Italy's Cruel Judicial Farce & India's Pathetic Politicians

Whenever there emerges a cocktail made up of a notoriously trigger-happy bunch of Italian state prosecutors, pathetic Indian politicians—both those in power and those voted out of power—so full of unconscionable behavior, a cabal of unscrupulous Italian citizens masquerading as product marketers, and hyper-ventilating Indian broadcast TV channels, the end-result can only be mayhem and obfuscation, with the truth nowhere in sight. On February 14, 2013 India’s Ministry of Defence (MoD) had produced a document that—had anyone bothered to read it—most notably the Italian magistrates—they would have indisputably cleared all Indian citizens of any wrongdoing by removing the motive for corruption. 

All that the three-year trials process in Italy has produced so far is the indictment and sentencing of  Giuseppe Orsi, former CEO Finmeccanica; and Bruno Spagnolini, CEO of AgustaWestland. No material evidence to date has come to light about any direct or indirect money-trail that leads to any Indian official or politician, nor of any wrongdoing done by anyone from either the MoD or the Indian Air Force (IAF). Worse, the material evidence gathered from the alleged middlemen—Guido Ralph Haschke, Carlo Gerosa and James Christian Michel—clearly show them to be groping in the dark and being totally unaware of how exactly the MoD’s procurement-related decision-making process works. For, had they have had even the slightest idea about who had the final say in selecting the VVIP helicopters, they would have clearly mentioned the post of Director of the Special Protection Group (SPG) as being the key and most critical stakeholder of the VVIP helicopter selection process. Yet, nowhere is the SPG’s Director mentioned in any piece of paper containing the handwritten notations of these alleged middlemen. Nor is there any material evidence of any money laundering exercise involving any financial institution.  

It was in August 1999 that the IAF, which is responsible for carrying out VVIP communication taskings, had proposed the replacement of its then Mi-8T VVIP helicopters of its Air HQ Communication Squadron due to severe operational constraints, such as the Mi-8T’s inability of to operate at night and in adverse weather, inability to operate safely at places in elevations beyond 2,000 metres, and the approaching end of their total technical service lives (TTSL). Consequently, a global Request for Proposals (RFP) was issued in March 2002 to which four OEMs—AgustaWestland, Eurocopter SA, Rosoboronexport State Corp and Sikorsky Helicopters—responded. The IAF’s Technical Evaluation Committee (TEC) subsequently shortlisted three helicopters and accordingly competitive flight evaluations were conducted. Since AgustaWestland’s AW-101 was not certified for operating at an altitude of 6,000 metres, it did not participate in the flight evaluations. Russia’s Mi-172 could not comply with 7 mandatory Operational Requirements (OR). After flight evaluations, only Eurocopter’s EC-225 was found suitable for acquisition. On November 19, 2003 a meeting was taken by Brajesh Mishra, the then Principal Secretary-cum-National Security Adviser (NSA) to the then Prime Minister Atal Behari Vajpayee on this subject. In this meeting, Mishra had observed that his main concern was that the framing of the mandatory ORs had led India effectively into a single vendor situation. It was also noted that very rarely have India’s Presidents or Prime Ministers have made visits to places involving flying at an altitude beyond 4,500 metres. In the meeting it was therefore decided to make the mandatory OR for an operational altitude 4,500 metres. The higher flying ceiling of 6,000 metres, and the mandated internal cabin height of 1.8 metres could be made desirable ORs. Later, a letter dated December 22, 2003 from Mishra to the then Chief of the Air Staff (CAS) of the IAF, ACM Srinivasapuram Krishnaswamy, stating that it was unfortunate that neither PMO nor the Special Protection Group (SPG) was consulted while framing these mandatory ORs. Mishra suggested that the CAS and the Defence Secretary may jointly review the matter to draw up realistic mandatory ORs satisfying operational, security and convenience requirements of VVIPs, and also set in motion a fast-track process for selection and acquisition of the replacement helicopters. In pursuance of this directive, the ORs were deliberated at length between IAF, NSA, SPG and MoD between March, 2005 to September, 2006 and the indicated changes were incorporated. No ambiguity is thus possible: the decision to lower the service ceiling requirement was official and above-board. It was taken during a meeting chaired by the PM’s Principal Secretary-cum-NSA, was followed up in writing with the IAF’s CAS, and was reviewed by the then-Defence Secretary. Subsequently, the revised ORs were deliberated at length for 18 months by the involved SPG and IAF authorities before becoming effective, and were all included in the final RFP document. The acceptance of necessity (AON) for the procurement of 12 VVIP helicopters was accorded by the MoD’s Defence Acquisition Council (DAC) under the ‘Buy’ category with 30% industrial offsets on January 3, 2006.

