©Leader Publications (Pvt) Ltd.
The main Opposition UNP has conducted its own investigation
into the controversial MiG 27 deal carried out by the government and in a
stinging report questions as to who profited from the transaction running into
millions of dollars. We reproduce the report in the public interest without
comment.
The purchase of four MiG
27 aircraft by the Defence Ministry in
2006 at a cost of US$ 2.462 million each
and the procedure followed in relation to their purchase had been
clouded in mystery till Mangala
Samaraweera and Sripathi Sooriyaarachchi, two key ministers who broke away from
the Rajapakse government made a complaint to the Bribery Commission alleging
corruption on the part of the President's brother, Defence Secretary Gotabaya
Rajapakse. These aircraft had remained on the market unsold for a long time and
their life span had expired. Moreover this type of aircraft were not in use in
the air forces world over except India, Kazakhstan and Sri Lanka. This report
was prepared for the UNP Research Unit by technically qualified personnel.
On July 26, 2006, the
Sri Lanka Air Force (SLAF) on behalf of the Government of Sri Lanka (GOSL)
signed an agreement with Ukrinmash (a Ukranian company) for the supply of four
MIG 27 aircraft as well as the overhauling of four existing SLAF MiG 27
aircraft. Soon after, the government announced that the MiG 27s met with the
specifications required for Ground Attack Fighters.
Yet, close scrutiny of the agreement and the statements /
events relating to this procurement reveal blatant irregularities and the
manipulation of facts to conceal fraud and corruption. The objectives of this
report, prepared in the national interest for the United National Party
Research Unit are as follows:
To analyse
the urgent military requirements of the country given the current war
developments.
To
investigate the highly questionable circumstances, irregularities and
manipulation of facts pertaining to the procurement of MIG 27s.
To analyse
the extent to which the Defence Ministry of Sri Lanka is mismanaging the war
with dire consequences to the Sri Lankan people
To begin with, it was revealed in the front page report of
The Sunday Times dated 03/12/2006 that the four MIG 27s purchased in 2006 had
been on the market for several years. They had lain in disuse since 1991 and
were repaired by the Lviv State Aircraft Repair Plant before being sold off to
Sri Lanka. In fact, in 2000, three of these planes had been rejected by SLAF on
two different occasions.
a. Firstly, on May 25, 2000, when the SLAF purchased four
MIG 27 aircraft at US$ 1.5 million each;
b. And next on October 24, 2000 when two more MIG 27
aircraft were purchased for US$ 1.6 million each.
Thus, it appears that these very same MIG 27 aircraft that
had earlier been rejected by the SLAF in 2000 were purchased in 2006 at a cost
of US$ 2.462 million each.
Further, in October 2000, a MIG 23 UB Trainer was procured
at US$ 900,000. By 2006, this Trainer required overhauling. According to the
current agreement (of 2006), the cost of overhauling this Trainer is US$ 1.1
million. The overall cost thus exceeds the purchase price paid in 2000.
Complaint to Bribery Commission
On the basis of The Sunday Times news report, on March 11, 2007, former Ministers Mangala
Samaraweera and Sripathi Sooriyaarachchi made a complaint to the Commission to
Investigate Allegations of Bribery and Corruption against Gotabaya Rajapakse,
Secretary to the Ministry of Defence. They alleged corrupt practices on the
part of the Defence Secretary in the procurement of the four MIG 27 aircraft.
The complaint of the two MPs raised the following crucial issues in regard to
the procurement:
(i) Why the SLAF
purchased four aircraft which had been rejected twice before by the SLAF;
(ii) Why the cost
of overhauling the MIG 23 UB Trainer (MIG 27) is higher than the purchase price
of the aircraft.
(iii) Why the
SLAF paid a higher price for MIG 27s purchased in 2006, which are older than
the MIG 27s purchased earlier.
In reply, the Ministry of Defence issued a statement on March 22, 2007, titled "MIG 27 - Inside
Story" which is carried on the website www.defence.lk. This statement is
silent on the first two questions raised by the MPs, though it attempts to
respond to the third question. Yet, instead of refuting the above charges, it
strengthens the case for an inquiry into this purchase.
Facts are false
Many of the facts contained in this statement are false.
