Indian MoD Orders Probe Into Rolls-Royce Aero Engine Deals

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Rolls-Royce offers to ‘provide value’ for commission it paid intermediary

British defence and aerospace major Rolls-Royce has sought a quick end to its Indian imbroglio arising out of its use of an intermediary to do non-military, energy-related business with Hindustan Aeronautics Ltd.

The company has offered to “provide value” for the commission amount of about Rs. 18 crore that it paid the intermediary, it is reliably learnt.

Rolls Royce offered to find a mutually suited way to resolve the matter and reimburse the money soon after the controversy broke out on March 3, The Hindu learns from persons closely dealing with the matter.

The Ministry of Defence and HAL have put on hold all transactions with the British company; the Ministry is understood to have referred the matter to the Law Ministry for advice.

Many Air Force aircraft and Navy turbines are powered by Rolls-Royce engines. A general worry in military circles is about a costly cascade effect a vendor’s “transgression on the civil business side” would have on the defence forces if the issue is not resolved early, according to these sources.

The British company admittedly needed an external agent for its energy business with HAL as it had a small team in India until 2009.

HAL alerted the Ministry of Defence in December 2013 when RR revealed in its first letter, dated December 19, 2013, that it had engaged Singapore-based Ashok Patni representing Aashmore Pte Ltd as its commercial adviser from around 2007 till 2012.

RR admits to 96 transactions that were done with HAL through Aashmore, for which it paid the agent between 10 per cent and 11.3 per cent of the value of the order. Post 2013, it started dealing directly with its customers.

Rolls-Royce assured its Indian connections that Aashmore did not deal directly with HAL or its employees; an internal probe did not find any evidence of Aashmore’s commissions being passed on to HAL staff or other third parties.

Rolls-Royce offers to ‘provide value’ for commission it paid intermediary | idrw.org

 

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The article says that MOD has ordered to stop all new deals so it means new signed deals will not be affected???

 

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Wrong Adviser Lands Rolls Royce in Govt’s Bad Books

British aero-engine maker Rolls-Royce’s trouble in India over hiring a “commercial adviser” has its roots in the firm paying commission for orders from Defence Public Sector Hindustan Aeronautics Limited (HAL), which services both military and civilian planes with the company’s engines, top defence ministry sources have said.

Rolls Royce had on December 27 last year informed Bangalore-headquartered HAL that it had hired Singapore-based Aashmore Private Limited and its executive Ashok Patni as its “commercial adviser” to help it out with “sales, logistics support, local business expertise and strategic advice” in the Indian market.

This “disclosure” from Rolls-Royce, which has over five decades of business association with India, came about after HAL issued it a notice to clarify on “intermediaries” hired by it in India to bag contracts from the Industrial Marine and Gas Turbine (IMGT) division of HAL between 2007 and 2011.



During this period, Roll-Royce had bagged over 50 civilian contracts for engines of planes and helicopters belonging to Oil and Natural Gas Corporation (ONGC) and Gas Authority of India Limited (GAIL) maintained by IMGT. These contracts were worth over `10,000 crore, sources said.

Apart from these 50 civilian orders, Rolls-Royce also bagged 50-odd defence contracts from HAL for repair and overhaul of military planes and helicopters from both the Indian Air Force (IAF) and the Indian Navy during this period, a senior Defence Ministry official said.

“Rolls-Royce has disclosed it paid commission to the commercial adviser for over 50 orders bagged from HAL’s IMGT division, which handles all civilian aero-engine repair and overhaul work. However, our own investigation shows that there were 50-odd defence orders, too, which were done during the four-year period. Commission was paid for these defence contracts too and we have to conclusively establish this fact, and hence the CBI probe,” said a source.

“It is also surprising that the British firm, which has worked in India for over five decades, hired a Singapore-based firm for Indian business expertise,” the source said, reasoning out the decision to ask for a CBI probe and putting on hold future contracts with Rolls-Royce for Repair and Overhaul of six-types of IAF military planes, including Jaguar fighter jets. Rolls-Royce also supplies spares and aero-engines for Navy’s two types of aircraft.

Under Indian defence procurement procedures, hiring of a consultant or agent for lobbying to bag contracts is strictly prohibited. However, hiring of consultants for civilian contracts is permitted in India. The company had also intimated HAL that its arrangement with Aashmore ended in January 2013.

“But, HAL is a defence establishment and it is convered by the defence procurement procedures,” a Defence Ministry official argued. Defence Minister A K Antony had last week asked for the CBI probe into the Roll-Royce contracts signed between 2007 and 2011 following an internal probe by the HAL, which sought clarification from the British firm.

