MMRCA deal: Negotiations between defence ministry, Dassault run into fresh hurdle.
Negotiations between France’s Dassault Aviation and the Defence Ministry for the $ 10.4 bn (Rs 45,000 crore) Medium Multi-Role Combat Aircraft (MMRCA) tender to acquire 126 fighter aircrafts for the IAF have hit another roadblock.
Highly placed sources told FE, the ministry of defence has turned down Dassault’s assertion that if it is given the overall responsibility of the project, it should be given the freedom to decide on the quantum of work to be shared between Hindustan Aeronatics Limited (HAL) and private companies in the programme. Dassault had made this point in a letter to the Defence Ministry late last year along with a demand that the ministry define HAL’s role in MMRCA.
While rebuffing Dassault’s contention, the ministry has also highlighted that the RfP for the tender issued in 2007 clearly outlines role of HAL as the project’s ‘lead-integrator’ and changes at this stage cannot be permitted.
Soon after Dassault emerged the lowest bidder (L-1) beating its rival Eurofighter on life cycle costs, the French company signed a memorandum of understanding (MoU) with Reliance Industries to work together in Indian defence and security sectors. Industry sources indicated that, “The French company are anxious to start work with Reliance Industries
Ltd under the MoU that was inked in 2012 June.”
The latest development adds to a long list of hurdles negotiations have faced since Dassault’s selection as L-1 in January last year.
According to official sources, the negotiations have dragged on for so long also due to issues related to MMRCA’s 50% offsets requirement and transfer of technology. The French, it appears, are unwilling to transfer cutting edge technology such as that of the electronically scanned AESA radar while citing lack of maturity of the Indian defence industry to absorb such critical technologies as an excuse
There is a strong lobby of small and medium French enterprises which is against industrial offsets and sees it as a threat to the competiveness of the French defence industry. Early last year, Patrick Colas des Francs, chief executive of Coges, the trade show organizer for the Eurosatory land systems exhibition reportedly said, “Offsets are a threat to small and medium-sized companies. This is a real problem.” "Offset deals not only take production work away from French subcontractors and suppliers, but also provide accelerated access to knowledge and skills that allows companies in the client country to compete in world markets," he said.
Acknowledging that negotiations between the two sides are far from over former chief executive of Dassault Charles Edelstenne had told a French parliamentary hearing last month: “We are in deep talks at the moment. It’s a complicated country, the negotiations are tough, but there is a desire to wrap up on both sides.” “I’m relatively optimistic,” he added.
However, the biggest threat to an early conclusion of negotiations comes from the financial squeeze the defence ministry is currently facing. As reported by FE earlier, the MoD has been unable to secure extra budget for this year. Moreover, the armed forces’ capital acquisitions budget has been cut by Rs. 10,000 crore. This is certainly going to derail any hopes of the IAF to lay its hands on MMRCA anytime in the near future. According to officials, contract signing before second half of 2013 looks highly unlikely.