Referring to the MIG 27 it states as follows:
"The aircraft is flown as one of the main aerial
weapons in India and former Soviet countries. 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."
The second sentence of this posting is taken from the
website http://www.globalsecurity.org/military/world/russia/mig-27.htm which
states:
"The MIG -27 Flogger M named Bahadur (Valiant) was
built in India."
This sentence has been altered with the word "was"
being replaced by the word "is" and the words "and is still
being manufactured today" added at the end of that sentence. The third
sentence has been taken from the web
http://www.airforce-technology.com/projects/mig27/. The alterations have been
made to conceal the fact that the MIG 27 aircraft have ceased to be produced in
India.
In actuality, the MIG 27 Flogger was originally manufactured
in the former USSR. However, its production stopped in the 1980s. While this
plane was also produced under licence by Hindustan Aircraft Limited, Bangalore,
today, this factory too has stopped manufacturing MIG 27s. In fact, MIG 27s are
no longer manufactured anywhere in the world today.
Ground attack fighter
The MIG 27 aircraft was designed as a Ground Attack Fighter
to be used for conventional land warfare. It was one of the aircraft used by the
Soviet Air Force against the Afghan forces. Even then the Soviet Military
campaign proved to be a failure, and today, the Russian Air Force keeps its MIG
27 in reserve. By the 2000s many air forces in the world had phased out this
model. Only Kazakhstan, India and Sri Lanka still use the MIG 27. However, it
is no longer the main aerial weapon of the Indian Air Force, and the Indians
will phase out the MIG 27 once locally designed combat aircraft are introduced.
According to the Sri Lanka Defence Ministry statement, a
Technical Evaluation Committee (TEC) was appointed to find out the best option
to meet the developing LTTE threat in February 2006. The TEC, after analysing
the country's security situation submitted their proposals to the Ministry of
Defence to buy four additional MIG 27 fighters and to overhaul the existing
ones. The TEC stated that the threat situation in the country required an
aircraft specifically designed for ground attacks which can operate in low
altitudes at both lower and higher speeds.
The UNP Government of 2001-2004 obtained the help of the US
Government to assess the military capabilities of the Sri Lankan Armed Forces.
A Report prepared by a mission from the US Pacific Command recommended against
the purchase of any more MIG 27s. It concluded that the purchase of these types
of aircraft were not related to Sri Lanka's military needs and thus diverted
logistical support from the existing SLAF fleet. The acquisition of MIG 27s
drained resources that could have been used to maintain, arm and upgrade Kfirs.
The Report recommended that the SLAF:
1) develop its ability to fly at night, and;
a. upgrade its equipment including guided (not dumb) bombs,
rather than add new inappropriate and expensive aircraft.
The Defence Ministry Statement is silent as to why MIG 27s
were purchased in 2006 contrary to the US Pacific Command recommendations
whereas the more appropriate choice would have been the Kfir. The Kfir is a
multi-role fighter aircraft equipped with air to ground missiles, cluster bombs
and guided weapons much more suited to engage
the LTTE. (At the time of purchase, the SLAF had a fleet of 11 Kfirs,
four MIG-27s and one F7). However, these salient facts have not been considered
in the Defence Ministry statement.
Main threat
Two successive Sri Lankan Governments had identified LTTE
air power as the main threat to be faced by the air force in future warfare.
The UNP Government of 2001 - 2004 discussed the possible threat from LTTE
aircraft with the Indian Government. The late Lakshman Kadirgamar the foreign
minister of the succeeding UPFA government also gave the highest priority to
this threat and discussed this issue both with the US and the Indian
Governments. Subsequently, President Kumaratunga approved the installation of
the INDRA II Air Surveillance System together with other Air Defence armaments.
However, in 2006, the Rajapakse Government abandoned the
need to protect the air space from the LTTE, and gave priority to attacking the
LTTE ground forces. This was done despite successive reports of organisations
such as the Institute of Strategic Studies confirming that the LTTE possessed
Light planes, Micro-Light planes and armed helicopters.
Deviation in war strategy
This crucial deviation in war strategy (of focussing only on
the LTTE ground forces) directly exposed Sri Lanka to the current air attacks
from the LTTE. Given the government's access to intelligence on the LTTE
capabilities, it is highly questionable whether such a deviation was bona fide
or for purposes of making profit.
