Sunday, 31 May 2020

Tatra Deal: Commission By Omission?

Updated: April 21, 2012 4:25 pm

Tatra is a high mobility all-terrain military truck. It replaced the ageing fleet of Kraz vehicles of Indian Army. Till late eighties, Kraz trucks, sporting a prominent bonnet, were in use as prime movers for various types of military hardware. I clearly remember hearing gentle grunt of behemoth Kraz trucks, from my bunker in North Sikkim, when these used to tow World War II vintage 5.5 inch medium guns on a steep mountain road to a remotely located gun position.

High mobility military trucks have an important role to play in military manoeuvres and operations. These are used for the carriage of heavy military hardware like tanks, armoured personnel carriers, medium and heavy artillery guns, rocket artillery, bridges, missiles, radars, battlefield command and communication equipment and other support stores. Their all-terrain capability makes them unique as in cross country movement through plains, semi-desert and desert only these vehicles can keep pace with the armoured columns consisting of tanks and armoured personnel carriers. In such contingencies, a resupply group based on such vehicles replenishes armoured columns with ammunition, ration, fuel and water and evacuates casualties. Apart from the Army these vehicles are also used by the Air Force and Navy albeit in small numbers.

Being high performance machines like tanks and other specialist vehicles Tatra trucks need periodic maintenance. Tanks and other armoured vehicle have a very restricted engine life and therefore these are normally transported on high mobility vehicles to save on their meagre mileage. A dedicated repair and maintenance infrastructure is required for the upkeep of such machines, which is an important part of a deal with the vendor.

Tatra trucks were produced by Omnipol in Czechoslovakia. These trucks came in 4X4, 6X6, 8X8, 10X10, 12X12 gear configurations and were known for their independent swinging half axles—a mechanical attribute which enabled trucks to negotiate obstacles without losing stability and centre of gravity. Their V12 air-cooled and turbo-charged engine packed immense power to enable vehicles to move cross country with battle loads.

It was Cold War period when in 1986 a decision was taken to import Tatra trucks from communist Czechoslovakia. It was a good decision then because India was heavily dependent on East Block for its military needs due to diplomatic and financial constraints. Slowly Tatra trucks edged out Kraz trucks from the Army. Since 1986, the Army remained the largest buyer of these vehicles in India. There were no competitors to Tatra then.

Around the same time, India purchased Bofors—155mm artillery gun from Sweden, which needed a prime mover vehicle. Scania trucks came with Bofors guns as prime movers and ammunition resupply vehicles. Post-liberalisation period witnessed entry of some of the well known brands of heavy duty vehicles such as Iveco, Volvo, MAN, CAT, Daimler, Kamaz, Ural etc. in mining, heavy lift, port operations, construction sectors. Finally, there were competitors to Tatra, which has held its sway since 1986 in India—virtually uncontested.

Under a deal signed in 1986 between Omnipol and Bharat Earth Movers Limited (BEML)—a Bengaluru based Defence Public Sector Undertaking (DPSU), the latter imported Tatra trucks from Czechoslovakia and supplied these to the Army.

Since early nineties Eastern Block countries and India witnessed many geo-political and economic changes—dissolution of the Soviet Union paved way for formation of Commonwealth of Independent States nations and Russia; Czechoslovakia was divided into two independent entities—Czech Republic and Slovakia; and India due to its economic upsurge was no longer seen as a nation dependent on East Block countries for her military needs. United States and other European countries saw India as a strategic partner in Asia. Offers from foreign governments and defence firms for foreign military sales, joint venture, technology transfer, joint development came pouring in as India’s budgetary allocation for defence swelled.

Post-partition of Czechoslovakia, Omnipol’s production facilities fell in both – Czech Republic and Slovakia. Each of the facility produced some important parts and assemblies, but none of the entities were capable of producing a full vehicle. To produce a truck integration was needed. Like other commercial ventures of Eastern Block countries, Tatra too fell on hard times and its production stopped. A large number of workers were retrenched. The ownership of Omnipol (Tatra.a.s.) changed hands as Vectra Group (UK)—company owned by an Indian NRI businessman Ravi Rishi bought a major holding in it.

As per the existing defence procurement procedure in India Ministry of Defence (MoD) only deals with Original Equipment Manufacture (OEM) and not the middlemen for procurement of defence equipment. Omnipol was an OEM for Tatra trucks till it functioned as a single commercial and manufacturing entity. Omnipol ceased to be an OEM consequent to break up of its production facilities and subsequent acquisition by Vectra Group.

The BEML signed a deal with Tatra Sipox (UK) for supply of Tatra trucks. This deal was incorrect as Tatra Sipox (UK) at the time of signing deal was not an OEM for Tatra trucks. It was merely a marketing firm of Vectra Group which was procuring assemblies of the truck from the two independent production facilities in Czech Republic and Slovakia and supplying these to BEML. It was a a major violation of the defence procurement procedure. Nevertheless, the BEML continued to do business with Tatra Sipox (UK) till 2003 despite objections from within.

