NEW DELHI: India has put all deals with Rolls-Royce on hold till the CBI completes its probe into allegations against the global engine manufacturer for employing middlemen and paying them hefty commissions in contracts worth around Rs 10,000 crore with state-owned Hindustan Aeronautics Ltd (HAL).
The government has also sought information from the UK about the ongoing British Serious Fraud Office investigation into the role played by alleged arms dealer Sudhir Choudhrie and his son Bhanu in swinging deals in China and Indonesia as “intermediaries” of Rolls-Royce.
“We have already asked the external affairs ministry to get as much information as possible through the Indian high commission in London. HAL has also been asked to take action to recover money paid by Rolls-Royce to its intermediaries here,” said a senior defence ministry official.
Though Rolls-Royce engines power Indian Jaguar fighters, Avro planes, VVIP Embraer Legacy jets, C-130J ‘Super Hercules’ and Kiran trainers as well as naval and Coast Guard helicopters and fast-patrol vessels, the controversy could have an immediate impact on the ongoing induction of 143 Hawk advanced jet trainers (AJTs) for rookie pilots.
IAF and Navy have till now inducted only 75 of the twin-seat AJTs, which are manufactured by BAE Systems but have the Adour Mk.871 engines of Rolls-Royce. While the first 24 Hawks were supplied directly by BAE Systems, the rest are being licensed manufactured by HAL under an overall project cost upwards of Rs 25,000 crore.
All this comes after Rolls-Royce itself accepted, in a letter to HAL on December 27, that it had hired a consultant, Ashok Patni and his Singapore-based firm Aashmore Private Limited, as “commercial advisors” in India till January 2013.
As per Rolls-Royce, Aashmore provided it with “sales and logistics support, local business expertise and strategic advice” in its dealings with HAL only in the energy sector. HAL, through its Industrial & Marine Gas Turbine Division, buys and maintains gas turbines for ONGC and GAIL. Aashmore had no role to play in the defence sector, insisted the London-based company.
But this has failed to cut much ice with MoD. “There is no guarantee that Rolls-Royce did not pay Aashmore hefty commissions in the defence sector as well. It was paying Aashmore 10-11.3% of the value of contracts in the energy sector from 2007 to 2011, and disclosed this to HAL only as an afterthought now,” said the official.
“Let the CBI investigate the matter, and establish criminality if any. There is no talk of cancelling any contract or blacklisting Rolls-Royce at this stage,” he added. Middlemen or intermediaries are strictly banned under the Indian defence procurement policy, which entails signing of pre-contract “integrity pacts” with armament vendors.
MoD had invoked the integrity pact on January 1 to cancel the controversial Rs 3,546 crore contract for 12 VVIP helicopters with AgustaWestland, the UK-based subsidiary of Italian conglomerate Finmeccanica.
Much like Finmeccanica, Rolls-Royce is also involved in a series of defence projects in India. Delay in inking maintenance, overhaul and spares contracts for many of the engines and gas turbines supplied by it may not pose a problem in the short term but will have serious operational repercussions in the long term.
As per one estimate, over 50 contracts were inked with Rolls-Royce in the 2007-2011 timeframe. A Rolls-Royce spokesperson on Monday only said, “We will cooperate fully with the regulatory authorities and have repeatedly made clear that we will not tolerate misconduct of any sort.”
The scandal erupted after a preliminary investigation by the chief vigilance official of HAL, which had received a letter from Rolls-Royce, found prima facie evidence of violations of contractual provisions and obligations, as was reported by TOI on Sunday.
The HAL board of directors then referred the case to the MoD, with the recommendation that CBI look into it. “Defence minister A K Antony approved the CBI inquiry last week,” said an official.
The fresh scandal has the potential to once again derail the modernisation of the armed forces, like it happened in the past, with several global armament majors like Singapore Technology Kinetics, Rheinmetall and Israel Military Industries (IMI) being blacklisted over the last few years.