It is the standard practice of the Defence Ministry to carry
out threat assessments under the guidance of senior Military officers utilising
intelligence reports. The current threat assessment was done in 2006 by a TEC
consisting of:
Air Marshal Roshan
Goonetilleke (Chairman),
Air Commodore E. G.
J. P de Silva (Director Aeronautical Engineering SLAF),
Dr. D. P. T.
Nanayakkara (Senior Lecturer - University of Moratuwa),
Mr. H. D. Weerasiri
(Accountant - Ministry of Defence),
Mr. V. J. Premaratne
(Deputy Director Airworthiness - Civil Aviation Authority),
Mrs. K. D. R. Olga
(Accountant - Department of National Budget).
The TEC consisted of four civilians and two Air Force
officers. The Air Force officers who served in the TEC are not Fighter Pilots -
one is an Engineer and the other a Helicopter Pilot. The others are civilians
who had no knowledge of the security requirements of the Air Force.
Multi-role combat aircraft
It is on record that a number of Air Force fighter pilots
repeatedly requested the Government to purchase multi-role combat aircraft.
However, these requests were overruled by the TEC. According to the MIG 27
Inside Story -
"The newer variations of MIG such as MIG 29 and MIG 35
are also priced very high and such
technology is not required to meet the present enemy."
Yet when the TEC made this evaluation the final export
version of the MIG 35 had not been unveiled or priced, even though a prototype
had been shown in Moscow a few months earlier (it was unveiled for the first
time at the Bangalore Air Show in February 2007). Thus, these events took place
after the TEC made its recommendations. It would seem then that the MIG 29 and
similar models were rejected on the basis that the country's air defence did not
require multi-role combat fighters contrary to established opinion within the
SLAF.
Reviewing and analysing the threat to the country's security is not a function
of a Technical Evaluation Committee. It is the critical function of the
Commanders of the Armed Forces who after consulting their staff must inform the
National Security Council.
Role of the TEC
The role of a TEC is laid down in the Procurement Guidelines
of 2006. The TEC is only responsible for the technical and financial evaluation
of the formal offers received by the Procuring Entity of the Government. Under
the Guidelines, the responsibility for all actions in the furtherance of the
procurement of goods, services or works is vested with the secretary to the
line ministry -in this case - the Secretary to the Ministry of Defence. In this
instance, the TEC has acted outside its powers and functions in analysing the
country's security situation and proposing the purchase of MIG 27s.
Furthermore, this TEC has not been properly constituted in accordance
with the Procurement Guidelines. Article 2.8.1(b) of the Guidelines states that
the TEC should consist of subject specialists.
In this instance, critical members of the TEC should have
been fighter pilots, but they were left out. One Helicopter Pilot, one
Aeronautical Engineer, one senior Lecturer, one deputy Director and two
Government Accountants backed by one retired Lieutenant Colonel rejected the
threat analysis of a number of senior experienced Security Officials which had
been accepted by the UNP and UPFA Governments as well as the Governments of
India and USA.
The SLAF is the only air force to purchase MIG 27 in the
21st Century. In 2000 the then government had already ordered 12 Kfir Fighter
Aircraft from IAI subject to a long delivery period. At the time, the purchase
of the MIG 27s was a stop gap measure to meet the immediate need of the
military for ground attack Fighters due to setbacks in Jaffna.
Short term measure
Therefore, the Government accepted an offer by D. S.
Alliance Limited, a company recommended by the Ukrainian Ambassador, to supply,
maintain and operate MIG 27 aircraft. These aircraft had not exceeded their
mileage and did not require overhauling till 2003. The purchase was a short
term measure until the arrival of the Kfirs which were to form the backbone of
the SLAF.
The MIG 27 is a Third Generation Jet Fighter Aircraft
whereas today, Fifth Generation Jet Fighter aircraft are being introduced
worldwide. Third Generation Jet Fighters are being systematically phased out of
Air Force inventories. Consequently, there is no demand for second-hand MIG 27s
which is why there are still a number of MIG 27s in Ukraine which will have to
be scrapped shortly, if not sold.
The first deal in 2000 was made at a time of crisis when Sri
Lanka's options were limited and the seller could name the price. The second
deal in 2006 was made when the buyer had a number of options and when there was
no market for old MIG 27s. In fact, it was a buyers' market. Surprisingly, the
price paid by the buyer in these circumstances was far excessive than when it
was a sellers' market.
