Rafale Objections ‘Resolved’ With Non-Existent Sovereign Guarantee

The Quint finds that objections by negotiators were resolved by assuring that France would give sovereign guarantee.

Objections to the Rafale deal were brushed off with assurances of a sovereign guarantee, that doesn’t seem to exist.

(Photo: The Quint_

Cameraperson: Sumit Badola

Video Editors: Abhishek Sharma and Mohd Irshad

Were Indian negotiators for the Rafale deal misled by the Cabinet Committee on Security? Was the Indian government instead misled by the French government? And how is it that two major objections to the deal were ‘resolved’ on a basis that never came to pass?

These are some of the questions we have to ask ourselves in light of the admission by Attorney General KK Venugopal to the Supreme Court that France has not provided a sovereign guarantee for the deal, just a letter of comfort. Because the answers to these questions could call into question the key approvals granted to the deal by the Indian Negotiating Team (INT) in July 2016 and by the Cabinet Committee on Security (CCS) in August 2016.

The Quint has accessed a Defence Ministry document that addresses the “Note of Concerns” prepared by three members of the INT during their deliberations, which lasted from August 2015 to July 2016. The three members, Rajeev Verma, AR Sule and MP Singh, had raised ten objections to the commercial aspects of the deal.

Two of these are relevant here:

First, they flagged the fact that Dassault was not providing any bank or performance guarantees for the deal (which are required under the Defence Procurement Policy 2013 and 2016), and that payments in advance of the delivery of the aircraft.

Secondly, they noted that Dassault’s financial results showed that the company was not in a sound financial position, which meant there was a risk to its ability to deliver the aircraft.

The first of these objections was ‘resolved’ by the CCS on the basis that the French President would provide a sovereign guarantee, which would be “adequate”. Which makes the CCS’s later decision to waive the need for a sovereign guarantee despite the Law Ministry’s objections, seem very problematic.

The second objection was dealt with on the grounds that France had agreed to take responsibility to ensure deliveries of the aircraft. Again, this would require a sovereign guarantee, since there is no other way to impose a legally binding obligation on France to do so.

Sovereign guarantees are standard practice in defence deals like this. India has reportedly gone ahead with some defence deals without these before, according to interviews by some defence officials with the press – but in these cases, according to the same sources, there has also been a bank guarantee or performance bond from the manufacturer.

In this case, India has neither.