Meanwhile Vectra Group acquired a major stake in both the production facilities of erstwhile Omnipol and founded Tatra Vectra Motors Limited (TVML) with a plant in Hosur (Tamilnadu). This step was a strategic move to ward off the tag of being non-OEM of Tatra trucks. In 2003, TVML entered into an agreement with BEML for supply of trucks to the Indian Army.

By a modest estimate the Indian Army alone has received about 7000 vehicles till date worth over $ 1 billion through BEML. A case of over-dependence of a captive buyer, unheard of in today’s age of liberalisation and market competition.

Since then TVML is bringing in Tatra trucks in semi/ complete knocked down kit, assembling it in its Hosur plant and supplying it to BEML. BEML does some ‘value addition’ to the vehicle at an exorbitant cost—ostensibly to justify its role as a final supplier to the Army.

In all this development the deal between BEML and Tatra suppliers remained unaffected by the changes in economy or market forces for unknown reasons. It remained under wraps—largely unchanged despite the fact there were many manufactures who could have offered a better bargain than TVML. The complicity shown by the officials of BEML, MoD and army is perplexing and points towards possible corruption.

The deal is conspicuous from the absence of repair and maintenance obligation towards the vendor. In all big ticket purchases efforts are made during negotiation stage to press a vendor for transfer of technology to boost domestic production. In the past 25 years, and three deal renewals, the BEML could not succeed bargaining for transfer of technology with successive vendors it dealt with. In contrast examine the case of civilian automobile sector, where we have so many automobile brands who have established their factories in India as a global production hub.

Claims of indigenisation of Tatra vehicle by BEML also ring hollow. In 25 years the DPSU has not been able to achieve total indigenisation of equipment is a sad commentary on its ability and intent. The BEML seems to be so enamoured with status quo that it did not thought it fit to ask the suppliers of Tatra trucks to supply a ‘left hand drive’ version for Indian roads. We still receive ‘right hand drive’ vehicles—compliant with European traffic rules.

Association of BEML with Tatra was strategic as far as elimination of competition from the deal is concerned. Normally in all government procurements bidding from a multiple vendors is invited and the lowest bid, meeting other technical and financial criterion is awarded the contract. BEML’s case is rather curious. It is a DPSU. MoD and its auditors and comptroller and auditor general do not object in those transactions involving DPSUs and ordnance factories as a single and only vendor. Final supply of Tatra trucks to the Army was from BEML, which insulated Tatra from competition and also paved way for over-pricing of these trucks.

The Tatra deal worked as a ‘cash cow’ and no one wanted to tinker with it. It helped TVML to sell over-priced vehicles and for BEML it kept its order book full and balance sheet growing at the cost of army’s budget. It was a ‘win-win’ situation for everyone associated with the deal.

In March 2010, MoD placed a repeat order for 788 Tatra trucks worth over Rs. 632 crore for the army and it is said that half of the sum was paid as advance to TVML. The order was to complete in 18 months. In March 2010, General VK Singh had taken over as Chief of Army Staff. The General, known crusader against corruption had raised certain objections regarding the price, quality and maintenance support of Tatra trucks.

All seemed well with the deal till General VK Singh in March this year claimed that he in September 2010, was offered a bribe of Rs 14 crore by a retired lieutenant general for dropping his objections and accepting the supply of Tatra trucks.

This revelation caused a furore in the political circles. BEML and TVML denied the presence of any such lobbyist in their organisation who could offer bribe to the General in his South Block office. The lobbyists tried to deflect the issue by linking the General’s allegation with his age row and asked why General kept mum all these years. Come hot on the heels of General’s revelations it was reported that MoD was in the know of such irregularities in Tatra deal through a complaint by a Karnataka politician in 2009.

The essence of irregularities in Tatra deal is that it was not renegotiated for better terms and conditions, technology transfer and competitive price. The deal was insulated from market competition by BEML acting as ultimate supplier. By not creating repairs and maintenance infrastructure it was ensured that vehicles do not complete their life cycle and repeat orders from the user do not dry up. Such benevolence does not come as charity it has its own price.

It is not the case of BEML and Army alone. In all cases where DPSUs or ordnance factories are involved in supplying stores to armed forces story is the same. Armed forces are taken as captive buyers and are dished out sub-standard material at exorbitant prices after much delay.

It will be worthwhile to review all such deals where DPSUs are acting as supplier of equipment to armed forces which they do not produce themselves. Contours of omission and commission will not be very different.

 By Colonel (Retd) U S Rathore

(The author is a threat and risk analyst and defence and security expert.)

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