According to the Ministry of Defence statement, the MIG 27
aircraft purchased in 2000 had only two years of remaining life at the time of
purchase, while the MIG 27s purchased in 2006 are supposed to be guaranteed an
operational life time of eight years. The Ministry of Defence states that, as a
result, the SLAF will not be faced with the problem of overhauling or extending
the life time of these aircraft, or having to bear additional costs - unlike in
the year 2000 deal. This rationale too is designed to mislead the Sri Lankan
public, along with references to the overall life span of an aircraft as the
life span of its engines.
Life span
This is because the engine life of Fighter aircraft like the
MIG 27 is not determined according to years as referred to above. The aircraft
engine life span between overhauls is determined by the assigned flying hours.
Since the number of operational flights made by each MIG 27 varies depending on
the requirement of each country, it is not possible to specify a number of
flying hours for a year. A fighter aircraft operating in an environment of
internal or external conflict will undertake more operational flights per year
than an aircraft operating in an environment of peace. The statement is silent
on the critical issue of the flying hours still available for the MIG 27 aircraft
purchased in 2006. Instead, the Ministry of Defence has deliberately attempted
to mislead the public by referring to the operational lifetime of the aircraft
in years instead of flying hours.
The overall life span of every fighter aircraft is assessed
after taking into account its air frame system, engine, operational control
system etc. At the end of its overall life span of 25 years the MIG 27 aircraft
becomes obsolete or a dead aircraft. A further extension of its life span (up
to 30 years) is possible only if done under the supervision and certification
of the Engineers of the Mikoyan Design Bureau. Furthermore, this extension must
be done before the end of the normal life span of 25 years.
The year of manufacture and the age of the MIG 27s purchased
in 2000 are as follows:
Table I
Aircraft
Serial Nos. Year
of
Purchase Age
at time
of Purchase (Yrs) Year of
Manufacture
3712531385 1982
18 2000
83712534657 1983 17 2000
83712534709 1983
17 2000
8371253877 1984
16 2000
83712520013 1981
19 2000
83712545237 1984
16 2000
MIG 23 trainer
SN 49065315 1984 16
2000
Contrary to the statement by the Ministry of Defence, the
aircraft purchased in 2000 had a life span of between 6 - 9 years.
Table II
Aircraft
Serial Nos. Year
of
Purchase Age
at time
of Purchase (Yrs) Year of
Manufacture
93712534688 1983
23 2006
83712518044 1981 25
2006
83712518022 1980
26 2000
83712518009 1980
26 2000
These aircraft were 25 years old, and have thus been
purchased at the end of their normal life spans. No reference is made to an
extension of their life span (to 30 years) under supervision and certification
by the Mikoyan Design Bureau.
Obsolete
It is thus clear that these MIG 27s are obsolete. They have
exceeded their life span. Ukraine is well known for selling weapons without
international certification. According to the magazine The Ukrainian
"Obsolete material is mostly in demand in underdeveloped countries. ...
Even now Ukrainian weapons are being crowded out by competitors complying with
international certification standards."
Furthermore, as stated earlier, the same four planes were examined by
the SLAF and rejected in 2000 during the first purchase.
It is no wonder then that two of these aircraft were
grounded after being purchased in 2006 and were unserviceable during the
warranty period. Thus the Government has paid US$ 10.078 million for four MIG
27s that were dead and grounded, with zero value except as scrap metal.
The Ministry of Defence statement has not evaluated the
aircraft according to the market value or any other valuation scheme that is
utilised for government procurement. Instead, the "deal is evaluated for
its value addition, cost benefits and the cost against the increased fighting
capability of the SLAF." From this statement it is apparent then that the
Defence Ministry has invented a valuation system to cover up a fraud.
Consequently, the Cabinet appointed Standing Committee on Procurement too is in
criminal breach of safety and efficiency for having purchased life-expired
aircraft for operation in the war zones.
Statement false
The Ministry of Defence statement refers to this procurement
as a deal between the producer Government (Ukraine) and the Government of Sri
Lanka. This statement is also false for the following reasons. Ukrinmash from
which the SLAF purchased these aircraft is the self-supporting Foreign Trade
and Investment Subsidiary of UKRSPETSEXPORT - the State Company responsible for
the export of military products. Such an organisation does not fall within the
parametres of a government to government contract. Therefore, this deal cannot
be exempt from the normal procurement procedures as argued by the Defence
Ministry.
