AgustaWestland row likely to ground India 'special partnership'

http://www.theguardian.com/world/2014/jan/01/agustawestland-row-india-uk-helicopter-deal

Version 0 of 1.

When David Cameron led a trade delegation to India in February last year, it looked like the ideal opportunity to recast Anglo-Indian relations as a "special partnership".

That was certainly how the trip was being spun but, annoyingly for the prime minister, those plans hit an immediate snag.

Problems with a 2010 deal in which India had ordered 12 helicopters from Anglo-Italian firm AgustaWestland, designed to carry high-ranking officials, threatened to overshadow Cameron's smooth sales patter. His Indian counterpart, Manmohan Singh, told a joint press conference: "I conveyed to the prime minister our very serious concerns regarding allegations of unethical means used to secure the 2010 contract for AgustaWestland helicopters. I told him that we have sought an explanation from the company to examine if the contractual conditions on unethical practices and the integrity pact have been violated."

Cameron was left with little option but to promise British co-operation with that investigation, but with India announcing on Wednesday that it has terminated the deal following accusations that the firm had bribed Indian officials to alter altitude specifications, the UK government is no longer so keen to talk publicly about its involvement in the case.

A spokeswoman for UK Trade and Investment, part of the Department for Business, Innovation and Skills which assists UK firms' export efforts, declined to comment on what assistance New Delhi has received from London. On the termination of the contract, she added: "We are awaiting formal confirmation from the Indian government."

If that makes it sounds as though the Indian air force sprung a surprise attack on Wednesday, it didn't.

The deal had looked dead from February, when the bribery allegations first surfaced and Italian prosecutors in Milan arrested Giuseppe Orsi, the boss of AgustaWestland's parent company, the giant Italian defence corporation Finmeccanica. Orsi, who was charged with bribing Indian officials but denies any wrongdoing, headed AgustaWestland in 2010 when the contract was signed.

India immediately responded by freezing the contract and suspending payments to the British firm. It also launched an inquiry by its main law enforcement agency, the Central Bureau of Investigation (CBI). In August India's comptroller and auditor general's office (CAG) found what it said was wrongdoing in the deal.

In its report, the CAG said the defence ministry had initially set a condition that the helicopters be able to fly to an altitude of 6,000 metres, which meant AgustaWestland could not compete since its AW-101 model was certified to fly only to 4,572m.

Later, the ministry lowered the minimum altitude requirement to 4,500 metres, even though the helicopters were expected to be used in northern and north-eastern parts of the country, where terrain is mountainous and altitudes are high, the auditor said.

By October AgustaWestland was pressing for arbitration to settle the contractual dispute, but India refused and launched legal proceedings to cancel the deal. A November meeting between the two sides, ostensibly to explore ways of saving the contract, was reported as being a sham, with one Indian defence ministry source describing the meeting to the Times as a "face-saving exercise".

Having resisted arbitration, however, the Indian government appeared to concede to it in its statement on Wednesday when it said it had appointed its own arbitrator. It is thought it will attempt to negotiate a "termination" of the contract, rather than a "cancellation", meaning the Indian air force retains the three of the 12 AW-101 helicopters it has already taken delivery of. It is expected to then seek to adjust the 45% of the overall contract value that it has already paid to AgustaWestland.

AgustaWestland has made India a cornerstone of its growth plans, reportedly selling nearly 50 aircraft there, while it has also been establishing a joint venture with the Indian industrial giant Tata.

India was the world's biggest importer of major arms in the four years to 2012, according to the Stockholm International Peace Research Institute.

The manufacturer, which denies any wrongdoing, signed a £1bn deal to supply Norway with 16 AW-101 helicopters last month.

Our editors' picks for the day's top news and commentary delivered to your inbox each morning.