Ministry sources said the probe was to see if Rolls-Royce had violated any part of its defence contracts with India by hiring a consultant and not disclosing it.

Wrong Adviser Lands Rolls Royce in Govt’s Bad Books | idrw.org

 

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If Rolls-Royce is barred, Jaguar, Hawk, C130J will be affected

Former top officials of the Indian Air Force (IAF) in the City have said that barring Rolls-Royce (RR) from transacting business with Hindustan Aeronautics Limited (HAL) would hit IAF’s strikefighter Jaguar, the strategic transport aircraft C130J and the Hawk Advanced Jet Trainer (AJT).

It would bring their operations to a halt and severely impact the operational preparedness of the IAF. And financially, it would hit HAL and Defence Ministry in millions of dollars ($800 mn and above), and some say in an extreme case, the setback could be around $ five billion.

RR is now barred from transacting with HAL after RR admitted that it had hired a third party to secure engine contracts from Gas Authority of India Limited (GAIL) via HAL. The Defence ministry has now put on hold transactions with RR and would restore original ties only after a probe.

According to one estimate, the Jaguar requires an ideal supply of 180 engines for 90 aircraft considering it as a twin engine aircraft, Hawk would require 140 engines, and the C130J around six. Jaguar would mean costs of about $360 mn, the Hawk around $280 mn, and the C130J close to $800 mn. The figures here are only estimates by Defence insiders. Formal figures could vary from the estimates. The assessment, insiders say, is dependent on actual supply situation now.

Air Marshal Phillip Rajkumar told Deccan Herald IAF’s overhauling frequencies would be hit.
“Military aircraft keep flying and periodicaly engine overhauling is necessary. For overhaul, new spares may be necessary to replace old ones. And these spares are supplied by RR. If spares don’t reach the squadrons because of a ban, how will they fly an engine that needs overhaul?

The engine is kept idle. Squadrons come to a grinding halt and operations are hit. Stopping supplies will have serious impact.” Some aircraft may not be able to rely on only overhauled engines, but may require new ones. But phasing out the old ones can be undertaken only if new ones are coming in time, says Rajkumar.

Air Marshal B K Pandey’s reasoning echoes Rajkumar’s. “If engine supplies and spares stop, aircraft will be grounded. Pilots cannot undertake sorties. In a sense, this is an old problem.

We would suffer heavily with the MiG-21. We had to get around the supply chain problems with Russia. Their supply system had enough problems. Still we managed. HAL represents the supply chain in Bangalore and India. So halting ties with RR means choking the supply chain – HAL – and hurting operations of the squadrons. How can you sign a contract and then come to the point of blacklisting it or imposing a moratorium on it? I would call this a suicidal tendency.”

Pandey offers a way out of such imbroglios. “Separate the crime from the contract. If a problem arises, nail the criminal but retain the contract. The contract should not suffer or else supply chain gets choked. Jeopardising the contract means shooting yourself in the foot. After having spent energy and time to design the contract and come to a decision, why do you go back on it? The people need to be changed, not the pact itself.”

RR at present supplies engines to HAL for five aircraft adour engines for IAF’s strike fighter Jaguar, Adour Mk871 engines for the Hawk Advanced Jet Trainer (AJT), AE 3007 engines for Embraer Legacy Jets for VVIPs and surveillance duties, AE 2100 engines for the C 130J transport aircraft and RR Dart Engines for IAF’s transport aircraft, Avro. Engine costs vary according to size, type, capacity and the kind of aircraft it will be deployed in. On average a military aircraft engine may cost anywhere between $ 2 mn and 6 mn.

A contract for 99 GE 414 engines to be fitted into the Light Combat Aircraft Mark-II is costing India $600 mn with each engine costing roughly $6 mn. Keeping these high costs in view, IAF veterans suggest a different method of handling situations like the one RR is caught in. “You cannot invite global companies home and then let loose CBI or the courts on them. If there is something wrong, get the man responsible for it, and then get the loophole corrected and ask for a new team.

Cancelling the contract would mean we hit ourselves. In this age of rapid technological development, we have to be quick and rational in decision-making and equip ourselves well. We should explore financial penalties as one means to penalise the wrong-doers. Severe financial penalties may ensure that companies don’t mess with the country.”

If Rolls-Royce is barred, Jaguar, Hawk, C130J will be affected | idrw.org