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Last modified on: 8/21/2011 1:35:33 PM<% on Error Resume Next Response.Expires = 0 %> MIG 27-Inside Story

MIG 27-Inside Story

Speculations over an alleged fraud said to have taken place when purchasing MIG 27 fighters for Sri Lanka Air Force (SLAF) have been there ever since the proposal were made to the government. Now, these speculations have amounted to a formal complaint made at the bribery commission by two parliamentarians. The defence.lk website giving due respect to its viewers' right to know the truth, looked into the details of the alleged deal and found out quite an interesting story. Here is the MIG 27 inside story:

MIG 27 is a Ground Attack Air Craft which was originally developed by the former USSR and termed by the NATO forces as "Flogger D/J". The aircraft is flown as one of the main aerial weapons in India and former Soviet countries. They have been proven successful in battles many a times in both air to ground and air to sea contexts. The MIG 27 Flogger M, named Bahadur (Valiant) is built in India and is still being manufactured today. The primary mission of the aircraft is the destruction of fixed and mobile ground targets including hardened targets.

During the heated battle between the security forces and the LTTE in the year 2000, the government of Sri Lanka (GoSL) purchased six MIG 27 fighters in two packages. The deal was not between the Government to Government (G-to-G) but between the government and a Singapore based company named D.S. Alliance.

According to the procurement, the Government paid USD 1,882,500.00 (including the transport cost) per unit of MIG 27 fighter aircraft, which had only two years remaining lifetime period as per the specifications for these fighter aircraft. These four aircraft were absorbed to the SLAF fleet in May 2000.

In addition to these four, another package of three fighter aircraft including one MIG 23 trainer aircraft to train Air Force pilots too was purchased in October 2000. The GoSL had to pay USD 1,705,000.00 per unit of MIG 27 fighter aircraft and USD 1,005,000 for the trainer aircraft. They too had two years remaining lifetime as in the case of the previous purchase.

Since these aircrafts had, only two years remaining life time the Government following an agreement with DS Alliance extended the lifetime of all aircraft by paying additional USD 155,000 per each. Accordingly, the Air Force had to spend USD 2,037500.00 (1,882,500 + 155,000) per unit for the first four aircraft, USD 1,860500.00 (1,705,000 + 155,000) for the second two, and USD 1,160,000 for the trainer (MIG 23) purchased in 2000 to have them operational for four years.

Out of the seven aircraft purchased in the year 2000, the craft numbered as CF 732 destroyed in the terrorist attack at Katunayake Airport and CF 736 and CF 734 were crashed respectively on December 27, 2001 and June 09, 2004. The balance four including the trainer was grounded at the end of year 2003 as their operational lifetime ended. Thus, the Air Force was cut down in its fighting capability to where it was before the year 2000, despite the massive investment.

At the end of the year 2003, the Air Force called for tenders to overhaul the remaining three MIG fighters and the trainer and thereby extend their operation ability for another 8 years. The same company, which acted as the middle agent between the SL and Ukraine government, D.S. Alliance, again made the bid for the overhauling at a cost of USD 1,133,445.00 per each, for two MIG 27 crafts (CF 731 and CF 735) and for the other MIG 27 (CF 737) at USD 983,445.00. Their offer for the MIG 23 Trainer Aircraft (CTF 730) was USD 1,299,045.00. The variations of the prices were due to different work scope. However, if agreed to the deal the total cost of two fighter aircraft (CF 731 and CF 735) becomes USD 3,215,945.00 (1,882,500 + 1,333,445) and the other USD 2,688,945.00 (1,705,000 + 983,445).

The full details of the tender bids are given in the table 1.

Bids made to overhaul the remaining MIG aircraft to the tenders called in year 2003

Prices offered at G-to G Negotiations

Air Craft

DS Alliance

Hazel UK

HAL (India)

Ukrinmash

HAL (India)

CF 731 1,333,445 1,228,000 1, 895,244

4,128,000

+

470,000

(Freight Chargers)

1,788,671.29
CF 735 1,333,445 1,275,000 1,895,244 1,788,671.29
CF 737 983,445 942,800 1,616,081 1,537,598.00

CTF 730 (Trainer)

1,299,045 1,188,000 Not quoted 2,113,896.76
Total Cost 4,949,380 4,633,800

-

4,598,000

7,228,837.34

Table 1

The details of the Table 1 show that the best offer for the 2003 tenders was made by a company called Hazel UK with a bid of USD 4,633,800. However, the SLAF could not accept the bid as the company was later found uncertified by the principal company (Ukrinmash). As the prices offered by HAL are extremely high, the only acceptable offer was the D.S. Alliance's. It should also be noted that both Hazel UK and DS Alliance are just middle agents who would again refer the job to the principal company -Ukrinmash on receipt of the order.

As the GoSL decided to negotiate on government to government contracting, with two governments, Ukraine and India; two of their subsidiaries Ukrinmash and HAL respectively made their bid as mentioned on the right half of the table 1. As the table shows the best offer came from Ukrinmash with a bid of USD 4, 598,000. The government saved USD 351,380 or earned a cost benefit of 7.64% by accepting this offer.

