Lack of guarantee favours Rafale jet maker, says CAG

■ UPA’s deal provided 15% bank guarantee; NDA version had letter of comfort

New Delhi, Feb. 13: The Comptroller and Auditor General (CAG), in its report on the Rafale fighter jet deal with France, has highlighted the drawbacks of settling for a ‘Letter of Comfort’ rather than a sovereign guarantee by the French government.

The report, tabled in Parliament on Wednesday, noted that the 2007 UPA deal included a 15 per cent bank guarantee against advance payments.

Highlighting its concerns, the CAG observed that in case of a breach of agreement, India would now have to first settle the matter through arbitration directly with the French vendors.

If the arbitration award goes in favour of India and Dassault Aviation, the makers of the Rafale jet, fails to honour it, India will have to exhaust all available legal remedies, it said. Only after that will the French government make the payments on behalf of Dassault Aviation, it added.

India for the first time signed an Intergovernmental Agreement (IGA) with France to procure 36 Rafale fighter jets. It has earlier signed similar IGAs with the US, the UK and Russia.

In the 2015 offer with the present government, the French vendor did not furnish any financial and performance bank guarantees, the report stated.

Since about 60 per cent of advance payments were to be made to the French vendors, the ministry of law and justice advised that a government/sovereign guarantee should be requested in view of the value of the proposed procurement, the report said.

However, the French government and Dassault Aviation neither agreed to furnish the bank guarantees nor a government/sovereign guarantee, it stated.

“Instead it provided a ‘Letter of Comfort’ signed by the French PM in lieu of the Bank Guarantee,” the report said.

The CAG report comes at a time the government has been facing attacks by the Congress over settling for a ‘letter of comfort’ instead of a ‘sovereign guarantee’.