The many facets of Agusta deal

The contentious VVIP chopper contract, which Defence Minister A K Antony cancelled on Wednesday, was shaped and set in motion before the minister stepped into his chamber in the first floor of the South Block.

Antony assumed office a month after a global tender was issued to six vendors on September 26, 2006. The Acceptance of Necessity (AoN) for replacement of the existing fleet of Mi-8 VIP choppers at Rs 793 crore was granted in January 2006 when S P Tyagi was the head of the Indian Air Force and M K Narayanan was the National Security Adviser.

The number of helicopters was vetted in March 2006 by then defence minister Pranab Mukherjee, said a Comptroller and Auditor General’s report that reviewed the deal.
The benchmark cost adopted by the contract negotiation committee was “unreasonably high” compared to the offered cost.

The benchmark cost was Rs 4,877.5 crore as against the estimated and approved project cost of Rs 793 crore, the CAG said. As a result, the final offer price of Rs 3,967 crore was 22.8 per cent lower than the benchmark cost, which the ministry accepted. But later the finance ministry under Mukherjee pointed out in July 2009 that difference between the final price and estimated cost was “abnormally high.”

The Defence Ministry used the pre-contract integrity pact to relegate the contentious deal to the trash bin after getting the opinion of the attorney general, who felt that integrity-related issues cannot come under arbitration, which the company was insisting on ever since it received a show-cause notice. Agusta received two show-cause notices in the last 10 months, but the ministry was not satisfied with the response.

The Defence Ministry signs integrity pact for any military contract worth more than Rs 100 crore and offset contracts higher than Rs 300 crore. In the past, the defence ministry had invoked the "integrity pact" to recover Rs 244 crore from Israel Military Industries for the proposed Nalanda ordnance factory before blacklisting the firm on corruption charges.

A spokesperson said: “AgustaWestland has not received any communication from India's Ministry of Defence. The company is unable to comment beyond reiterating the denial of allegations of wrongdoing and the continued intention to robustly defend the company's reputation.”

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