February 14, 2013 by Shiv Aroor - Livefist
This is an unedited statement by the MoD on the acquisition of VVIP helicopters for the IAF, currently suspended after the arrest of Finmeccanica CEO Giuseppe Orsi.
The Facts: In August 1999, the IAF which is responsible for carrying out VVIP communication task, proposed the replacement of Mi-8 VIP helicopters due to severe operational constraints, such as, inability of Mi-8 to operate at night and in adverse weather, inability to operate safely at places in elevation beyond 2000 meters etc. IAF felt the need for the replacement of Mi-8 helicopters as they were completing their total technical life.
2. A global RFP was issued in March 2002 to which 4 vendors responded. The Technical Evaluation Committee shortlisted 3 helicopters and accordingly flight evaluations were conducted. Since, EH-101 of M/s. AgustaWestland was not certified for an altitude of 6000 meters, it did not participate in the flight evaluation. The Russian helicopter Mi-172 could not comply with 7 mandatory Operational Requirements (ORs). After flight evaluation, EC-225 of M/s. Eurocopter, France was found suitable for acquisition.
3. On November 19, 2003 a meeting was taken by Principal Secretary to PM 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.
4. The meeting was followed by a letter dated 22nd December, 2003 from the Principal Secretary to PM to the Air Chief, 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.
5. In pursuance of the above directive, the ORs were deliberated at length between IAF, NSA, SPG/PMO and MoD between March, 2005 to September, 2006 and the above indicated changes were incorporated.
6. The required numbers of helicopters for the entourage of VVIP was further deliberated between Air HQ, MoD and SPG/PMO. The quantity of helicopters proposed for procurement was revised from 8 to 12 helicopters by adding 4 helicopters in non-VIP configuration for security reasons.
7. The AON for the procurement of 12 helicopters was accorded by the Defence Acquisition Council under ‘Buy’ category with 30 percent offsets on 3rd January, 2006. RFP was issued to 6 vendors on 27th September, 2006.
8. 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.
9. M/s. Rosoboronexport did not submit earnest money deposit and the Integrity Pact, along with their Technical and Commercial proposals. It had been made clear to M/s Rosoboronexport in February 2007 that this was a global tender and hence every contractual clause would be the same for all vendors. As no Integrity Pact and Earnest Money Deposit were received from M/s Rosoboronexport, their Techno-Commercial offer was not accepted.
10. The Technical Evaluation Committee evaluated the technical proposals of M/s Sikorsky and M/s AgustaWestland and recommended field evaluation trials of their helicopters.
11. 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.
12. The Staff Evaluation Report of Air HQ concluded that the S-92 helicopter was non-compliant with respect to four SQRs for the VVIP helicopter (Missile Approach Warning System, Service Ceiling of 4.5 km, Drift Down Altitude and Hover Out of Ground Effect). The Staff Evaluation Report assessed the VVIP helicopter AW-101 to be fully compliant with all SQRs.
13. Technical Oversight Committee constituted on 6 August 2008 found that the field evaluation trials, compliance to SQRs and selection of vendors were done according to the prescribed procedures.
14. Contract Negotiation Committee (CNC) was constituted and it carried out its discussions with the vendor between 19 September 2008 and 21 January, 2009. While the CNC was progressing its discussions, 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. These additional equipment were considered to be essential for safe and effective operation of the helicopter in VVIP transportation role. SPG also agreed to these requirements. The CNC, thereafter, recommended conclusion of the contract at a negotiated price of EURO 556.262 million.
15. On completion of CNC the proposal was submitted for approval of the Cabinet Committee on Security (CCS). The CCS considered the proposal in its meeting held on 18 January 2010 and approved the proposal.
16. In pursuance of the decision of the CCS the Ministry of Defence concluded a contract for the supply of 12 AW-101 VVIP helicopter with M/s AgustaWestland, UK on 08 February, 2010.
17. The procurement case was, thus, progressed in accordance with the established procurement procedure in a transparent manner with all stages of procurement being followed meticulously. Security aspects as required by SPG/PMO and IAF were fully taken into consideration. The role of PMO which began in 2003 was to ensure that security, communication and other requirements of VVIP security were taken care of and the helicopter for VVIP use is selected on the basis of broad based QRs.
