Rafale JV Offsets Worth Rs 300 Billion Mentioned in Reliance Group's 2016-17 Report

Reliance Group's annual report for 2016-17 states DRAL would be a “key player” in executing offset obligations worth Rs 300 billion.

There are different versions of how much business has flowed to Anil Ambani’s joint venture firm, Dassault Reliance Aerospace Ltd (DRAL), through offsets arising from the Indian Air Force (IAF) purchase of 36 Rafale fighters for 7.8 billion euros – the equivalent of Rs 590 billion, when the contract was signed in September 2016.

In this acquisition, the defence ministry demanded offsets worth 50% of the contract value. That requires Dassault Aviation and its Tier-1 vendors – French firms Thales and Safran Aircraft Engines, and MBDA – to invest about Rs 300 billion in Indian defence research and development, manufacture or services, for discharging their offset liabilities.

Also read: Full Text: French Report on Dassault Saying Reliance JV is ‘Imperative and Obligatory’

The opposition, with Congress president Rahul Gandhi leading the charge, alleges that DRAL has – at the government’s behest – been illegitimately awarded the entire offsets liability of Rs 300 billion. While New Delhi, Paris and Dassault have denied influencing the French prime vendors to discharge their offsets through DRA, they have indicated that DRAL had benefited from only a small share of the total offsets.

On Thursday, Dassault Aviation chief Eric Trappier told AFP in Paris that the offsets would be distributed among many Indian Offset Partners (IOPs), with DRAL getting just one-tenth of the total business.

Dassault Aviation’s website has posted a transcript of Trappier’s interview with AFP, in which he states: “(DRAL’s Nagpur plant) should enable us to meet about 10% of these offset obligations. We are in negotiations with about a hundred Indian companies and partnerships have already been concluded with about thirty of them.”

10% of the total offset value would amount to no more than 390 million euros (Rs 33.12 billion). However, the Reliance Group itself has admitted it would benefit from offsets worth twice that amount. In a legal notice served in early September on a media house, Reliance Group indicated that it would benefit only from Dassault’s share of offsets, which amounted to Rs 66 billion.

Also read: ‘Freely Chose’ Reliance, Says Dassault in Response to Reports on JV Being ‘Mandatory’

“Dassault’s share in the total offset Export Obligation (sic) is approximately 22%, or Rs 66 billion.… The balance 78% of offsets is to be discharged by other companies such as Thales, Safran and MBDA, etc,” said the notice. The notice did not touch on the question of whether Thales, Safran and MBDA would discharge any or all of their offsets through DRAL. Another, far larger offset figure emerges from Reliance Group’s annual report for 2016-17, which states DRAL would be a “key player” in executing offset obligations worth Rs 300 billion. “Reliance has formed a partnership with Dassault Aviation… through a joint venture (JV) company named Dassault Reliance Aerospace Limited… The JV company will be a key player in the execution of offset obligation, including the entire Life Cycle Performance Based Logistics for the 36 fighter aircraft; valued at about Rs 300 billion. This is part of the purchase pact between the Indian and French governments,” says the report in a section headed “Management Discussion and Analysis”.

Elsewhere, the report elaborates on the proposed Dhirubhai Ambani Aerospace Park, for which the Maharashtra government allotted land at the Multi-modal International Hub Airport at Nagpur (MIHAN). To kick off this project, the (DRAL) JV shall facilitate the transfer of high-end technology, while discharging offset obligations of Rs 300 billion. This is part of the agreement for purchase of 36 Rafale fighter aircraft for the Indian Air Force. The scope includes performance-based logistics for Rafale aircraft of the IAF and other manufacturing activity.”

The “Letter to the Shareholders” also repeats this information in different words. Interestingly, though, the Reliance Group’s Annual Report for 2017-18 has no mention of Dassault-related offsets. Sources in Reliance Group, speaking anonymously, say offset related production is still to begin and it will be years before there is any clarity on what value of offsets DRAL actually manages to discharge.

This article was originally published on Business Standard. Read the original article.