Decision on $10 billion MMRCA deal soon

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Galaxy

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Pricey time to open MMRCA quotes

Pricey time to open MMRCA quotes

08 October 2011

Friday's decision to proceed with the opening of the commercial bids of the two vendors for the Indian Air Force (IAF) tender for 126 Medium Multi Role Combat Aircraft (MMRCA) is likely to attract an additional charge upon the taxpayer.

With a stated intention to open the commercial bids within the next few days, the defense ministry will have to deal with the prospect of an automatic escalation in the effective rates it may have to ultimately pay for whichever aircraft it orders.

This is because of the recent aversion of the currency market to the Indian Rupee. The Rupee is currently trading at almost 49 Rupees to a US Dollar, having touched 50 to a Dollar recently. Why the exchange rate matters is that vendors typically quote prices in their own currencies.

So while India might have budgeted INR 42,000 crore for the MMRCA order, and the two selected vendors might have tried to price their bids as competitively as possible, their foreign currency quotes would have undergone a price escalation in recent weeks because of the fall in the value of the rupee.

Presumably, both surviving vendors, the four-nation Eurofighter consortium and France's Dassault would have priced their bids in Euros. According to market data, the Euro has bought 62 Rupees to almost 67 Rupees in the past 120 days and is currently trading at around 66 Rupees to a Euro.

Assuming the two vendors had managed to match the budget of INR 42,000 crore in their own currency when they submitted their bids, today that amount would escalate to over INR 50,000 crore.

And what's crucial is the exchange rate on the day the commercial bids are opened. This is because the rate that will govern the value of the the order, whenever it is ultimately placed, will be the rate on the day the bids are opened.

The Defense Procurement Procedure (DPP) specifically stipulates that the Base Currency selling rate, the rate at which the Indian Rupee is sold on the day of the opening of the commercial bids will determine the value of the order. It also says that it will only consider the prevailing rate at the Parliament Street branch of the State Bank of India to make the determination.

If the government must open the bids soon, maybe it should consider a contrivance to first flood the market with Euros.
 

Yusuf

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As if we are going to pay them tomorrow. We can hedge the currencies and if required, manipulate. Once the ball is set rolling, at best we will pay some advance. We are not going to pay them 10 billion at one go.
 

Galaxy

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The winner will supply 24 aircraft in flyaway condition within three years of the signing of the contract and the rest would be progressively made in India. The winner is free to choose private or public sector companies for manufacturing various aircraft components and systems but the overall integration will be by the state-run HAL.

Among the key requirements are the Active Electronically Scanned Array (AESA) combat radar, situational awareness sensors, anti-radiation missiles and some sophisticated Electronic Warfare (EW) systems.


India to open the 126-plus combat jet tenders in 10 days
 

nitesh

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There is fixed price clause, and vendors have to agree with it. Once the submit the price, they can not change the [rice of the bid. It's a common practice. Not sue weather this clause has been added in the RFP or not
 

Yusuf

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There is fixed price clause, and vendors have to agree with it. Once the submit the price, they can not change the [rice of the bid. It's a common practice. Not sue weather this clause has been added in the RFP or not
The fixed price clause if at all will be in Dollars or Euros.. So any fluctuation in currency will effect the end cost in rupees.
 

thakur_ritesh

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this is a prime example of DDM.

at times it seems kids have been assigned the job to cover such news, i recall in '08 they were very happy because the :inr: was trading between 39-40 to a dollar.
 

nitesh

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The fixed price clause if at all will be in Dollars or Euros.. So any fluctuation in currency will effect the end cost in rupees.
Not necessary yusuf, it can be in any currency
 

Galaxy

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Biggest defence deal proposal okayed

Procurement norms

According to Indian defence procurement norms, 30 per cent of all foreign military purchases worth more than Rs 300 crore are reinvested in Indian defence industry to spur growth in domestic military industry. For the MMRCA deal, the offset was fixed at 50 per cent, which sparked resentment among the competitors.

This means the winning firm has to reinvest more than Rs 21000 crore in India, either alone or in partnership with an Indian company, in military, homeland security and civil aviation.

