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Agusta penalty drive starts

New Delhi, Jan. 2: The Indian government today began moving papers to punish Anglo-Italian firm AgustaWestland after scrapping a Rs 3,600-crore deal to buy 12 luxury helicopters to transport the President, Prime Minister and other dignitaries.

Part of defence minister A.K. Antony’s eagerness to impose penalties is explained by self-defeating contract cancellations in earlier years that hurt Indian armed forces.

“We have begun the process to encash the bank guarantee given by AgustaWestland,” a defence ministry source said here today without giving figures. “We believe we can ensure that we will not make any losses,” he said.

Defence ministry officials were also waiting for AgustaWestland’s response to the decision to scrap the contract. So are competitors, such as the US-based Sikorsky, that wanted to sell the S-92 Superhawk to the Indian Air Force.

Last evening, AgustaWestland repeated its denial of the charge that it had used agents — or middlemen — to win the Indian contract.

The IAF’s headquarters communication (or VVIP) squadron relies largely on Soviet-vintage Mi-8 helicopters that are to be phased out from next year.

The euro 560-million contract signed in February 2010 between the Indian government and AgustaWestland for the AW-101 helicopters was indexed to the exchange rate of the euro at that time. The defence ministry has calculated that despite the euro appreciating since then it will be able to recover about euro 200 million by encashing the bank guarantee. This is roughly the amount that the Indian government has paid to AgustaWestland till now.

The contract was signed under new defence procurement policy rules and an “integrity pact” — that did not exist at the time of defence deals such as the Bofors artillery guns and HDW submarines in earlier years. A former air chief marshal and 12 others are being investigated by the CBI in the VVIP chopper deal.

AgustaWestland has pressed for arbitration. The legal processes involved in this after the defence ministry too nominated a retired Supreme Court judge as its arbitrator on Wednesday was being studied by the law ministry and the attorney-general.

The cancellation of contracts with Bofors and HDW had also hurt the Indian armed forces because they ran short of spares and/or did not get the technology transfer that was agreed on. The Indian Navy, in particular, was hard put to keep its HDW submarines ship-shape because spares and maintenance were not easily available from the German firm that was the original maker.

In March 2005, the Supreme Court absolved HDW of the charge that it had paid Rs 465 crore as bribes to agents who swung the deal. The CBI was investigating the deal — that was campaign tool against the then Rajiv Gandhi government —since 1990.

The CBI is also investigating the VVIP chopper deal but it is also largely dependent on the investigations into Agusta holding company Finmeccanica’s business deals in Italy. The defence ministry has also not yet blacklisted AgustaWestland by barring it from doing business with the armed forces.AgustaWestland Seaking helicopters were first sold to the Indian Navy in 1971 and are still in operation. The source said the government was yet to take a decision on the three AW-101 VVIP helicopters that are already with the air force.

The force can do only a limited number of training sorties on the helicopters because there is no supply of spares since the execution of the contract was “frozen” in February last year.

“There are several issues to consider and we will take a view after considering all of them,” the source said. Among these issues are the investigations in Italy and India, Agusta’s move to seek arbitration and the encashment of the bank guarantee.