18. Contract signed with M/s. AgustaWestland includes specific contractual provisions against bribery and the use of undue influence. Article 22 of the contract deals with penalty for use of undue influence. This clause entitles the ‘Buyer’ to cancel the contract with the ‘Seller’ and recover from him the amount of any loss arising from such cancellation. Article 23 of the contract dealing with agents and agency commission requires the ‘Seller’ to confirm and declare that he has not engaged any individual or firm, whether Indian or foreign, whosoever, to intercede, facilitate or in any way to recommend to the Government of India or any of its functionaries, whether officially or unofficially, to award of the contract to the ‘Seller’ nor has any amount been paid, promised or intended to be paid to any such individual or firm in respect of any such intercession, facilitation or recommendation. This clause further entitles the ‘Buyer’ to consider cancellation of the contract without any entitlement or compensation to the ‘Seller’ who shall be liable to refund all payments made by the ‘Buyer’ in terms of the contract along with interest.
19. In addition to the above contractual provisions, M/s. Agusta Westland has signed an Integrity Pact with the Government. The validity of this Integrity Pact is from the date of its signing and extends up to five years or the complete execution of the contract whichever is later. Under the Integrity Pact, the bidder commits himself to take all measures necessary to prevent corrupt practices, unfair means and illegal activities during any stage of the bid or during any pre-contract or post-contract stage. Any breach of the provisions of the Integrity Pact entitles the ‘Buyer’ to take actions against the ‘Seller’ which includes 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.
20. As regards, the allegations of unethical dealings in helicopter procurement case including involvement of middleman and payment of bribes etc., the first report in the media appeared in February 2012.
21. Immediately (the next day after the news item appeared in the papers) DG(Acq) in MoD sought a factual report in the matter from our Embassy in Rome.
22. MoD also noted the report in the ‘Hindu’ of 28.2.2012 that, quoting Finmeccanica, states that its subsidiary AgustaWestland is not involved in “any irregularity in the deal”.
23. Subsequently, 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.
24. In April 2012, MoD wrote again to our Embassy in Rome seeking an update.
25. A detailed report on the status of the case was received from our Embassy in Rome in May 2012. The report made 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.
26. MoD in July 2012 wrote to our embassy in Rome stating that it could approach the concerned judicial authorities directly. A formal request was indeed made by the embassy to the Naples prosecutors office on July 16, 2012.
27. Since factual information was difficult to arrive at, 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.
28. MEA’s response again was 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”.
29. In October 2012 Defence Secretary also wrote to Secretary (West) to take up the matter with the Government of U.K. in view of the alleged involvement of a British citizen and the fact that the contract was signed with M/s AgustaWestland, U.K.
30. In November 2012, 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’.
31. Earlier, in connection with the letter received from one
Mr. Edmund Allen of Ganton Limited, USA, MoD had written on 19.4.12 to CBI and Enforcement Directorate for necessary action, as Abhishek Verma and others were also being named in various media reports in connection with several defence deals. Later, Enforcement Directorate informed MoD in July 2012 that they were enquiring into the allegations.
32. In November 2012, a letter was received in MoD from the Director, Income Tax (Investigations) regarding allegations against Indians possibly involved in the deal as middlemen and seeking information about them. The current status of the case was conveyed to the income tax authorities in January 2013; in return, MoD asked Income Tax to share with it any ‘credible information’.
33. Throughout the process of this case, MoD has been prompt to take action on newspaper reports, and to seek factual information from the concerned authorities. Since foreign governments are involved, MoD has consistently pursued the matter though MEA.
34. 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 Agusta Westland. 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.
35. As already mentioned above, both the contract and integrity pact signed with M/s AgustaWestland, U.K., contain specific provisions by which strict action including cancellation of contract, recovery of payment, blacklisting and penal action can be taken against the vendors. Government is determined to take all possible legal and administrative action against the guilty parties and accordingly has ordered a thorough probe by CBI.