The offset proposals from Dassault Aviation (Rafale) and the Eurofighter consortium (Typhoon) were presented before the DAC by director general acquisition Vivek Rae.

Asked about the falling values of rupees on the MMRCA deal, Brown stated that availability of funds would not be a problem in realising the contract. Once a contract is signed, it will come under the category of "committed liability" of the government, for which provisions are made in the budget.

Subsequent to the DAC approval, the deal has to be cleared by the Finance Ministry and the Cabinet Committee on Security.

Together with Su-30 MKI, indigenous Light Combat Aircraft Tejas, Indo-Russian fifth generation fighter, the 126 MMRCA will be the mainstay of Indian Air Force in the coming decades.

The winning company is also likely to receive a follow-on order of 80 odd MMRCA. [Means Number can go as High as 200+]

Biggest defence deal proposal okayed

 

SpArK

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IAF to seal combat plane deal in November



Hindon (Ghaziabad): The winner of India's $10.4-billion tender for 126 combat aircraft is expected to be announced in November, Indian Air Force (IAF) chief Air Chief Marshal Norman Anil Kumar Browne said Saturday.


Browne's assertion comes a day after the acquisition council led by Defence Minister A.K. Antony gave its go-ahead for the opening of commercial bids from European consortium EADS Cassidian and French Dassault, after clearing the ministry's report on their offset proposals.


"In the middle of November, we shall be able to announce to the whole world which plane we have selected, the L1 vendor (lowest bidder)," Browne said in his interaction with reporters after he inspected the 79th Air Force Day parade here.


Earlier in his address to the air warriors, Browne said: "The process for acquisition of the MMRCA (Medium Multi-Role Combat Aircraft) is in its last lap and we should be able to open the bids in 10 days' time from now."


However, explaining the complexities involved in finalising the winner, the IAF chief said that after opening of the commercial bids, "complex calculations" would be done in a tabular format of the entire life-cycle cost, the acquisition cost and the technology transfer.


"It may take two to three weeks to calculate these," he added.



EADS Cassidian has offered its Eurofighter Typhoon and Dassault its Rafale to the IAF, which is looking at inducting these aircraft from the beginning of 2015.


The two planes had been shortlisted in April this year after eliminating other competitors -- American Boeing's F/A-18, Lockheed Martin's F-16, Russian UAC's MiG-35 and Swedish Saab's Gripen -- through a rigorous technical and weapons evaluation process that lasted for over a year.


India had issued the tender for the 126 planes in August 2007 and has reached a stage of finalisation of the tender just over four years, a remarkable feat considering that it has as a norm taken over two decades for it to finalise deals for other defence equipment.


Manorama Online | IAF to seal combat plane deal in November
 

SATISH

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Vote for Absinthe! why are people stuck up with Champagne
 

death.by.chocolate

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Not quite, the procurement policy has a provision that allows MoD to discard L1 lowest cost bidder for 'strategic benefit' that the next highest bidder offers . The policy document is dileberately vague on what qualifies as strategic benefit, an exceptional ToT offer or partership may be considered strategically beneficial. In any case both vendor bids must match the bench mark value established by the contract negotiation team before the bids are opened, failure to match the established 'reasonable price' criteria will be the end of the MMRCA tender.
My post above dated Oct 7 plagiarized by Indian media :lol:

However it is understood that the procurement policy has a provision that allows MoD to discard L1 lowest cost bidder for 'strategic benefit' that the next highest bidder offers . The policy document is deliberately vague on what qualifies as strategic benefit, an exceptional ToT offer or partnership may be considered strategically beneficial.
MACHINIST - MoD approves offset proposals for India's 126 MMRCA deal
 

ace009

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Seriously - that is a copy and paste for sure. WTF? The journos at Machinist read the DFI and plagiarise it?
 

Armand2REP

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Too bad it isn't the guiding light, according to IAF chief Browne... ""In the middle of November, we shall be able to announce to the whole world which plane we have selected, the L1 vendor." wha wha whah
 

thakur_ritesh

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