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Italian defence giant Finmeccanica’s troubles in India are deepening, with the New Delhi government seeking repayments worth some 270mn euros ($367.38mn) over a scrapped helicopter deal. |
The government’s demand threatens to complicate efforts by AgustaWestland, a division of cash-strapped Finmeccanica, to mend fences with India, the world’s biggest arms buyer.
The government last week cancelled a 560mn-euro ($770mn) deal with AgustaWestland for 12 AW101 helicopters over what it termed a breach of integrity relating to alleged corruption.
New Delhi, however, agreed to AgustaWestland’s calls for arbitration. It will use this process as part of its push to get back the amount it has already paid, defence ministry officials said.
AgustaWestland has received just over 43% of the deal’s value, a sum that the Anglo-Italian firm matched with bank guarantees to be reclaimed after the helicopters were delivered, said the defence officials, who asked not be identified.
The company also put up a separate small deposit worth 5% of the contract, bringing the total value of the guarantees to around 270mn euros.
“The government now wants to get back all our money by invoking the bank guarantee,” said a defence ministry official who declined to be named. “This has to be returned.” State-controlled Finmeccanica did not respond to requests for comment.
It is not clear in which country or at which banks the guarantees, which can be in the form of cash deposits or bonds, are held.
New Delhi froze payments for the helicopters last February after Italian police arrested Giuseppe Orsi, Finmeccanica’s then chairman and chief executive, for allegedly paying bribes to middlemen to secure the deal.
Orsi denies the charges and his trial is ongoing at a court near Milan. The Central Bureau of Investigation (CBI) also launched an official probe into the deal last year.
The government is keen to be seen as tough on graft in the lead up to parliamentary elections due by May 2014. The Congress performed poorly in state polls last year due to rising public anger over a string of corruption scandals. Yet both sides are treading cautiously.
India is wary of scaring off foreign defence contractors while Finmeccanica wants to stay in the hunt for future defence deals.
The government is wary of spooking defence companies as it seeks to spend $100bn over a decade to upgrade its military, often through partnerships between foreign and local companies to help India build a homegrown industry.
The three-person arbitration tribunal will consist of one person chosen by each side and one mutually-agreed neutral member. It will take place in India, giving what lawyers say is a home advantage to the government, although there are examples of New Delhi losing cases.
The tribunal has the power to reinstate the deal but it is unlikely to force New Delhi into a total U-turn, lawyers say. Any decision will be enforced by India’s courts. No date has been set yet for its start, and the case could take months or even years.
One issue that will complicate India’s claim to the cash is that three of the 12 helicopters have already been delivered. The air force is yet to decide whether or not it wishes to keep the choppers, defence ministry officials said.
The AW101 helicopters were intended for an elite squadron of the Indian Air Force which ferries around the president, the prime minister and other top-level VIPs.
AgustaWestland has called for arbitration in the hope of totally reversing the decision to scrap the deal, arguing that the corruption allegations are yet to be proved. “Terminating the contract now is at best premature, plus there is an issue of reputation here that could have an effect on the company globally,” said a source close to AgustaWestland.
For the Italian company, the arbitration is about salvaging its reputation and avoiding being blacklisted in not just India’s but Asia’s growing market. Finmeccanica made a net loss of 136mn euros in the first nine months of 2013, putting pressure on the company to show that the graft allegations are not costing it business.
Defence ministry officials insist Finmeccanica will not be blacklisted, conceding competition for some important deals has been hurt by barring several groups in recent years.