Meanwhile, the country's security situation changed tremendously since the 2002 CFA signed between the government and the LTTE. While the government was cutting down its defence budget and investing heavily on the development of the war-affected areas, the LTTE was strengthening its military capabilities with the intention of defeating the Security Forces at a "Final War". The outfit freely moved their heavy weapons and troops to newly established camps where they could attack strategically important locations as Trincomalee. By the End of 2005, the LTTE terrorists started overt attacks at the civilians and the security forces. In this backdrop, swift enhancement of Air Force fighting capability became a matter of priority.

Air Force appointed a technical evaluation committee (TEC) comprising of resource personnel to find out a best option to meet the developing threat in February 2006. The TEC after analyzing the country's security situation submitted their proposals to Ministry of Defence to buy four additional MIG 27 fighters and to overhaul the existing ones with an immediate effect through a direct G-to-G deal with Ukraine.

The members of the committee were, Air Marshal Roshan Goonethilake (Chairman), Air Commodore EGJP de Silva (Director Aeronautical Engineering SLAF),  a Senior Lecturer from the University of Moratuwa, Mr. HD Weerasiri (Accountant- Ministry of Defence), Mr. VJ Premarathne (Deputy Director Airworthiness- Civil Aviation Authority), and Mrs. KDR Olga (Accountant-Department of National Budget).

 

The rationale behind the committees recommendations were as follows:

i. The threat situation in the country requires an aircraft specifically designed for the ground attack and that can operate in low altitudes at both lower and higher speeds. It should also be able to deliver variety of bombs with highest accuracy and with increased endurance or the operating time. MIG 27 has the movable wings to operate at variable speeds, higher pay load (approx 5000Kg) to carry variety of bombs (100kg, 250kg, 500kg , 1000kg) according to the target size . It also has the airframe that can withstand severe strain at lower altitudes so the pilots can attack the ground targets with the highest precision.

ii. Cost constrains and foreign policies of other countries restrict the GoSL's ability to go for higher technology. For instance, the aircraft with similar capability built by US or in Europe will cost over ten times of the price of the MIG 27. Further, the newer variations of MIGs such as MIG 29 and MIG 35 are also priced at very high costs and such technology is not required to meet the present enemy.

iii. The Air Force already have trained pilots including instructors for MIG 27s and therefore, the craft will be available for the immediate use and saving the training costs as well.

iv. The urgency of the requirement calls for an immediate purchase, deviating from the normal tender procedure. Since, the deal was between the producer government and the GoSL as well as the value addition justified the price, there was no need for trading time for lengthy procedures. The Article 3.5 of the Government Procurement Guidelines makes necessary legal provision for such purchases. The article allows the government to engage in direct contracting only at exceptional conditions.

However, responding to the existing scandals around defence procurements carried out by former governments, the President has appointed The Standing Cabinet Appointed Procurement Committee (SCAPC) in which the Secretary Defence is also a member, to review all proposal made by the security forces. The committee after reviewing the proposals gave the green light to initiate further action as the offer was appeared highly justifiable. The Defence Ministry on such approval furnished cabinet papers, and directed the Air Force for onward procurement action after the cabinet approval was granted.

The details of the purchasing of four MIG 27 fighters and the cost of overhauling the three grounded craft from Ukrainmash, a government subsidiary of the republic of Ukraine in January 2007 are as follows:

 

Unit cost for purchasing MIG 27

USD 2,519,500.00 (x 04)

Cost of overhauling for 4 craft including the trainer

USD 4,598,000.00

Total Cost

USD 14,676,000.00

Note: Freight charges are also included

Any person who looks at this deal on the surface would feel that, the Ukrainian Government is offering these four MIG 27 crafts at a higher price compared to those purchased in the year 2000. But much closer look into the matter in contrast to the work scope of the aircrafts purchased in the year 2000 and the work scope of the four aircrafts that were purchased in a G-to-G deal in January 2006 would clear any doubts about the deal.

Unlike in the previous offer, in which the SLAF purchased seven MIGs which had only two years of remaining lifetime at a cost of USD 1,882,500.00 the SLAF this time is purchasing these four MIG 27 aircraft which have guaranteed operational life time of eight years at a cost of USD 2,462,000.00.

Therefore, the SLAF will not have to face the problem of overhauling or extending the lifetime of these aircrafts by bearing additional cost as it had happened in year 2000 deal.

To get a better view of the picture, the cost for the overhaul of the aircraft should be added to the original value of the aircraft. It is only then; one can realize that the prices offered by DS Alliance (Pvt) Ltd are much higher than what has already spent in the 2006 deal.

Therefore, it is unreasonable for anyone to come to a conclusion about the prices of the MIG 27 aircraft considering only the original value of the craft without considering their remaining lifetime.

The SLAF also found it fit to purchase these four MIGs from Ukrinmash offer since it reduces the freight cost to a considerable extent. This is because the three MIG 27 aircraft and the MIG 23 UB trainer could be transported to the Lviv State Aircraft Repair Plant in Ukraine in the same aircraft that transport the newly purchased four MIGs to Sri Lanka.

