Re-look at Gorshkov deal, thanks to CAG report

Having already paid up Rs 3,010 crore for a second-hand, 22-year-old Russian aircraft carrier, the government is now saying the deal is yet to be sealed with Russia, which is unlikely to return any money, reports Rahul Singh.

Having already paid up $602 million (Rs 3,010 crore) for a second-hand, 22-year-old Russian aircraft carrier, the government is now saying the deal is yet to be sealed with Russia, which is unlikely to return any money.

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“No final decision has been taken (on Admiral Gorshkov),” Defence Minister AK Antony told the Rajya Sabha on Wednesday. The Comptroller and Auditor General (CAG), country’s top auditor, has criticised the government for buying a used carrier which costs 60 per cent more than a new one and will have a 20-year shorter life span.

When the NDA government was in power, India had contracted to buy the 45,000-tonne Gorshkov in January 2004 for $1.5 billion (Rs 7,500 crore, at current exchange rate), including $974 million (Rs 4,870 crore) for refurbishing the carrier.

The navy was at that time looking for a carrier as its only aircraft carrier, INS Viraat, was due to retire in 2007 and the Indigenous Aircraft Carrier was unlikely to be inducted before 2012.

The contours of the deal, however, have changed drastically over the last five years. The Russians now want $2.9 billion (Rs 14,500 crore) for the warship, while the defence ministry is bargaining for $2.2 billion (Rs 11,000 crore).

The government admitted that the Russians were demanding an obscene sum, but said no other country was willing to sell an aircraft carrier to India five years ago.

Seeking to allay fears that the navy would end up buying a lemon from Russia, Antony said the government would keep in mind the auditor’s criticism before endorsing renegotiated terms.

“The Russians have demanded a substantially huge amount. We are still negotiating the deal. No final decision has been taken.”

A re-negotiated contract will have to be approved by the Cabinet Committee on Security. As most components of the warship were Ukraine-made, Russia said it was unable to assess refurbishing cost, hence, the price revision, Antony said.

The CAG found that the cost of sea trials had spiralled many times over. Pegged at $27 million (Rs 135 crore), India will now have to shell out a huge $550 million (Rs 2,750 crore) for the trials.

The auditor said the 20-fold jump in price had created doubts about “the diligence exercised while estimating and negotiating costs”.