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The Scorpene deal

Print edition : Oct 07, 2005 T+T-

The Scorpene submarine deal India signed with France has had its share of controversy with German officials complaining that HDW, the German consortium, was not allowed to bid for the contract.

JOHN CHERIAN in New Delhi

THE announcement of the Indian government's decision to acquire the French-made Scorpene submarines was meant to coincide with Prime Minister Manmohan Singh's visit to France. The decision on the $3-billion deal for six Scorpene submarines was announced formally after the meeting between Manmohan Singh and President Jacques Chirac in Paris on September 12. The French President also indicated during the meeting that his government would work closely with the United States and the United Kingdom to remove the restrictions on the export of nuclear reactors to India.

Chirac also welcomed the Indian decision to go in for 43 Airbus planes for Indian Airlines, the country's domestic carrier. The French were upset when the Indian government ignored the European consortium and opted for American Boeing commercial jets to refurbish the national carrier Air-India's ageing fleet. The Airbus deal is worth $2.4 billion.

Germany too has reasons to be happy with Indian Airlines deal as it is part of the European consortium. However, the Germans are extremely unhappy with the Scorpene deal. German officials said they were not even allowed to bid for the contract. They also emphasised that the Indian government's new defence procurement policy prohibited single-vendor supply for capital procurements. In fact, there was not even the bidding process, a normal practice when big international defence deals are negotiated. Germany's HDW was blacklisted by the Indian government for an unprecedented length of time as a case filed by the CBI dragged on in Indian courts. The case was closed only in early 2004, after 23 years. German officials hinted that vested interests saw to it that the matter remained unresolved so that HDW would remain blacklisted.

Like all big defence deals that India has entered into in recent years, the Scorpene deal has also generated its share of controversy. The French had lobbied for the deal for quite some time. The previous National Democratic Alliance (NDA) government had decided on the French-made submarines overlooking the claims of German and Russian manufacturers. The former National Security Adviser, Brajesh Mishra, had reportedly taken a personal interest in the matter. The NDA government decided to diversify arms purchases so as to gain the maximum political leverage in key countries.

Germany and Russia were the traditional suppliers of submarines for the Indian Navy. Companies from these countries had offered submarines, which they claimed were qualitatively better than the Scorpene, at a much cheaper price. The German company HDW/MAN Ferrostal had proposed a significantly lower price for the design and construction of its Class-214 submarines. According to German officials, only one company was allowed to bid for the Indian Navy's new submarine project. The officials said that all that they wanted was a "level playing field" so that one company could not "fix the price". The German company claimed that its product was not only superior to the Scorpene but also 25-30 per cent cheaper. The Indian Navy has said that it seriously considered the HDW submarine bid in 2002.

The German company sold more than 20 Class-214 submarines recently to South Korea, Portugal, Italy and Greece. Venezuela recently signed a contract to buy the German submarines. The Class-214 submarine's main selling point is HDW's capability to build submarines with an integrated air independent propulsion (AIP) system based on the Fuel Cell technology. According to German officials, no other submarine in the same class has the capability to remain submerged for as long a period as the Class-214.

According to experts, the AIP system is essential for any Navy having blue water aspirations. The Germans claim that only they have the AIP technology and the Indian Navy has not taken this into account. The endurance of conventional diesel submarines is limited by the capacity of the electric batteries that power them when submerged. They have to come up periodically to charge their batteries, making them vulnerable to hostile anti-submarine forces.

The Class-214 type also has the submarine-to-surface missile launching capability, including the capability to launch the Russian Klub missiles used by the Indian Navy. One of the reasons given by the Indian Navy for preferring the Scorpene is that the others lacked the systems to launch Russian- and American-made missiles. Another reason it gave for preferring the Scorpene was that the deal also included the Exocet missiles, a proven weapon. The German manufacturers claimed that one reason why Greece, South Korea, Portugal and Italy preferred the Class-214 was because of the favourable delivery schedule.

The German consortium had indicated to the Indian Navy that it could deliver the submarines within 60 months. As an additional incentive, it consortium had offered to supply more Class-209 type submarines, which are already in operation with the Indian Navy, to meet any shortfall in India's submarine forces. The Indian Navy had argued forcefully for an urgent decision on the Scorpenes to maintain force levels. Currently the Navy has 16 submarines. Two of these are at the fag end of their service and due for replacement. Ten are of Russian make, of the Foxtrot and Kilo class, dating to the Soviet era. The Indian Navy has embarked on an ambitious submarine programme, Project 75, which envisages the manufacture of 24 submarines in the next 30 years.

German officials pointed out that two of India's Class-209 type submarines were built under a transfer-of-technology agreement with the Mazagon Dockyards Limited (MDL) in the 1980s. Under the contract with the French, three of the Scorpene submarines will be produced at Mazagon docks. The German officials pointed out that there was a lot of commonality between the Class-209 and the Class-214. They said that had the Indian government opted for the Class-214, there could have been a lot of savings related to infrastructure investments, spare parts supplies and managerial matters. HDW officials claimed that the Indian Navy was very happy with the Class-209 submarines.

The Germans also claimed that the Scorpene was not a proven boat like their product. The Class-214 was in operation with the navies of many countries. HDW is the world market leader in conventional submarines, garnering around 80 per cent of the global sales. Besides India, the French are selling the Scorpene to Chile and Malaysia.

The Germans also said that India stood to lose more than a billion dollars in investment in defence and non-defence industries. The French have made no such explicit commitments. Defence deals in the post-Cold War period have been characterised by lucrative add-ons, known as "offset deals". South Africa's recent defence deals are illustrations. Countries signing defence deals with South Africa have to commit huge investments in the social sector. In 1999, South Africa negotiated an arms package deal worth nearly 350 per cent of the contract value.