‘Govt deal on Rafale jets overpriced’

The price at which the Ministry of Defence (MoD) is negotiating the 36 Rafale jets, at $200 million each, is being considered as an “overpricing” exercise by sources. 

The Egyptian air force is negotiating for the same kind of Rafale models – in terms of specifications – at $110 milllion per piece. Though a fact can be held officially that the contract negotiation committee (CNC) has not been concluded, thus the price of $200 milllion per aircraft cannot be considered as MoD’s final price yet.

Contrary to some news reports that optimistically claimed the CNC being on the verge of coming out with their final price of the contract, apparently pegged at $7.2 billion, the ministry has made it clear that the negotiations are still some time away.

A source, involved in the life cycle costing (LCC) process of the medium, multi-role combat aircraft (MMRCAs) to be worked upon before the lowest bidder (L1) was to be selected said recently that choosing Rafale as the only contender for the contract –  being L1 – was a decision-making error.

For, had there been another contender for the contract, a competitive play could have been made in bringing down the prices of both the manufacturers/suppliers. The pricing element of  Dassault has proved to be a bane for a long time. First, when the original Request for Proposal (RfP) was drafted, a weapons suite was mentioned in the document. But there have been additions since. And MBDA executives told this correspondent recently that the “weapons suite was not included in the price of the contract being negotiated now.”

Second, the ‘offsets’ clause of the contract negotiation process was a major sticking point. While the Defence Procurement Procedure (DPP) had provided for 30 per cent of the total price of the contract (when above Rs 300 crores) to be re-routed into the country, in case of the Rafale contract the offsets were fixed at a special rate of 50 per cent of the final contracted price.

When Prime Minister Narendra Modi visited Paris in end-2014 and signed an MoU with the French government for the Rafale deal to be brought out of its corporate ambit and made into a government-to-government deal, the offsets issue was again raised to be pegged at 30 per cent. But reportedly, Defence Minister Manohar Parrikar, has stuck to the guns and kept it at the 50 per cent level.

The contentious price issue is also an arena where he is involved without letting controls going out of his hands, also may be the reason for the contract to be delayed in being awarded. But his party, and his colleagues in government in the know of the issue think that if the price is too high for the Rafales constituting only two squadrons of the IAF, it may prove to be politically untenable, knowledgeable sources say.