Next, the RFP was issued to six OEMs on September 27, 2006. Three OEMs—Sikorsky (S-92), AgustaWestland (AW-101) and Rosoboronexport (Mi-172 ) responded to the RFP. Rosoboronexport did not submit the mandated earnest money deposit and the Integrity Pact, along with the Technical and Commercial Proposals (TCP). It had been made clear to Rosoboronexport in February 2007 that this was a global tender and hence every contractual clause would apply to all vendors without exception. As no Integrity Pact and earnest money deposit were received from Rosoboronexport, the Mi-172’s TCP was not accepted. Subsequently, a team comprising officials of the IAF and SPG carried out Field Evaluation Trials (FET) of the AW-101 in the UK and of the S-92 in the US from January 16, 2008 till February 19, 2008. The FET team submitted its report in April 2008 and recommended the AW-101 for service induction. The IAF’s own internal Staff Evaluation Report (SER) concluded that the S-92 was non-compliant with respect to four staff qualitative requirements (SQR)m these being the absence of a missile approach warning system (MAWS), service ceiling of 4.5km, deficient drift-down altitude, and deficient hover-out-of-ground-effect parameters. In addition, the AW-101, unlike the S-92, featured a high tail-boom since it would allow the VVIP’s motorised vehicles to come right next to the rear-ramp and not expose the protected persons to a threat from anyone in the vicinity. The SER thus assessed AW-101 to be fully compliant with all SQRs. 

The Technical Oversight Committee (TOC) constituted by the MoD on August 6, 2008 found that the FETs, compliance to SQRs and selection of the competing OEMs were all done according to the prescribed/mandated procedures. A Contract Negotiations Committee (CNC) was subsequently constituted and it carried out negotiations with AgustaWestland between September 19, 2008 and January 21, 2009. While the CNC was progressing with negotiations, the IAF recommended the inclusion of Traffic Collision Avoidance System (TCAS-II) and Enhanced Ground Proximity Warning System (EGPWS) as additional fitments for all 12 AW-101s, while the SPG recommended the inclusion of integral MEDEVAC systems for 8 of the 12 VVIP helicopters. These additional equipment were considered to be essential for safe and effective operation of the helicopters in the VVIP transportation role. The CNC, thereafter, recommended contract signature at a negotiated fixed-price of €556.262 million ($827 million), or Rs.3,550 crore. The draft contract was next submitted for approval by the Cabinet Committee on National Security (CCNS) and was approved by the CCNS on January 18, 2010. Consequently, the MoD inked the contract with AgustaWestland for 12 AW-101s each powered by three Rolls-Royce/Turbomeca RTM-322 engines on February 8, 2010. 

The AW-101 procurement contract included specific contractual provisions against bribery and the use of undue influence. Article 22 of the contract dealt with penalty for use of undue influence. This clause entitled the ‘Buyer’ to cancel the contract with the ‘Seller’ and recover from it the amount of any loss arising from such cancellations. Article 23 of the contract dealing with agents and agency commission required the ‘Seller’ to confirm and declare that it had not engaged any individual or firm, whether Indian or foreign, whosoever, to intercede, facilitate or in any way to recommend to the Government of India or any of its functionaries, whether officially or unofficially, to award of the contract to the ‘Seller’ nor had any amount been paid, promised or intended to be paid to any such individual or firm in respect of any such intercession, facilitation or recommendation. This clause further entitled the ‘Buyer’ to consider cancellation of the contract without any entitlement or compensation to the ‘Seller’ who shall be liable to refund all payments made by the ‘Buyer’ in terms of the contract along with interest. In addition to the above contractual provisions, Agusta Westland had signed an Integrity Pact with the Government of India. The validity of this Integrity Pact is from the date of its signing and extends up to five years or the complete execution of the contract, whichever is later. Under the Integrity Pact, the ‘Seller’ OEM committed itself to take all measures necessary to prevent corrupt practices, unfair means and illegal activities during any stage of the bid or during any pre-contract or post-contract stage. Any breach of the provisions of the Integrity Pact entitled the ‘Buyer’ to take actions against the ‘Seller’ which included forfeiture of the earnest money, performance bond, cancellation of the contract without giving any compensation, recovery of all the sums already paid with interest, cancellation of any other contracts with the bidder, and to debar the bidder from entering into any bid from the Government of India for a minimum period of five years, which may be extended. 

