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Radar Image courtesy: Selex ES
 
Indian Ministry of Defence (MOD) is creating fresh hurdles in the business plans of Italy’s Finmeccanica group. MOD’s rationale for impediments is that the Central Bureau of Investigation (CBI) is probing the alleged kickbacks paid under the VVIP Agusta Westland choppers deal.
MOD was first instrumental in convincing Foreign Investment Promotion Board (FIPB) to delay a decision on Agusta Westland-Tata joint venture’s (JV’s) plea for amendments to its foreign direct investment (FDI) approval. Agusta Westland is wholly owned by Finmeccanica group. 
MOD has now led FIPB into deferring approval to the proposed joint venture between Finmeccanica company named Selex ES Ltd and Indus Teqsite Pvt Ltd (ITPL) for production of strategic electronics systems including the ones required by the aviation sector. In the proposed JV, Selex ES would hold 26% equity stake with the balance 74% to be held by ITPL.
MOD has told FIPB that it is not supporting the Selex-Teqsite JV proposal “at this stage” because of ongoing CBI investigation into VVIP/Defence helicopter contract that was terminated about six months back.  
According to informed sources, MOD’s stance is incorporated in the FIPB minutes of a meeting circulated within the Government on 27th May 2014. 
CBI is currently investigating role of Finmeccanica, Agusta Westland of the U.K. and certain other entities in the chopper deal. 
Another reason for FIPB deferring decision on the electronics JV is that the shareholding pattern of ITPL is not compliant with foreign direct investment (FDI) policy for manufacture of defence equipment. This factor would become redundant if the Government approves the new, liberalized FDI policy for Defence that is in the works. 
ITPL promoter Mr. S. Rangarajan holds 39% stake in the company. Mrs. Rekha Rangarajan holds 30% shares in the company. The third largest stake of 20% is held by Oman India Joint Investment Fund. Of the balance 11% stake, 7% shares are held by ITPL employees and 4% by a resident Indian Investor. 
The Department of Industrial Policy and Promotion (DIPP) believes that JV proposal violates FDI policy for Defence, which among other conditions, stipulates that the applicant company would need to be owned and controlled by resident Indians and Indian companies, which are owned and controlled by resident Indians. 
Another reason for FIPB deferring a decision on Selex-Teqsite JV is the non-availability of comments of Ministry of Home Affairs (MHA), which had earlier denied security clearance to Agusta Westland-Tata joint venture (JV) named Indian Rotorcraft Limited (IRL).
The delay in clearance of Selex-Teqsite JV might not hurt Selex ES as it already has well-entrenched operations in India. It has a subsidiary named Selex ES India Private Ltd that is based in New Delhi. The Indian subsidiary provides capabilities in battle space, surveillance, simulation & training and support & service solutions to military and civil customers.
According to a Selex ES release issued in February 2013, “Active in India since 1972, Selex ES has collaborated first with HAL (Hindustan Aeronautics Limited) and currently with BEL (Bharat Electronics Limited) to supply the country with radar systems and control centres for military Air Traffic Control (ATC) including the 2080C Precision Approach Radar (PAR) system for the Indian Navy and Air Force. The company has also provided a complete Communications, Navigation, Surveillance / Air Traffic Management (CNS/ATM) turn-key system for the two new airports at Bangalore and Hyderabad.”
It adds: “In the airborne domain, Selex ES offers unique airborne sensors and integrated, tailored mission systems, providing access to leading technologies such as AESA radar, new generation defensive aids and state of the art electro-optics sensors to its Indian customers. This capability also allows Selex ES to deliver outstanding, bespoke support and maintenance services to its customers as demonstrated by the 20 year-long CARES support and training contract for the Indian Navy, signed in 2012. The company, which has been operating its Mirach 100/5 aerial target drone at the national Integrated Test Range since 2007, is also poised to sell complete target drone systems in India. In the avionics field,
Selex ES supplies communication (HF, V/UHF) and navigation systems (Doppler GPS) for both rotary wing (ALH, Cheetah, Chetakh) and fixed wing (DO228) platforms manufactured by HAL as well as for MI-8 and MI-17 helicopters and aims to enhance its role of strategic partner for Indian end-users as well as becoming a leading player new generation IFF identification systems and mission support systems (Obstacle Avoidance).”
Selex ES was formed in January 2013 by consolidation of Finmeccanica’s defence and security electronics businesses, viz., SELEX Galileo, SELEX Elsag and SELEX Sistemi Integrati. 
As regards IRL, MOD’s latest stance is that FIPB should first obtain Law Ministry’s opinion on the company’s plea to change the name of foreign collaborator from Agusta Westland NV of the Netherlands to Agusta Westlands S.p.A of Italy. This name change is required as the Dutch company was merged with Italian one on 1st January 2014 as a part of restructuring of Agusta Westland business of Finmeccanica group.
MOD has also reiterated its earlier contention that FIPB should review its recommendation to the Government in September 2013 to allow IRL to produce  helicopter model AW119Ke instead of AW119kx that was specified in the FDI approval issued in September 2011.
MOD has also cited ongoing probe into VVIP chopper deal as the reason for not supporting IRL’s submission that it be allowed to serve the domestic civilian and export markets. It had originally intended to cater to both the defence and civilian markets. 
As a further amendment to its FDI approval, IRL applied for permission to produce two helicopters, AW 119Ke and AW119Kx, for export and domestic civilian markets in January 2014. It currently holds approval to produce both the defence and the civilian versions of AW 199Ke helicopter.  
It remains to be seen whether the new Indian Government would have the political will to segregate the proposed black-listing of Finmeccanica group by MOD from the group’s JV proposals to manufacture products for the domestic civilian and exports markets. 
Logic demands that MOD should blacklist Finmeccanica for 10 years as it has done in similar cases in the past after getting substantive evidence of wrong-doing by several companies. This initiative would mean MOD would not have any transactions with Italian group.
Simultaneously, the Government should allow Finmeccanica to serve the domestic civilian and export markets to create jobs and to collect tax revenue, apart from letting the group to contribute to India’s economic growth.  
(posted at http://indianairtransport.wordpress.com/ on 12th June 2014)
                                                              
 
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