NEWS:
The Indian Defence Ministry will seek the opinion of the Law Ministry on the response given by the Anglo-Italian firm AgustaWestland, before taking any decision on the controversial VVIP helicopter deal, which may be scrapped eventually. The company submitted its response to the Defence Ministry’s show-cause notice, a day ahead of the deadline, but an official said the response and Law Ministry’s opinion would be studied first before any decision is taken on the deal. India had paid a substantial part of the Rs. 3,700 crore deals and received three helicopters, two in VIP and one in cargo configuration. The money paid so far, is for six choppers. The deal has been frozen since February 2013, hours after Italian police arrested the top boss of Finmeccanica.

VIEWS
In 2010, the Ministry of Defence (MoD) awarded a contract worth Euro 560 million ( Rs. 3,700 crore) to the Anglo-Italian company AgustaWestland, part of the Italian aerospace major Finmeccanica, for the supply of 12 AW101 helicopters. These platforms were required for use by the President and the Prime Minister (PM) of India as also other heads of states visiting India as the guest of the government. The platforms were to be operated by Air Headquarters (Air HQ) Communication Squadron located at Delhi.

In response to a proposal initiated in August 1999 by Air HQ to replace the ageing fleet of Mi-8 helicopters with the Communications Squadron; in March 2002, the MoD issued a global request for proposal (RFP) for the supply of eight helicopters. On initial scrutiny itself of the four vendors that responded to the RFP, three did not fulfil the staff qualitative requirements (SQRs) resulting in a single vendor situation that was not acceptable under the procurement procedures. Under guidance of the Principal Secretary to PM, the SQRs were revised, numbers increased to 12 and a fresh RFP was sent to six vendors in September 2006. After elaborate evaluation and field trials Air HQ concluded that amongst the six contenders, only the AgustaWestland AW101 was fully compliant with the SQRs.

Against an advance payment of 30 per cent of the contract value, the company delivered the first three machines in December 2012 and was to supply the remaining nine by mid-2013. Pilots and engineers have already undergone training in the UK and a stock of spares for long-term maintenance has also arrived. However, things went haywire following accusations against Orsi, CEO Finmeccanica, by a former employee after he was sacked for “ethical violations”. Orsi was accused of bribing Indian officials to swing the deal in favour of the company while heading AgustaWestland. The Italian Government then initiated investigation and judicial proceedings against Orsi for the alleged misdemeanour, a step that was inspired possibly by internal conflict in the Italian polity rather than concern for propriety in foreign contracts. This move by the Italian Government also appears somewhat strange as it has the potential to decimate this high value contract leading to substantial financial loss, especially when the Italian economy is passing through troubled times. A clear cut case of “cutting ones nose to spite the face”.

The first report of possible wrongdoing in the AW101 contract appeared in the Indian media in February 2012. However, after the arrest of the Finmeccanica CEO in February 2013, the MoD handed over the case to CBI for investigation and put on hold further payments to AgustaWestland. On October 21, the MoD issued a final show cause notice to AgustaWestland, seeking to cancel the deal for violation of the integrity pact. Reply to the notice by the company has been referred to the Law Ministry for opinion. Meanwhile, the MoD has rejected an appeal by AgustaWestland for arbitration and there is a strong possibility that the contract may be cancelled by the Indian Government. Disposal of the three helicopters and the spares already with the IAF, as also modus operandi for the recovery of advance payment, are issues that remain unclear.

Whatever be the truth behind the allegations of misdemeanour and irrespective of who the beneficiaries of the alleged illegal payments are, it is important that the MoD does not lose sight of the objective of the exercise that began 15 years ago, which is to procure helicopters suitable for VVIP use. Contractual paradigms and corrupt practices need to be regarded as two separate entities. The Defence Procurement Procedure needs to be suitably modified to include provisions for dealing with corrupt practices detected in the process of procurement of military hardware, without these or follow up action impinging on the continuation of contract itself. Unfortunately, in the last decade, the practice of cancelling the procurement process related to defence hardware owing to detection of irregularities, appears to have become the rule rather than an exception. In the case under discussion, the helicopters in question are not “military hardware” and cancellation of the AW101 contract will only degrade the facilities required for VVIP travel. But cancellation of major contracts related to defence equipment required urgently by the Indian armed forces, would undoubtedly have disastrous implications for national security. Hopefully, in the case of the AW101 contract, wise counsel would prevail or will turn out to be another case of “cutting one’s nose to spite the face”.