In addition, the favorable payment terms offered by the Ukrinmash are also another major attraction in the offer. Earlier, the GoSL had to pay D.S Alliance, the full amount of the deal within almost six months after the transaction. The Ukrinmash offer provides two years of credit period for 50% of the total amount. The table 2 compares the terms of 2006 Ukrinmash deal and the 2000 D.S Alliance deals:

D.S alliance deal -2000

Ukrainmash deal-2007

Fist package- 2000 (May)

   1. 10% within 2 weeks of signing contract

   2. 40% at acceptance in Ukraine

   3. 50% within five months from the first flown

      date

Second package- 2000 (October)

   1. 50% at acceptance in Ukraine

   2. 50% within 120 days on acceptance

 

1.  25% on acceptance in Ukraine

2.  25% on acceptance in Sri Lanka (after overhauling)

3.  25% end of 1st year

4.  25% end of 2nd year

Table 2

Allegations made on the 2007 deal attempt to attest that the deal (i) was not the best option, (ii) was not a G-to G one as it claimed to be, and (iii) has mysteriously devoured some millions of USD.

However, the absurdity of the allegation is bared when the deal is evaluated for its value addition, cost benefits and the cost against the increased fighting capability of the SLAF.

 

i. Cost benefit for the overhauling against D.S Alliance deal

The cost of D.S Alliance bid (2003)  - USD 4,949,380

The cost of Ukrinmash deal (2007)  - USD 4,598,000

The cost benefit                             - 7.64 %

 

ii. Value addition with respect to the operational life span

Unit Cost of MIG 27 First Batch (May 2000)           - USD 2,037,500

Value paid for a year of operational life                - USD 509,375

Unit Cost of MIG 27 Second Batch (October 2000) - USD 1,860,500

Value paid for a year of operational life                - USD 465,125

Unit Cost of MIG 27 New Batch (February 2007)    - USD 2,519,500

Value paid for a year of operational life                - USD 314,937.50

Value Addition over first batch                             - 61.73%

Value Addition over second batch                         - 47.68%

 

iii. Increased cost over increased fighting capability

If 2003 D.S alliance bid was accepted:

The total cost incurred since 2000      - USD 12,044,880

(Excluding the cost of lost aircraft)     -

The fighting capability would be         - 3 fighters

 

After the 2006 Ukrinmash deal:

The total cost incurred since 2000     - USD 21,771,500

(Excluding the cost of lost aircraft)    -

Fighting capability                            - 7 fighters

Increase of fighting capability           - 233%

Increase of cost                              - 44.67%

 

Having analysed the above facts, one can easily understand that the deal has done the due justice for the public money which is spent on their security. The fighters have already proven their worth in the battlefield by the being terrorists worst ever horror in the sky. Precision air attack has saved thousands of soldiers' lives by freeing them from advancing into terror traps and preventing the civilians being victimized in the terror human shields.

Finally, it should be noted that the neither the GoSL no any other government can decide on the bank of which a company may have its accounts and where it may get credit facilities. Ukrinmash has indicated a financial institution based in England, where the payments are to be made by the GoSL as per the contract. It is a matter of financial policy of the Ukrainian government and not a matter of interest of the GoSL.

Finally, the cabinet papers sent for approval indicate the correct amount of the deal and it would be the same amount that would be released by the treasury for the SLAF. Thus, any fraud that had been taken palace can be traced easily from the legalized documents raised during the transactions.

The table 3: summarize the details of all purchases of MIG 27 aircraft by the GoSL

Table 3

2000 purchasing and 2003 Bid on overhauling

Air craft

Operational span

Unit Cost  + Overhaul cost

Quoted overhauling price by D.S alliance for 8 years

Total cost of a craft after overhauling

CF-731

4 years

2,037,500

1,333,445

3,370,945

CF-734

4 years

2,037,500

N/A (destroyed)

-

CF-735

4 years

2,037,500

1,333,445

3,370,945

CF-732

4 years

2,037,500

N/A (crashed)

-

CF-736

4 years

1,860,500

N/A (crashed)

-

CF-737

4 years

1,860,500

983,445

2,843,945

CTF-730    (MIG 23)

4 years

1,160,000

1,299,045

2,459,045

Total

 

12,044,880

2007 purchasing

Air craft

Operational span

Unit Cost

 

Value of the Aircraft

CF-761

8 years

2,519,500

-

2,519,500

CF-762

8 years

2,519,500

-

2,519,500

CF- 763

8 years

2,519,500

-

2,519,500

CF-764

8 years

2,519,500

-

2,519,500

2007 Overhauling

Air craft

Extension of life time

 

Total cost for overhaul

 

CF-731

8 years

4,598,000

4,598,000

CF-735

8 years

 

CF-737

8 years

 

CTF-730    (MIG 23)

8 years

 

Total Cost

 

 

14,676,000

 

 

 

 

 

 


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