CAG: How not to prepare for another Kargil

In 2001, George Fernandes was in the cross hairs of the Comptroller and Auditor General (CAG) over the purchase of allegedly overpriced coffins for soldiers killed in battle.

Seven years later, the CAG has zeroed in on Fernandes' pet project "" a new ordnance factory in his parliamentary constituency, Nalanda, to manufacture 155 mm ammunition for Bofors guns "" slamming it as a poorly planned project that was rushed through urgently, resulting in an "estimated cost overrun of Rs 628.87 crore and indefinite delays."

Work on the Ordnance Factory in Nalanda has been stalled since June 2005, when India blacklisted the project's technology partner, South African arms major, Denel (Pty) Ltd, for corruption in a contract to supply India "bunker-busting" rifles.

The CAG Report No CA 4 of 2008 (Defence Services), which was tabled in Parliament on Friday, is another blow to the project. The report finds that only 25 per cent of the project work has been completed so far, though the project was to be completed in 2005.

And that work consists only of residential accommodation, open-air theatres, shopping centres, a club, and cars, buses and air-conditioners. No construction has begun on the core technical buildings; the procurement of plant and machinery has still to take place.

The Nalanda Ordnance Factory brings together three controversial elements: former defence minister George Fernandes, who was the driving force behind the project; the Bofors 155mm gun, for which the factory would manufacture ammunition; and Denel, which ongoing investigations reveal, was already making payments as "sweeteners" in other arms contracts it was pursuing.

The CAG has no evidence of under-the-table payments in the Nalanda contract, for which Denel has already received Rs 66.14 crore from the Ordnance Factory Board (OFB).

However, the CAG report pointedly notes the Ministry of Defence's (MoD's) apparent "urgency to execute the project". In February 1999, after obtaining a "go-ahead" sanction for the project, the MoD ordered the OFB to divert Rs 15 crore from other projects "to prepare a Detailed Project Report (DPR) urgently, by engaging consultants, if necessary, for approval of the government."

That initial haste quickly petered out into major delays and cost over-runs. George Fernandes found that the DPR costing was flawed and that the plant and machinery would cost Rs 847.94 crore, rather than the Rs 531.42 crore that the DPR catered for.

So even as fresh financial sanctions were sought, almost Rs 300 crore worth of civil works (86 per cent of the sanctioned amount) went ahead.

Fernandes, it now emerges, has gifted his constituency with an ordnance factory that has no shop floor, 693 vacant residential quarters, and a technological alliance with a black-listed foreign company.

Ironically, just three months after the initial sanctions for the Nalanda Ordnance Factory, India found itself embroiled in conflict in Kargil and desperately short of 155 mm ammunition for the Bofors guns that would save the day for the army.

It was the Israeli arms industry that bailed out the MoD, pumping in emergency supplies of 155 mm ammunition. Today, nine years later, India would again have to look to Israel if it were faced with another Kargil.

The fiasco in manufacturing 155 mm ammunition has a parallel, an equally dismaying story of delay in buying 155 mm guns to fire it with. The Field Artillery Rationalisation Plan, the army's long-term blueprint, envisages 3,600 artillery guns by 2025.

Today, the army makes do with 410 Bofors guns, which it bought before the scandal halted further purchases in the 1980s. Endless trials since 2001 have failed to decide between an Israeli Soltam and a newer Bofors gun. Last year, fresh tenders were called for from dozens of vendors for the supply of 155 mm guns.

For now, both the gun and the ammunition hang in limbo. Bihar Chief Minister Nitish Kumar, who is no friend of Fernandes, has pleaded that Bihar would benefit from the Nalanda project.

The MoD seems to agree; even while the ban on Denel remains in place, the MoD has told the Lok Sabha, last August, that fresh approvals have been sought for the extra expenditure. The CAG notes that the original project cost of Rs 941 crore has now been estimated at Rs 1,570 crore, an escalation of 67 per cent.