By July 2012 IAF pilots began AW-101-related flying conversion training in the UK, and the first AW-101 arrived at the Palam air base on December 20, 2012 while the second was delivered on December 22 and the third on December 24, 2012. Earlier, in October 2012, the MoD’s Defence Secretary wrote to the Ministry of External Affairs’ )MEA) Secretary (West) to take up the matter of alleged corrupt practices related the the AW-101 procurement contract with the UK in view of the alleged involvement of a British citizen (James Christian Michel), and the fact that the contract was signed with UK-based AgustaWestland. In November 2012, the MEA’s Secretary (West) replied to Defence Secretary, stating that “the UK authorities (i.e. the UK Serious Fraud Office https://www.sfo.gov.uk/about-us/) were waiting for the results of the Italian investigation in order to ascertain whether there are further actions to take”. 

However, by late 2013 Indian Defence Minister Arackaparambil Kurien Antony single-handedly took the decision to first block progress-payments to AgustaWestland, then to cancel the contract, and finally to sue for payment of the surety and performance bonds that the company had placed in escrow, on the basis of unproven allegations. In doing so, Antony ignored a fundamental legal and moral principle: that the accused is innocent until proven guilty. This is unconscionable behavior for a Union Cabinet Minister in “the world’s largest democracy,” and can only be explained by motives other that a constitutional duty to his mission. The reality is that Antony, as the upcoming general election neared, even wanted to put AgustaWestland and Finmeccanica, its corporate parent, on the government’s blacklist, until he was blocked by the Government of India’s Solicitor-General. By January 2014, the MoD had cancelled the €566 million contract, as well as encashed €228 million of AgustaWestland’s €278 million performance bond, which dented the OEM’s cash position and that of its holding company Finmeccanica. All of this for no other reason than an Indian minister’s overwhelming pre-occupation with his political future.

So, what are the results of the Italian investigative efforts thus far? Firstly, they have only ended up insulting the institution of the IAF. Secondly, they have denied the much-needed replacement VVIP helicopters that are not only required for flying India’s President, Vice-President and Prime Minister, but are also meant for use by the country’s National Command Authority (NCA) in times of emergencies. In addition, such helicopters are also required to be put at the disposal of visiting foreign Heads of State/Government. Imagine such an official guest refusing to fly on-board a Mi-17IV or Mi-17V-5—both of which generally shunned by civilian VVIPs across the globe due to their deficient flight-safety features.   

Here is what India’s Directorate General of Civil Aviation (DGCA) says about the Mi-17 family of helicopters: “The MGB drives the hydraulic pumps. Hydraulic power is required for the flying controls. The hydraulic system has OM-15 hydraulic oil. Hydraulic System has a main and standby system. Both systems have independent tanks, pumps, accumulators and pipelines. However, both the pipelines feed only a single booster, which in turn moves the control surfaces. There are a total of 4 boosters in the system. One critical weakness in the system is that if there is a leakage in the booster, there is a possibility of the entire oil from both the main and the standby systems leaking out. The emergency procedure for a total hydraulic failure is to have both pilots flying the aircraft in unison to a landing. The Mi 17V-5, which is a military version of the Mi-17, is being flown by the IAF and Border Security Force. As per the Flight Manual of this aircraft, the crew is to abandon the aircraft in case of total hydraulic failure. In case they cannot, then they have to resort to flying by both pilots to land immediately. Therefore, the procedure given in the Mi-17’s Flight Manual for total hydraulic does not inspire confidence in the pilots. All of them feel that this aircraft cannot be flown with a total hydraulic failure. They feel that this aircraft cannot even be taxied on ground with total hydraulic failure.”

And finally, to add insult to injury, Italian state prosecutors will be the only characters in this sorry story to escape unscathed. 

So, if all those pathetic politicians (both of the ruling national coalition and those of the UPA-1/2 coalitions) in Lutyens’ Delhi are indeed serious about seeking the truth while ensuring that the prestige of the IAF and the survivability of India’s NCA are assured, then they better take heed of how Taiwan had overcome a similar crisis in the not-too-distant past. The details of this case are as follows:

On August 31, 1991 France and Taiwan signed the ‘Bravo Contract’ to supply six Lafayette-class guided-missile frigates (FFG) for a total of US$2.5 billion. The buyer of the FFGs was the Plans Office of the Republic of China Navy (RoCN), acting on behalf Taiwan. The FFGs were to be built by DCNS. Shortly thereafter, the authorities in Taiwan accused the French state-owned ELF Aquitaine of having paid bribes through Thomson CSF (now THALES Group) to persuade both French government and RoCN authorities to approve the contract and launched an investigation. Taiwan initiated arbitration proceedings against DCNI during the second half of 2010. The case was eventually heard by the International Chamber of Commerce’s International Court of Arbitration. The court found that THALES Group had violated the anti-corruption terms of the contract and was therefore liable to repay all bribes, plus associated interest and legal fees. THALES appealed, and the decision was upheld by the Paris Court of Appeal, ordering THALES Group to pay compensation to Taiwan in the amount of €630 million (US$913 million). The French government and THALES Group announced the payment of the fine, with the French government paying approximately 72.54%, or around €457 million, and THALES Group the remainder.

