SOURCE: SHAILJA KANT UPADHYAY / FOR MY TAKE / IDRW.ORG
we all are watching this Rafale debate in media from various angles starting from defence planning to diplomacy but i have not found a single article which gives the idea of the tendering process which could the help those who want to compare the initial quote price with the final contract price thus eventually clearing the fog of misinformation being spread in their mind especially from tendering (MMRCA) point of view. In tendering, first we give RFI (Request for information) to various vendors to know what is available to us in the market and make our rough requirements (air staff requirements etc)which can be met.
After this our air staff quality requirements and INITIAL ESTIMATES (roughly called budget figure around which we can spend on that tender)is floated the form of RFP (request for proposal)
Now, various firms respond to us with their products which meet the requirements and budget (INITIAL ESTIMATES). We carry out technical evaluations of products offered to us and commercial evaluations of firms to find whether particular firm can execute the tender of the given amount and size (GRSE recently failed in commercial/ financial evaluations in spite of being lowest bidder and its product design qualifying technically for Philippines navy frigates) Now we select products and respective firms (normally more than 1 to pressurize vendors on prices and other offers) which fits our technical requirements and then carry out commercial (price) negotiations to select the most financially viable(lowest bidder) product and then make FINAL ESTIMATES (total contract cost) (considering after sales services, infrastructure, training and add on required with that particular product) to sign the contract.
Now, coming to MMRCA, IAF expressed need for aircrafts in 2001 (particularly Mirage 2000, but France was closing down the production line without any firm order, so it could not materialize) for which procurement procedure was finalized in mid-2004 and RFI was issued thereafter, air staff quality requirement was prepared by mid 2005 but MOD issued tender (RFP) in 2007 (after 2 years) for 126 aircrafts (18 buy & 108 make) with the INITIAL ESTIMATES (rough budget) of $ 10.2 billion at 2007 exchange rate. It is to be noted that this initial estimates$10.2 contains the cost of 18 fly away aircrafts and the cost of parts of 108 aircrafts which were to be assembled at HAL. This $ 10.2 billions does not contains the cost of assembling the parts or kits at HAL (as aircraft to be assembled was not known) leave alone weapons add on which are different for different aircrafts/ platforms
After technical & commercial evaluations between 2008-11 during UPA-2 IAF & MOD selected Rafale of Dassault & Typhoon Euro-fighter (group of European firms). In commercial negotiations the Rafale of Dassault comes out to be lowest bidder.
Now while making FINAL ESTIMATES, HAL and Dassault could not agree on the price, quality and delivery timelines guarantees of 108 planes to be built by HAL(HAL asking for 2.8 times man hours required by Dassault for making 1 Rafale hence raising costs(by 150 crores per plane) and MOD wanted the Dassault to take quality guarantees of 108 planes to be built by HAL so that it doesn’t go through the reliability issues similar to MIG 21 and SU 30 (SU 30 issues are not in public because it has twin engine and makes emergency landings on 1 engine in case engine failure (quite common with HAL made engines until recently) hence avoid crashes and media publicity) to which Dassault refused citing it impractical as it doesn’t have control over HAL management & its employees). HENCE, negotiations fall apart and NO FINAL ESTIMATES COULD BE MADE AND NO CONTRACT WAS SIGNED.
In 2014 Modi came to power and instead of re floating the tender he started renegotiating for Rafale (to save time) as it was already selected by IAF with French govt instead of Dassault . Hence in 2016 FINAL ESTIMATES were made for Rafales with FRANCE INSTEAD OF Dassault as Modi sought French govt support for various serious policy projects (Kaveri engine, changes in Rafale for nuclear delivery role(rumored), etc).
Also it was observed that once we acquire a platform and then go for weapon purchases, training and maintenance, the vendor significantly jack up the prices for all these things as the OEM knows that we are now completely dependent on them and we have nowhere to go. Latest example of this is P-8I platform where the India has to pay $ 300+ millions for 1 simulator along with maintenance contract in 2018 while 4 follow on purchase P-8I has cost us $1 billion. So NDA decided to make complete purchase of aircraft, associated equipment in a single contract instead of going for separate contract for separate for separate things.
Hence FINAL ESTIMATES of €7.87 billion were made for 36 Rafale(buy only)+2 simulators+ weapons+meteor and scalp missiles+training of crews+infrastructure on 2 bases + guarantees for availability (serviceability) of 75% planes any time(performance based logistics)+ maintenance tools+ weapon storage facility in France for 6 months+integration of weapons of Russian, Israeli and Indian origin+free spares for 5 to 7 years+ inflation < 3.5% which was fixed 3.9% in UPA tender+50% offset+pilot mission kits+ India centric modifications etc.
