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The Centre also overruled financial advisers’ recommendations for making payments through an escrow account, an important safeguard in the absence of a sovereign or bank guarantee, The Hindu has reported.
The Narendra Modi-led government waived off critical provisions for anti-corruption penalties as well as overruled financial advisers’ recommendations for making payments through an escrow account just days before it signed the inter-governmental agreement with France to acquire 36 Rafale jets, The Hindu (external link) reported on Monday.
The report follows up on the newspaper's report on February 8 about the defence ministry’s objections to “parallel negotiations” conducted by the Prime Minister’s Office.
In its latest report, the newspaper said the high-level political intervention days before the Rs 58,000 crore Rafale deal was signed meant that standard Defence Procurement Procedure clauses on “Penalty for use of Undue Influence, Agents/Agency Commission, and Access to Company accounts” of Dassault Aviation and MBDA France were dropped by the Indian government in the supply protocols.
While Dassault is the supplier of the Rafale aircraft package, MBDA France is the supplier of the weapons package to the Indian Air Force.
The national daily has cited official documents that reveal that the Defence Acquisition Council chaired by then Defence Minister Manohar Parrikar met in September 2016 and approved eight changes in the inter-governmental agreement, supply protocols, offset contracts and offset schedules.
The most significant among the eight changes, recorded in a note signed by Vice Admiral Ajit Kumar, the member-secretary of the Defence Acquisition Council, is at sub-para (c) that states: 'Non-inclusion of the Standard DPP Clauses related to ‘Penalty for Undue Influence,’ ‘Agents/Agency Commission’ and ‘Access to Company Accounts’ in the Supply Protocols'.
The supply protocols were to be executed by Dasault and MBDA, both private companies.
Three members of the Indian negotiating team for the Rafale deal had voiced their objection in a note of dissent, according to the newspaper, saying: 'It is not advisable to sacrifice the basic requirement of financial prudence.'
On the direct dealing with the two companies, they noted, as per the Hindu report: 'Notwithstanding the fact that the procurement is on Government-to-Government basis, the IGA involves ‘Transfer of Rights and Obligations’ relating to supplies of equipment and related industrial services by French Government to the French Industrial Suppliers, and the payment is also being made to the French Industrial Suppliers and not to the French Government; therefore, it is not advisable to sacrifice the basic requirement of financial prudence.'
The Hindu says this was significant because the government also chose to do away with a sovereign or bank guarantee from France and settled for a letter of comfort, which is not legally binding, from the French prime minister.
An escrow account would have been an important financial safeguard as it would have allowed the Indian government to release money to the French government, which would then make timely payments to the two private firms.
Reacting to the report, Congress leader P Chidambaram, in a series of tweets on Monday morning, said the Rafale deal “is unravelling faster” than the government thought. The former Union minister wrote, “No sovereign guarantee, no bank guarantee, no escrow account, yet a huge amount was paid as advance.”
He added, “No penalty clause for undue influence, no clause against agency commission, no clause for access to suppliers’ accounts and Dassault goes laughing all the way to the bank.”