The protracted price negotiation for aircraft carrier Admiral Gorshkov between India and Russia came in for sharp criticism today from the CAG, whose latest report rapped the Defence Ministry for the cost escalation of Rs 7,207 crore ($1.82 billion) in four years.
The Comptroller and Auditor General report for 2008, released in New Delhi, also questioned the prudence of the Ministry in buying the second-hand Russian warship, which now comes at 'half its life-span and about "60 per cent more expensive' than a new aircraft carrier.
As a result, the Indian Navy's objective of inducting a second-hand foreign aircraft carrier -- Gorshkov deal was signed in January 2004 -- was not met in time to fill the gap in its capabilities, the CAG report said.
"The government is now likely to pay $1.82 billion for the modified Kiev class heavy cruiser as against the original contract amount of $875 million," it said.
The report proposed a comprehensive review of the project, due to the criticality of the asset coupled with drastic increase in scope of repairs with consequential cost increase.
The audit report also recorded its unhappiness over the Ministry not providing "full co-operation and access" on the Navy's new acquisition.
Noting that the delivery acceptance trials of the carrier would not be completed before 2012, the CAG said the delivery of the ship, originally acquired with the objective of filling the five-year carrier gap during 2007-2012, still involved high risk.
The CAG report said the most substantial increase in Gorshkov's cost of $522.57 million was on account of sea trials, which were originally contracted for $27 million.
"This has increased by almost 20 times to $550 million, creating doubts about the diligence exercised while estimating and negotiating costs," it said.
The auditors also noted with concern that the carrier would not have a Close-In Weapon System (CIWS), a vital ship-board point weapon for detecting and destroying incoming anti-ship missiles and enemy aircraft at short range, until her first refit in India in 2017.
"Given the expected force level of Indian Navy by the time the aircraft carrier is inducted, it is not clear as to how the Navy would provide adequate complement battle group to the carrier," it added.
Stating that the monitoring and supervision of the project was "surprisingly lax" with no committee adhering to the frequency prescribed, the report said as a result, the enormity of the situation could not be foreseen till the vendor (Russian Sevmash shipyard) presented the revised costs (in 2007).
Financial control by the Indian side was diluted as payment terms were not linked to physical outputs, the report said, adding that thus, though 66 per cent of the contracted cost of repair and refit was paid, only 35 per cent of the work was completed.
After almost two years of negotiations, India is likely to pay between $2.2 billion (Rs 10,100 crore) and $2.9 billion (Rs 14,900 crore) for Gorshkov.