May 31, 2020
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Materiel Discomforts

George Fernandes might rue the day he ordered a CVC and CAG scrutiny on defence procurements

Materiel Discomforts
Abhijit Bhatlekar
Materiel Discomforts
Close on the heels of Central Vigilance Commissioner (cvc) N. Vittal's report confirming the presence of middlemen and agents in defence deals comes another special audit by the Comptroller and Auditor General's (cag) office. And it's as scathing as Vittal's report, slamming the ministry of defence (MoD) on its emergency procurements during Operation Vijay in Kargil. Worse, this skewed policy of emergency purchases bypassing all norms of procurement was pursued much after the war.

The cag report details at length the procurements made during and after Operation Vijay. A copy of the report obtained by Outlook shows how material deviations were made from procurement procedure in a large number of arms purchases. These revelations, along with the yet-to-be-made public Vittal report (submitted on March 31), will definitely put the Vajpayee government in a tight corner on the issue of defence deals. "We hope to place it in Parliament during the winter session," says an official in the cag office.

The audit's objective was to assess the efficiency and economy of the procurement system and identify the major cases of irregularities. On both counts, cag has come up with serious objections, stating that the bulk of procurements for Operation Vijay were "guised routine procurement with relaxed norms of scrutiny and no budget constraint". The MoD pushed through over 135 contracts totalling Rs 2,180.61 crore.

The cag report assumes added significance in the light of defence and external affairs minister Jaswant Singh's assertion on August 27 that greater transparency in arms procurement would be ushered in. He told the Rajya Sabha that the structure and details of all defence procurement will be posted on the MoD's website in a few weeks' time. The defence minister hopes to streamline the procurement system, currently hostage to inordinate delays. "Maybe he was aware of the faulty procurement system being followed and was trying to distance himself from deals entered into by his predecessor," says a senior army official.

Among the key deals the cag report has questioned are:

  • Although action for procurement was initiated in May/June 1999, 81 per cent of the 'stores' materialised only after January 2000, five months after Operation Vijay. In fact, 47 contracts totalling some Rs 1,241 crore were signed after August 1999, after the cessation of hostilities. The possibility of such procurements meeting operational requirements were remote from the start.

  • Notwithstanding the urgency of the requirement, 15 contracts aggregating Rs 700 crore involved either untried equipment or new vendors.

  • Slipshod evaluation of boot sizes resulted in procurement of 3,438 pairs unfit for any use at a cost of Rs 18.85 crore.

  • Even though Terminally Guided Munition (tgm) Krasnopol failed to meet the required standards and was found capable of engaging only 25 to 30 per cent of the targets in mountainous terrain, the ministry cleared its contract (Rs 151 crore) for execution in February 2000, citing operational urgency, even though Operation Vijay was long over.

  • The MoD concluded contracts with two firms for supply of bullet-proof jackets at prices 80 per cent higher than the lowest bid, on the grounds that the entire quantity was required in August 1999. The additional expenditure of Rs 15.77 crore was unjustified as the deliveries came only after October 1999, much after the war.

  • A contract for 1,200 flame-throwers costing Rs 18.22 crore was rushed through for the war even though they had fallen short of evaluation trials held during 1995.

  • In yet another case, universal variable time fuses of old vintage were accepted at the end of their shelf-life, after releasing 95 per cent of the total Rs 17.27 crore payment in December 1999 even though the operation was over.

    Crucial extracts of the audit report also reveal that in most cases previous purchase prices were neither available in file nor taken into account by the Price Negotiations Committee (pnc). The report also lists serious anomalies in the procurement procedure, which are as follows:

  • In 22 cases totalling Rs 514.04 crore, stores procured did not conform to the qualitative requirements of the army.

  • In 34 cases aggregating Rs 656.74 crore, stores were procured in excess of authorisation and requirements.

  • In 12 cases, contracts were concluded with vendors other than the lowest bidder. The extra expenditure on this count worked out to Rs 21.16 crore.

    Worthy of mention is what the audit report has to say on the acquisition of Hand Held Thermal Imagers (hhti)—one of the deals mentioned in Tehelka's tapes and now being examined by the Venkataswami Commission. Against a requirement for 208 hhtis for immediate procurement for Operation Vijay, a contract was concluded on February 1, 2000, with French firm Thompson csf Optroniq, costing Rs 41.95 crore. The contract was finalised with the firm even though another had been concluded with Elop from Israel in March 1999 for the supply of 208 hhtis, with a Transfer of Technology (ToT) designating Bharat Electronics Limited (bel) as the production agency.

    The report questions why the MoD preferred Thompson over the Israeli firm. This, it says, "resulted in denial of the order of the lowest bidder and in excess expenditure of Rs 3.01 crore." In the process, the army carries equipment from two different sources with the consequent enhanced maintenance and spares, costs and effort. Furthermore, it concludes that by not availing of the ToT facility at bel, the Rs 9 crore spent was infructuous.

    The report likewise picks holes in the procurement of Krasnopol (laser-guided artillery) shells from kbp, a Russian firm in Tula. A conditional contract was signed in August 1999. The pnc, for some inexplicable reason, upped the price for 1,000 shells and 10 laser designators from Rs 140 crore to Rs 149 crore! Sources told Outlook that former deputy army chief Lt Gen Samsher Mehta reportedly played a role, insisting on a 20 per cent advance to the Russian firm. In all, six trials were ordered to ensure its acceptance when no vendor is given such a chance.

    Ironically, it was former defence minister George Fernandes' decision in January 2000 to have a time-bound, mandatory scrutiny of the cag and the cvc on all past, ongoing and future defence procurements. The current secretary (defence production and supplies), Subir Dutta, told Outlook that he was "unaware" of what the cag special audit on the Kargil purchases contained. "You'll have to direct your enquiries to the defence secretary," he said. Incidentally, Dutta was the additional-secretary during Operation Vijay. Army officials say the MoD's explanation for the hurried purchases and also pursuing deals much after the war was to prepare for the "hot summer of 2000" in the Kashmir Valley. It's an excuse that may not cut ice as many of the procurements were unnecessary for combating insurgency.

    The report concludes that the procurement process was neither "cost-effective nor transparent". It is the first time though that a special audit questions defence deals running into thousands of crores. It does not point to corruption directly, but it's clearly the same old story.
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