https://star.worldbank.org/corruption-cases/node/19572

http://blogs.wsj.com/corruption-currents/2011/06/09/france-thales-sa-agree-to-pay-630-euros-in-frigate-case/

The Rebuttals

The Comptroller and Auditor General (CAG) had submitted a report on the acquisition of helicopters for Very Very Important Persons (VVIPs) on August 13, 2013. The audit sought to examine the process of acquisition of VVIP helicopters and its compliance with the Defence Procurement Procedure (DPP), the prescribed procedure for procurement in the defence services. The report can be read here:

http://164.100.176.130/english/home/Our_Products/Audit_Report/Government_Wise/union_audit/recent_reports/union_compliance/2013/Defence/10of2013.pdf

Key findings and recommendations of the CAG in this report were obviously derived by officials who were not domain experts. The findings/recommendations are detailed below as are their rebuttals:

Claim: The initial Request for Proposal (RFP) issued by the Ministry of Defence in 2002 mandated an altitude requirement of 6,000 metres. Only one helicopter, the EC-225 of Eurocopter met this requirement. The EH-101 helicopter (later renamed AW-101) of AgustaWestland did not meet this requirement.

Fact: That’s because that RFP was based on specifications that favoured only the EC-225 and the Mi-172. In fact, the MoD had in 1999 estimated that the total acquisition cost of eight VVIP transportation helicopters would be no more than Rs.793 crore, and this figure pertained to only the Mi-172 helicopter that did not contain any customer-specified equipment. The MoD had obtained such cost estimations from Pawan Hans Ltd, which had by then been operating the Mi-172.  

Claim: However, the first RFP was cancelled due to the emergence of a single-vendor situation. In the revised RFP in 2006, the altitude requirement was reduced to 4,500 metres, and a cabin height requirement of 1.8 metres was introduced, making the AW-101 eligible, and the EC 225 ineligible. The lowering of the altitude requirement was against the ORs of the procured helicopters, especially in many areas of the north and north east of India. In addition, the single-vendor situation remained even after lowering the altitude requirement, because of which the AW-101 of AgustaWestland was selected.

Fact: Totally untrue. At a meeting of the PMO on November 19, 2003, it was Brajesh Mishra who, acting upon the advice of the SPG, directed that the desired VVIP helicopter’s service ceiling be reduced from 6,000 metres (18,000 feet) to 4,500 metres or 14, 000 feet; that the internal cabin be of the stand-up type, meaning a height increase from 1.4 metres to 1.8 metres; and an increase in the number of VVIP helicopters from 8 to 12. Thus, 3 (THREE) different deviations were sought from the PMO, and NOT from IAF HQ. A letter to this effect was later drafted by Brajesh Mishra from the PMO and this letter was dated December 22, 2003 and it was addressed to both IAF HQ and to the SPG’s Director. As a result of this, from that day itself, the EC-225 got disqualified since its cabin height was only 1.45 metres. Insterad, from then on, three contenders remained in the fray, i.e. the Mi-172, the S-92 and the AW-101, with the latter two having cabin heights of 1.82 metres.

Claim: The revised SQRs in 2006 made competition more restrictive instead of making the procurement procedures more broad-based to increase competition. The fresh RFP with revised SQRs was issued to only 6 vendors as opposed to 11 in 2002.

Fact: This is spectacularly ridiculous. Can anyone in the CAG or in this world ever explain how a competitive evaluation process involving 12 contenders can guarantee a far better deal than a competitive evaluation process involving 6 contenders? Can even a single such precedence be sited from anywhere else in this world?

Claim: The Field Evaluation Trial (FET) of the AW-101 was conducted on representative helicopters and not the actual helicopter. The AW-101 was still at the development stage at the time of the FET.

Fact: Totally wrong. The AW-101, known earlier as the EH-101, has been available as a fully developed and flight-certified helicopter since the 1990s. Furthermore, never in the history of aviation has any aircraft or helicopter been developed from scratch as a VVIP platform. Every VVIP helicopter flying today makes use of a platform that was originally developed for either military/military utility usage and that has been customised through customer-specified fitments. Similarly, when the Indian Navy wanted to evaluate the contenders for its LRMR/ASW platform requirements, it had to evaluate representative candidates like the Airbus A319MPA and the Boeing P-8A Poseidon.  

