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 |
|
