We are talking about supplying equipment until 2014. Compound that inflation from 2005 and give us a figure.
Certainement non. The escalated cost is as of the date of signing of the contract, which is the reported figure India will have to pay if it signs now, 2010. It does not figure future inflation. Technicians working on the Project estimate that once a price is fixed and a contract signed, it will be 33-36 months before the items are delivered to MDL and fitted on the Scorpene, in any case.
Ergo, compounded inflation as of 2010. Now, what explains a cost escalation of nearly double that original figure?
When Pakistan starts talking about rivaling India's submarine fleet by 2015, you know you have a problem.
Obviously.
"Rs. 2,160 crores towards other items to be acquired during the project period for which only preliminary steps have been taken. No contract or contracts have been signed for the items under this head"
This is the quote in context.
"[T]he total value of all contracts signed for the Scorpene project is Rs. 13,085 crores out of the sanction accorded for Rs. 18,798 crores towards the project. Out of the balance amount of Rs. 5,713 crores, Rs. 3,553 crores is for payments towards taxes and Rs. 2,160 crores towards other items to be acquired during the project period for which only preliminary steps have been taken."
I'm assuming those are the items that weren't signed. 2160 crore is about $543 million.
Precisement.
That is excatly what I was referring to in the first paragraph. This:
"7-8% (compounded) annually on $543 million for "contract supplied equipment packages" over the period October 2005-March 2010 results in a Future Value of $761.59 million and a cost difference of $218.59 million. So why is the renewed cost ($950 million) nearly double the original figure and the price difference ($950 - 543) $407 million?"
Explain to me that near doubling of cost ($543 to $950 mln) due to "defense sector inflation", keeping in mind what I just told you: that the cost escalation and renewed cost for the contract was as of the date reported, and of potential signing, 2010.
You are still missing sensors which include sonar, hyrophones, and radar. Still missing optics and communications for the mast head. The contract signed at the start didn't include MESMA AIP. Whatever the actual systems are, 2160 crore worth didn't get finalised, and now you have to pay $950 million for the oversight.
What? what and what?
The Scorpene submarines contract is broken down into the following four components: A contract with ARMARIS, for
"transfer of technology, combat systems and construction design" and construction materials totalling to R.6,135 crore; a contract with MBDA, for Exocet missiles, which would total to R.1,062 crore; a contract with MDL,which in turn would contract out to DCNS, for R.5888 crore
"for the indigenous construction of the submarines", of which a kitty of R.2700 crore was kept for the procurement of
"critical submarine systems such as the engine, the generators and special submarine steels" from DCNS. All of these totalled to a cost of R.13,085 crore, out of a sanctioned cost of R.18,798 crore as of 2005, of which the balance was to be used to procure systems such as "sensors, which include sonar, hyrophones, and radar" and "optics and communications for the mast head".
I am merely referring to
one component, not even talking about the others: which includes only the contract for the procurement of "critical submarine systems such as the engine, the generators and special submarine steels" from DCNS.
Why is the new cost for that component nearly double the original figure (R.2700 to R.4700 crores), quoted by DCNS after a three-year interval? What 'exchange rate variations', arbitrage, inflation or agency commissions account for such a steep cost escalation?