NEW DELHI: Before Anil Ambani came into the picture, a company controlled by big brother Mukesh Ambani, Chairman of Reliance Industries, was in talks to be the key private sector partner for the Rafale fighter jet deal when it was negotiated under the previous UPA regime.
However, the plan was shelved following a strategic rethink by Reliance, which withdrew from the defence and aerospace business after 2014.
According to the original deal, Dassault Aviation, the French manufacturer of Rafale fighter jets, had planned to invest over Rs 1 lakh crore in offset obligations.
When approached by ET, both Reliance Industries and Dassault refrained from making any official comment on matters related to the deal. ET spoke to key interlocutors involved in the effort to identify the ideal partner for Rafale offsets since 2007.
At one time, tainted firm Offsets India Solutions, whose promoter allegedly had links with Robert Vadra, Congress party president Rahul Gandhi’s brother-in-law, tried to enter the fray and had applied ‘considerable pressure’ for a slice of the work, according to key negotiators. OIS virtually shut down after promoter Sanjay Bhandari fled to London in February 2017, following a probe into his business functions in India.
Dassault was free to choose its private sector partners, provided the main production line was set up with state-owned Hindustan Aeronautics Ltd. Under the original deal for 126 jets, the French side would have been liable to invest Rs 1,07,415 crore in India as offsets.
Dassault entered its Rafale jet into the fray for the India’s Medium Multi Role Combat Aircraft contract on August 28, 2007. At that point, Dassault is said to have initiated talks with the Tata group for a partnership.
The large quantum of offsets – 50% of the deal value – prompted all contenders, including US aircraft makers Boeing and Lockheed Martin, to look for private Indian companies that could take on large-value orders.
Insiders said that after Tata decided to go with a US partner, Dassault opened talks with the Mukesh Ambani-led Reliance, which was considering entering the aerospace sector. A new company, Reliance Aerospace Technologies Ltd. (RATL), was incorporated on September 4, 2008.
In May 2011, weeks after the Rafale and the Eurofighter jets were shortlisted by the air force, RATL started hiring key staff to stitch together a partnership roadmap that included discussions on HAL’s role.
In January 2012, Dassault emerged as the lowest bidder for the contract and price negotiations commenced with the defence ministry, which included the offsets plan and the terms of the contract with HAL.
The offsets roadmap worked out with Dassault included a plan to set up a centre for composites manufacturing, transfer of hitech knowhow and a joint venture for the Falcon business jets programme, besides larger plans to invest in Smart Cities in the future. The offset talks came to a standstill after the main aircraft deal hit an air pocket.
In June 2014, after the change of government, the plan to partner with Mukesh Ambani appear to have fizzled out.
Those aware of the details told ET on condition of anonymity that a memorandum of understanding on the offsets deal was simply allowed to lapse. Also, Reliance is said to have decided to stay away from this business. “There were talks and several rounds of discussions where the teams met but nothing much happened beyond that. Things did not even reach the proof of concept stage and when the MoU lapsed, it was not renewed,” an insider aware of the talks told ET.
THE OIS ATTEMPT
After the MoU lapsed, OIS approached Dassault for a partnership. The company was a visible player in the offsets space with a presence at all international events. “There was considerable pressure to tie up for a partnership. Proposals were made several times and through several people,” a reliable source told ET.
However, the French side decided against going with OIS after a few initial rounds of talks. OIS promoter Bhandari’s perceived proximity with Vadra was said to be a strong factor.
In May 2016, Bhandari’s offices in New Delhi were raided as part of an Enforcement Directorate probe into charges of wrongly influencing defence deals. Bhandari fled to London thereafter and has been unavailable since.
Bhandari was booked under the Official Secrets Act after confidential defence ministry documents were found in his offices.
The Central Bureau of Investigation joined the probe. Investigators are looking into charges that he tried to influence defence deals with European companies in India.
On June 24, 2015, the defence ministry withdrew the 126 aircraft deal tender. A new government-to-government contract was negotiated with the French side to purchase 36 jets off-the-shelf to meet India’s urgent requirements. This set off a fresh flurry of partnership plans for offsets valued at Rs 29,631 crore, about one-third the earlier amount.
THE FINAL DEAL
Dassault chose to go with Anil Ambani-led Reliance Defence, which was incorporated on March 28, 2015, days before the new deal was announced in Paris. Sources told ET that the partnership with Reliance Defence was influenced by the original talks held with Mukesh Ambani.
“A lot of the work had already been done prior to 2014, including feasibility studies,” a person close to the negotiations told ET.
The biggest chunk of the new offsets plan – to set up a Falcon executive jet manufacturing plant at Mihan in Maharashtra – had been discussed with RATL.
A person who negotiated the joint venture told ET that the deciding factor was land – over 30 acres at Mihan in Nagpur – because the venture required a factory to be set up next to a runway with direct apron access to roll out executive jets. The French side chose over 72 partners for the offsets given the quantum, including HAL, Larsen & Toubro, Tata, BEL and several smaller companies. This offsets contract has now come under attack by the Congress, which has alleged crony capitalism and discrepancies.