amount to 3.25 Billion. We paid USD 8.6 Billion. What did we get for the difference of 6 Billion dollars?"

      Flyaway cost can mean a lot of things.
      In this case, there are 20+years of research and development involved, it might cost Dassault/France 90mn to build one, a it's likely more, but that doesn't mean they sell them for that.
      The Typhoon "cost" is £90mn, but that jumps to £125mn one you account for development costs, and who knows if that is inflation adjusted in any way.

      It's also not really $8bn India is paying
      It's $4bn in cash and $4bn in offset investment credits, which are going to be deeply discounted by Dassault.

      Delete
  5. Hello Ajay ji , Some of the Interviews given by you in recent past are not matching with the facts now coming up from your counterparts from media as well as IAF.
    1) You have said in alot of interviews that price paid per Air craft is very high than UPA gov. times. Air wing veterans have rebuffed your Theory.
    Even Congress Party is not raising the point of higher price compared to NDA's deal per basic
    Raffel fighter.

    2) As you were saying in interviews earlier that how Relaince was benefited with 36k Cores. But did you checked the facts about the Offset Agreement. There are more than 10 compines with which Dasult Company is signing the Offset Contract &&& The Total amount of Offset is 6-7k cores.

    3) As you were saying in interviews earlier that how Relaince defence dont have experience in making Defence Equipment ---- Very true. BUT Shriman Ji did you tell the people that All the 36 planes are coming in Fly-Away Condition. Nothing is going to be made by Relience Defence. Offset Agreement Which is made by UPA stating that some part of profit has to be invested in India regardless in Defence Eqipments.

    https://www.timesnownews.com/videos/news/india/rafale-deal-only-10-offsets-go-to-reliance-have-10-other-india-partners-dassault-ceo/12386

    Alot more is there to fact check on yotube. your version as i mentioned above & facts to contradict you -

    Yours - https://www.youtube.com/watch?v=IzBufb890H4
    https://www.youtube.com/watch?v=b1z8Lw6Wj-E

    Contradicting you -> IAF Dy Chief Defends Rafale Deal: "Misinformation Spread On Offset Contract" https://www.youtube.com/watch?v=bb5-Ztr9qqs

    Rafale deal: 'Only 10% offsets go to Reliance, have 10 other India partners': Dassault CEO
    https://www.timesnownews.com/videos/news/india/rafale-deal-only-10-offsets-go-to-reliance-have-10-other-india-partners-dassault-ceo/12386

    Mr. Shulka are you helping false Propagation Agenda ??? seems to me after your versions.
    OR you are a person who blabbers with limited knowledge ??

    I am a person who followed your site since last 10 yrs or more to feed my quest To know about my countries achievements in defense .. where we are standing against sinister neighbours pakistan & china in Two fronts.
    As Congress has gone to supreme Court (As usual) for political gain. RG came to bangaluru to meet HAL employees today .. boycotted by union .. nobody was there only arranged retired employees. The same Congress in 2014 which was saying that "If the Planes made by HAL develops any problem then Dasult will be liable." talking about capability of HAL now when 2 front war is at door step with very less no. of fighters left.

    Shriman Ji , IF your version comes as wrong .. i will evaluate you as a person i mentioned above.

    ReplyDelete
  6. Sir it was anil ambani and it's company which came up with figure of 30000 crore for its shareholders.
    Adani was made a suitable partner of saab gripe another coveted aircraft is open knowledge.
    Si please ask the most perfect industrialists ie ambani/adani how come they alone are chosen for these coveted deals.
    Mr modi is just too innocent and yes we indians deserve to be made slaves and our mothers and sisters should be sold in open hatt just to fill the coffers of such wonderful industrialists

    Only serving the interests of Ambani and Adani is true indication of being a true indian and rest all are traitors

    ReplyDelete
  7. People did not question absurd high price for Mirage 2000 upgrade, which i recollect was upwards of $4 billion for 51 air craft. And that upgrade does not include a change of Engine.
    If for upgrading GOI is paying over 4 Billion USD, why would the Rafale not cost $8.6 billion?

    ReplyDelete

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