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Saturday, Jul 16, 2005

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Submarines: deal needs renegotiation

Sandeep Dikshit

Cabinet Committee on Security wanted escalation clause waived, says Pranab

BANGALORE: Defence Minister Pranab Mukherjee on Friday said the multi-billion dollar deal for assembling French submarines in India would have to be renegotiated. This was the Government's first definitive statement on the subject since the price was finalised nearly 18 months ago.

Initially declining to comment on the progress of the deal, which the Navy was keen on concluding at the earliest to arrest the declining trend in its submarine force levels, Mr. Mukherjee later said the Cabinet Committee on Security (CCS) gave directions to this effect to the Defence Ministry.

The CCS wanted the company to waive the escalation clause signed by the previous government. According to the clause, India had to pay Rs. two crores as penalty for every day of delay in concluding the contract. Since price negotiations ended 18 months ago, the additional pay-out would be about Rs. 1,000 crores. The CCS had also asked the Ministry to sign an integrity clause with the French company Armaris.

The integrity clause is part of the revised purchase policy for all defence contracts above Rs. 300 crores.

The contract for building six submarines at the Navy's Mazgaon Docks is estimated at Rs. 15,000 crores. All companies short-listed by the Defence Ministry have to sign this clause to minimise the presence of middlemen and other unfair practices till the final contract is signed. From the time of the Bofors scandal, all final defence contracts contained declarations by companies stating that no middleman was involved.

Mr. Mukherjee said deal might not be renegotiated if the company revised the escalation clause and demonstrated flexibility on some other aspects of the deal.

Analysts feel the Government has toughened its stand after the entry of another submarine company in the fray.

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