From where 520/526/540/620/700 crores come?????
While responding to RFP of 2007, Dassault quoted € 79.8 millions per aircraft for 18 fly away planes at 2007 exchange prices in its commercial bid. But in tendering commercial bids are not opened until the product qualifies technically. So an escalation (inflation) clause of fixed 3.9% per annum was added which were to be applied on the base quote price.
When commercial bids were opened in 2011, the € 79.8 millions reached € 93 million per aircraft due to escalation of 3.9% and when negotiations fall apart in 2013, this € 93 millions reached € 100.4 millions, if this deal was signed in 2016 (when IGA was signed in for 36 Rafale) cost of each Rafale would have reached €112.6 millions.
Now opposition is claiming 522/526/540/700 crores by taking the base quote price of 2007-08 of €79.8 millions without escalation of 3.9% and converting it into rupees by taking conversion rate of different dates which suites them.
For Example taking conversion rate of 2008 when bids were submitted in response of RFP 1 €= INR 65 approx the cost of 1 Rafale reaches 79800000* 65 = 5187000000= 518.7 crores ?520 crores
Taking conversion rate of 2012 when Rafale was declared as L 1, 1 €= INR 68, approx., cost of 1 Rafale reaches 79800000*68= 542.6 crores
Taking conversions of 2014 when negotiations fall apart 1 €= INR 77, cost reaches 614 crores..
However the funny part is this that the opposition is not applying the escalation clause of 3.9% on base quote price of 2007.
From where 1640 per aircraft is coming?????
The IGA (FINAL ESTIMATES) for 36 Rafale(buy only)+2 simulators+ weapons+meteor and scalp missiles+training of crews+infrastructure on 2 bases + guarantees for availability (serviceability) of 75 % planes any time(performance based logistics)+ maintenance tools+ weapon storage facility in France for 6 months+integration of weapons of Russian, Israeli and Indian origin+free spares for 5 to 7 years+ inflation < 3.5% which was fixed 3.9% in UPA tender+50% offset+pilot mission kits+ India centric modifications was signed on September 2016 for €7.87 billions
Opposition is taking this whole contract cost €7.87 billions converting into rupees at September 2016 exchange rate(1€= 75) and then dividing the whole contract cost by 36 to quote 1640 crores
So per aircraft cost according to opposition = 59025 crore/36 =1640 aircraft. However the funny part is, opposition is hiding that this contract cost of 59025 crores contains 2 simulators, weapons, missiles, training,infrastructure apart from 36 Rafale.
HENCE WE ARE COMPARING THE INITIAL QUOTE (rough figure) OF THE 1 Rafale €79.8 millions of 2007 exchange rate without applying the 3.9% escalation (NO CONTRACT SIGNED) WITH THE FINAL ESTIMATES (exact figure) OF IGA contract (inter govt agreement signed) 7.87 billions euro of 2016 exchange rate(36 Rafale+2 simulators+ weapons+meteor and scalp missiles+training of crews+ infrastructure on 2 bases+ guarantees for availability (serviceability) of 75% planes any time(performance based logistics)+maintenance tools+ weapon storage facility in France for 6 months+integration of weapons of Russian, Israel and Indian origin+free spares for 5 to 7 years+ inflation < 3.5% which was fixed 3.9% in UPA tender+50% offset+pilots mission kits) WHICH IS IMPRACTICAL.
It is equivalent to comparing the cost of a body of a pen in 2007 prices with the cost of the same pen along with refill in it + maintenance among other things in 2016 prices.
Actual price of 1 aircraft MMRCA vs IGA
As per reply of Ravi Shankar Prasad the NDA renegotiated the base price of per aircraft to € 91.3 millions in IGA of 2016 which as per MMRCA tender and escalation clause of 3.9% had reached €100.3 millions in 2013 and would have reached 112.4 millions if MMRCA deal was signed in 2016. So IGA of 2016 saved approx. € 9 millions (67.5 crores) per aircraft as per 2013 price (9%) and € 21 millions (157.5 crores) per aircraft as per MMRCA price in 2016, which is roughly is roughly $ 24.4 millions per plane. It is to be noted that HAL Tejas Mk 1 costs IAF around $ 23 millions per aircraft. On a lighter conclusion, it would be right to say that Modi govt by renegotiating the base price,has got the 40 Tejas MK1 for free apart from other benefits.