Three days ago, Defence Minister Arun Jaitley promised a new policy that would punish dishonest vendor companies, without blocking Indian acquisitions and the flow of spares. On Tuesday, the ministry of defence (MoD) issued a directive on how it would deal with group companies of Italian defence giant, Finmeccanica, whose chief executive, Giuseppe Orsi, was arrested in Italy last year on charges of bribing Indian officials to facilitate the sale of VIP helicopters.
The Finmeccanica group companies covered under this policy are marine specialist, Whitehead Alenia Sistemi Subacquel (WASS); radar and communications specialist Selex Electronics Systems (ES); aerospace giant, Alenia Aeromacchi; armaments major, Otomelara; and AgustaWestland itself.
While the MoD's directive on the Finmeccanica group does not constitute policy, it suggests a more flexible approach than the rigid blacklisting and banning that the previous defence minister, A K Antony, followed. The new approach attempts to ensure that ongoing contracts and acquisitions are minimally affected or delayed.
The directive prescribes six differentiated MoD responses, depending upon the stage that a procurement contract is at.
First, where a Finmeccanica company is executing a signed contract, it should be proceeded with. This will ensure that work continues on the radar systems that Selex ES is fitting on the indigenous aircraft carrier, INS Vikrant.
Second, where a contract has been fully executed, but spares and upgrades are required regularly, that can continue. This will ensure the continued supply of equipment like the 76-millimetre naval gun, which Bharat Heavy Electricals Ltd is building under licence from Otomelara.
Third, where the vendor has been declared as L-1 (cheapest bidder) after tendering, "all such procurement/acquisition cases shall be put on hold until further orders".
This is the most far-reaching decision the MoD has taken, given that WASS has been declared the L-1 bidder in the tender for 98 Black Shark torpedoes for India's six Scorpene submarines being built in Mumbai. Atlas Elektronik, a German company, had hotly contested the decision. Now, the Seahake torpedo, offered by Atlas, emerges as a frontrunner in the $300-million contract.
Fourth, where the tender process is under way, but no L-1 has yet been declared, Finmeccanica companies will be eliminated from consideration, provided there are alternatives. This relates to tenders like the procurement of multi-role helicopters (MRH) for the navy, where two companies are in contention - US company, Sikorsky; and European consortium, NHIndustries, which is part-owned by AgustaWestland. If NHIndustries is eliminated, Sikorsky emerges as the single vendor - a situation potentially fraught with other difficulties.
Fifth, Finmeccanica companies are to be eliminated from all acquisitions where tendering is yet to commence, provided there are valid alternatives.
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