A day after India terminated the Rs.3,726-crore VVIP chopper deal with AgustaWestland International Limited (AWIL) on the grounds of breach of the pre-contract integrity pact (PCIP), Defence Ministry sources said on Thursday that the process of invoking the bank guarantee had been initiated.

The Ministry said the bank guarantee would ensure the country did not lose a penny owing to the scrapping of the chopper deal, under which three AW 101 helicopters have already been delivered. “We as a nation will not lose any money in this process for sure,” said an official.

While India stopped all further payments to the company in February 2013, after the Ministry decided to scrap the contract when the Rs.360-crore payback to middlemen, politicians and Indian Air Force officers came to light, it has decided not to blacklist the company just yet. This despite AgustaWestland being the biggest defence deal so far to be scrapped by India.

Defence Ministry sources said arbitration proceedings had been initiated. They said several processes were simultaneously on, and these included pursuance of a case by the Central Bureau of Investigation against six companies – in which the charge sheet is yet to be filed – and the ongoing case in an Italian court.

However, by not blacklisting AgustaWestland International Limited, India has ensured that the shadow of this case does not fall on the other contracts which are either being executed by its parent company Finmeccanica or for which the company or its subsidiaries would be bidding.

The projects in which Finmeccanica is either collaborating with the armed forces or pitching for contracts include the multirole helicopter deal for the Navy; a reconnaissance and surveillance helicopter deal for the Army and the Navy; the Avro Replacement Aircraft, and supply of Otobreda 76mm deck guns for the Navy.

Since India is in the midst of a major force modernisation and weaponisation programme, and is seeking to jointly produce armaments to reduce costs, blacklisting of international firms is not being favoured any more – despite 15 companies having been blacklisted in the past. This is because blacklisting decreases the number of bidders, the variety of technology available and consequently increases the cost of acquisition. Even Bofors has not been blacklisted so far.

Sources indicated that by not choosing to blacklist the companies accused by the CBI in the kickbacks case, India has been keeping open its options of not only trading with these firms, but also ensuring that it does not incur any loss in the AgustaWestland deal.

“The arbitration process, for which both sides have named their arbitrators, will begin soon. Various key issues such as supply of spares for the three AW 101 helicopters that have been procured will be dealt with during the consultations,” sources said.

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