MoD reconsidering blacklisting policy

By Ajai Shukla

Visakhapatnam

Business Standard, 24th Aug 14

In February 2013, Italian prosecutors arrested Giuseppe Orsi, the chief executive of Italian defence multinational, Finmeccanica on suspicion of paying bribes to facilitate the sale of VIP helicopters to India. Since then, the ministry of defence (MoD) has been in a quandary about whether to blacklist Finmeccanica and all its subsidiaries, or only AgustaWestland, the subsidiary that built and sold the AW-101 helicopters to India.

Blacklisting all Finmeccanica group companies --- which include marine specialist, WASS; radar and communications specialist Selex Electronics Systems; aerospace giant, Alenia Aeromacchi; and armaments major, Otomelara --- would undermine several Indian tenders, in which they are important players.

Now, the MoD will decide on this issue. On Saturday, Defence Minister Arun Jaitley said the ministry would see how wrongdoers could be punished without blocking acquisitions and the flow of spares.

“It is a very serious challenge. We have to balance between two competing public interests. One public interest is that contracts are meant to be abided with and not violated, even by our suppliers. The other competing interest is the larger public interest in terms of our national security and defence preparedness. It is an issue that we are fully seized of and we are in the process of finding an answer to this and you will hear about this from us very soon”, said Jaitley.

Clearly referring to the AW-101 VIP helicopters, of which India had already taken delivery of three before terminating the contract with AgustaWestland for twelve helicopters, Jaitley said the decision “relates to cases where (a) violations have taken place and (b) the consequences of those violations affect our defence preparedness… particularly where parts and spares are to be made available.”

The MoD has been alarmed by the potential consequences of blacklisting all Finmeccanica subsidiaries. WASS has been selected in a $300 million tender to supply 98 Black Shark torpedoes for the Scorpene submarines. A reconsideration of this would delay the operationalization of the Scorpene, which is already running several years late. When the submarines start joining the navy’s fleet in 2016, it will be armed only with the Exocet anti-ship missile. There will be no weapon to take on Pakistan’s silent new Khalid-class submarines, the French Agosta-90B. WASS is also a contender for a new decoy system for torpedoes.

Similarly, Finmeccanica company, Otomelara, is the licensee for 76 millimetre guns, built by BHEL, which equip all Indian warships. Otomelara is also a leading bidder in the navy contract for heavier 127 millimetre guns, that are considered more suitable than the lighter, older guns. It is also being considered for supplying 12.7 mm stabilised guns.

Another subsidiary, Selex Electronics Systems (Selex ES) is fitting radar systems on the INS Vikrant, the navy’s indigenous aircraft carrier being built by Cochin Shipyard. Cancelling this would cause major delay in a project that is already three years behind schedule. Selex ES is also bidding to upgrade the navy’s Kamov-28 anti-submarine helicopter. It has completed trials for supplying an advanced pilotless target aircraft (APTA), for training air defence gunners.

Meanwhile Alenia Aeromacchi, another subsidiary, is a much-desired partner in the project for the Indian private sector to build 56 transport aircraft to replace the obsolescent Indian Air Force (IAF) Avro. Alenia’s C-27J transport aircraft, a proven design, is considered closest to what the IAF desires.

Finally, AgustaWestland itself is a leading contender for supplying the navy with a multi role helicopter in the 12-tonne class, to fly from warships and perform the job that the Sea King 42B has been doing with distinction for decades. Besides, with three AW-101 VIP helicopters already delivered, terminating the contract would create uncertainty about spares and support.

Since the blacklisting of AgustaWestland, the United Progressive Alliance (UPA) government failed to take a decision on Finmeccanica. Since it came to power, the BJP-led National Democratic Alliance (NDA) government has sent out mixed messages.

In June, Minister of State for Defence Rao Inderjit Singh had indicated that he would not favour trigger-happy blacklisting that might hamstring Indian defence procurement by preventing many companies from responding to Indian tenders. Yet, earlier this month, the MoD sent out a circular directing that, while tenders involving Finmecannica companies could continue being evaluated, no Finmeccanica company would be actually awarded a contract.

Contacted for comments, MoD spokesperson Sitanshu Kar stated that Finmecannica had not been officially blacklisted.