Claim: Although the 2006 RFP had laid down the necessity of carrying out the field evaluations in India, they were conducted abroad. The recommendation and assurance given by the IAF Chief (October 2007) to conduct evaluation trials abroad lacked justification.

Fact: Necessity, yes; compulsory, no. Deviations from this requirement have always been allowed over the past 16 years. For i9nstance, field evaluations of VVIP transport aircraft like the Boeing BBJ and Embraer EMB-135BJ Legacy were all conducted abroad in the previous decade.  

Claim: Given the low utilisation levels of the existing fleet of helicopters, the MoD was not justified in procuring four additional helicopters for VVIPs.

Fact: The existing Mi-8Ts had approached the end of their TTSLs by 2005 itself and therefore could be used only sparingly. Instead, most VVIP flying between 2005 and now has been done on board the IAF’s Mi-17-IVs, 40 of which were bought early in the previous decade.

Claim: The cost benchmarked by the Contract Negotiation Committee was much higher than the offered price, allowing no room for negotiation. Hence, it provided no realistic basis for obtaining an assurance about a reasonable cost procurement of AW -101.

Fact: The MoD’s benchmarked cost was Rs.4,877.5 crore while AgustaWestland’s offer-price was Rs.3,966 crore, meaning the former figure was 22.80% higher. The final negotiated figure was Rs. 3,550 crore. Therefore, to claim that there was no room for negotiations on the price issue is blatantly false. Usually, the benchmarked cost has a 20% mark-up in order to factor in various variables, such as the customisation of the platform (through the incorporation of special fitments) and the quantum of spares-support required for a finite period of time, like for a single year or for a three-year period.

Other Slanderous Claims

The Milan Appellate Court’s judgment concerning Indian citizens, which relies almost entirely on the testimony of Guido Haschke, blandly states: “Ultimately, there are no elements of certainty to affirm this beyond any reasonable doubt that the reduction in the operating height was made contrary to the public (duty), and then (Air Chief) Marshal Tyagi carried out specific acts contrary to his duty; it remains, anyway, the wrongfulness of his conduct, for having offered to cooperate with AW in an economic operation which prohibited all forms of mediation, and for having received a large compensation in relation to its institutional activity.”

Now, either Italian state prosecutors and court judges are spectacularly insane, or they are loathe to do their homework. For instance, the date on which written directives to revise the QRs were issued from the Indian PMO to IAF HQ was December 22, 2003 and at that time the IAF’s CAS was ACM Srinivasapuram Krishnaswamy. ACM Shashindra Pal Tyagi took over as the 20th CAS of the IAF only on December 31, 2004, and had retired on March 31, 2007. The competitive evaluations of the two shortlisted contenders were done during the tenure of ACM Fali H Major, while contract signature for Contract No. HQ/S96062/6/ASR was done when ACM P V Naik was the CAS. Furthermore, if at all the Italian state prosecutors and the presiding Judge of the Milan Appellate Court were to have done their homework on how exactly the decision-making process works for military procurements, they surely wouldn’t have targetted S P Tyagi. All they had to do was study this document:

http://indianairforce.nic.in/RTI/HandbookOnRTIAct2005.pdf

It is evident from this document that the primary decision-makers on all technical aspects of production evaluations/shortlisting within IAF HQ are the VCAS and DCAS Branches, and not the office of the CAS. The bulk of the work is done by the concerned Project Director who reports to the DCAS Branch and the final call is taken by the VCAS Branch. The only job then left for the CAS is to ENDORSE the recommendations and conclusions. He does not have the authority to either revise or reverse anything at this stage.  

Then we have utterly false canards being spread by the TIMESNow broadcast TV channel, such as ZAPPA being a code-word. In reality, Zappa is the surname of Giorgio Zappa, the former CEO of Finmeccanica. Similarly, this Channel has since claimed that AgustaWestland International Ltd (AWIL) is not an OEM. In reality, AWIL is indeed the OEM whose helicopter manufacturing facilities are located in Yeovil, Somerset in the United Kingdom, where the IAF’s first three already-delivered AW-101s were built. And just like AWIL, the Italy-based helicopter manufacturing subsidiary of Finmeccanica SpA is known as AgustaWestland SpA, while the facility based in The Netherlands is known as Agusta Westland NV, Netherlands. 

The false canards being spread by TIMESNow can be viewed here:

https://www.youtube.com/watch?v=I-p-VdUpIQU

https://www.youtube.com/watch?v=xQ7VL7Gh1j0