The Telegraph
Tuesday , March 4 , 2014
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Rolls-Royce freeze to bite air force

New Delhi, March 3: India has put on hold contracts with UK engine-maker Rolls-Royce after the company was said to have admitted in a letter that it paid a commission to an Indian “intermediary”, defence ministry sources said today.

The value of the contracts could total more than Rs 5,000 crore. Holding them up would have an impact on the operational readiness of the Indian Air Force.

Indian defence procurement rules prohibit the use of intermediaries — or “middlemen” — and the payment of “kickbacks”.

A statement from Rolls-Royce said: “We will cooperate fully with the regulatory authorities and have repeatedly made clear that we will not tolerate misconduct of any sort.”

Defence ministry sources said the UK company had made a “voluntary disclosure” in December last year about hiring an intermediary for a fee that was a percentage of the value of the purchase orders given by the defence public sector company Hindustan Aeronautics Limited (HAL).

Rolls-Royce’s disclosure came in the wake of investigations by the UK’s Serious Fraud Office. A whistleblower who worked for the company had alleged that the firm had resorted to unethical practices to win contracts in China and Indonesia.

The ambit of the Serious Fraud Office investigations has now singed India’s military programmes in which the company is deeply involved.

A source speaking unofficially for Rolls-Royce said the company’s disclosure had nothing to do with India’s military programme but involved the maintenance of two gas turbines, through Hindustan Aeronautics, of the public sector firm Gas Authority of India (GAIL) and ONGC.

“We fail to understand why the ministry is overreacting,” the executive said.

Defence ministry sources said GAIL was covered by defence rules even when it was executing civilian projects.

The decision to put on hold a “repair and overhaul” contract could be self-defeating because the Indian Air Force’s fighter aircraft are heavily dependent on Rolls-Royce engines.

Last week, defence minister A.K. Antony had approved a recommendation by Hindustan Aeronautics to order a CBI probe into Rolls-Royce’ operations to win military contracts in India.

Rolls-Royce is a long-time supplier to the Indian armed forces. The “repair and overhaul” contract is similar to an annual maintenance contract for equipment.

Six types of aircraft in the Indian Air Force inventory use Rolls-Royce engines: Kiran trainers and Advanced Jet Trainer Hawks (aircraft dedicated to training fighter pilots); Avros (cargo and surveillance); Jaguars (deep penetration fighter-bombers); the Embraer Legacy (VVIP transport) and the C-130J Hercules.

The C-130J Hercules, though powered by Rolls-Royce engines, is covered by a separate arrangement through a government-to-government deal with America. Engines for the other five are procured by Hindustan Aeronautics and their maintenance too is the defence public undertaking’s responsibility.

“Like in Augusta case #UPAGovt forced to order #CBI probe into HAL > purchase only after foreign govts act against arms dealers?” CPM general secretary Prakash Karat tweeted.

He was referring to the investigations into Agusta Westland and Italian conglomerate Finmeccanica, which had supplied VVIP AW101 helicopters. The contract for the Rs 3,600-crore project was cancelled in January after investigations by Italian authorities began rolling.