Scorpene deal: PAC slams defence ministry

Slamming the Defence Ministry over the nine-year delay in awarding contract to French firm Thales to build six Scorpene submarines in Mumbai, a Parliamentary Committee on Wednesday said the indecisiveness resulted in cost overruns and undue favour to the vendor, besides adversely impacting Navy's operational preparedness.

Referring to a Comptroller and Auditor General (CAG) report for 2008 that rapped the Ministry for the delay, the Public Accounts Committee (PAC) also noted that this led to a cost escalation of the submarines by more than Rs 2,800 crore.

The CAG report had observed that "despite the Indian Navy's depleting force level, the Ministry took nine years to finalise a contract for the construction of the six submarines." The PAC report in this regard was tabled in both Houses of Parliament today.

The committee noted that due to the delay in the finalisation of the contract for as long as three years from 2002 to 2005, there had been an escalation in the price of submarines by more than Rs 2,800 crore and an additional Euro 27.05 million commitment on the procurement of missiles for the naval vessel.

"Such indecisiveness and systemic flaws on the procurement of submarines led to time and cost overrun and undue favour to the vendor besides adversely impacting Navy's operational preparedness," the report said.

The report said the cost overrun was primarily due to escalations of exchange rate variations and increase in cost of missiles, despite a discount of 1.03 per cent by the vendor.

Seeking an explanation from the defence ministry for the delay in finalising the contract and for cost overruns, the PAC also expressed astonishment over its "inability" to quantify the exact financial loss from the Scorpene deal, also known as Project-75.

Expressing concern over the Ministry accepting an "unproven" design of Scorpene, the report said "deviations in respect to prescribed parameters such as stability, speed, endurance, noise levels, manoeuvring performances of the submarine cannot be ruled out" and asked the Ministry to compel Thales to take corrective steps. Referring to the Ministry's reply attributing the delay on forwarding of Cabinet Committee on Security (CCS) note to Finance Ministry for examination and reference to Central Vigilance Commission (CVC), followed by several rounds of deliberations, the report said the process was "too cumbersome" and asked it to dispense with the CVC route.

"It (CVC route) is unnecessary and totally uncalled for and resultantly leads to unacceptable delays, as has happened in the instant case," it added. Noting that the construction of the Scorpene  at the Mumbai-based Mazagon Docks was very slow and consequently the delivery could be delayed, the PAC said the Ministry should have taken into account the "teething problems and the time taken for absorption of technology" before awarding contracts and indigenisation.

What caused concern in the PAC was the "systemic deficiencies", as corroborated by the defence secretary, who talked about "problems in the system, mindset and in the whole process" of procurement.