The Defence Ministry statement seeks to justify this
exemption under Article 3.5 of the Government Procurement Guidelines 2006.
Article 3.5 states as follows:
"3.5.1 (a)
Direct contracting is a means of procurement of goods or Services or
Works from a single supplier source.
(b) ...
(c) This method is appropriate under the following
circumstances:
(i) When the prices or rates are fixed pursuant to
legislation by regulatory bodies;
(ii) Standardisation of equipment, for compatibility with
existing equipment, may justify additional purchases of the same type of goods;
In such purchases -
The number of such
items in the new procurement shall generally be less than 50% of the existing
number;
The price shall be
reasonable, and
The advantages of another
make or source of equipment shall have been considered;
(iii) The required equipment is proprietary and obtainable
only from one source such as proprietary software, text books, spare parts,
defence items; and
(d) . No
government agency will qualify for automatic direct contract award unless the
above requirements are satisfied."
The 2006 procurement violates many of the provisions of
Article 3.5. The Air Force had in its inventory four MIG 27s purchased in 2000
and under this deal they purchased an equal number of MIGs. The guidelines
restrict the purchase to 50% of the existing number.
Price not reasonable
Furthermore, the price paid for these older MIGs (which
averaged 25 years) exceed the price paid for the MIG 27s purchased in 2000,
(which averaged 12 years). Therefore, the price is not reasonable.
The Ukrainian Government is not the producer government
since it does not manufacture MIG 27 aircraft (At the present time, the Ukraine
manufactures AN-22, AN-72, AN-74, AN-124 and AN-225 "Mrija". These
are exported by UKRSPETSEXPORT). The MIG 27s were produced at the Moscow
Aircraft Production Organisation MIG plant and the Irkutsk Aircraft Production
Joint Stock Company plant - both of which are located in Russia.
When the Soviet Union collapsed in 1991 all Soviet Armed
Force Military assets (including a number of MIG 27 aircraft) were taken over
by the new Ukraine Republic in accordance with a Resolution of the Ukraine
Parliament dated August 24,1991. The MIG 27s were not utilised by the newly
formed Ukraine Air Force as the planes were considered to be obsolete. They
used MIG 29s, while the MIG 27s were kept as military surplus stock and
disposed from time to time. Other countries also have surplus MIG 27s for sale.
Therefore, the Ministry of Defence has violated Article 3.5.1(c) (iii) as the
equipment must be proprietary and obtainable only from one source.
Under a Government to Government deal, monies must be paid
to the relevant bank account of the Government or a Governmental Institution.
The MIG 27 purchase monies were not paid to a bank account of Ukrinmash in
Ukraine. Instead payments were made to the account of a UK Company named
Bellimissa Holdings. According to the Defence Ministry:
Neither the GoSL nor any other government can decide on the
bank where 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.
Designated party
The contract for the purchase of MIG 27 aircraft does not
name Bellimissa Holdings as the Agent of Ukrinmash, entitled to receive
payments on behalf of the Ukrainian company. Bellimissa Holdings Limited is
referred in the contract as a Designated Party.
According to Clause 23.1, "the buyer and the seller are
aware that a third party Bellimissa Holdings Limited (in this Contract (Part 1)
referred to as the 'Designated Party' shall be involved to provide the finance
needed in executing this project. All payments under this Contract .shall be
irrevocably assigned and paid to the Designated Party in consideration for
obtaining the finance package."
Bellimissa Holdings Limited is a party to the contract. The
Ministry of Defence statement has deliberately lied to the public to cover up
this fraud.
This is not a normal financial package (as per the
Procurement Guidelines) such as :
(i) a commercial loan to the Government to pay the seller,
or;
(ii) an agreement between the Government and any
multi-lateral or bi-lateral funding agency to provide funds for the procurement
which are permissible under the Guidelines.
Furthermore, Articles 2.5.1 and 8.7.1(a) require the
Standing Cabinet Appointed Procurement Committee and the MOD to ensure that
budgetary provisions were available to provide the funds for this purchase.
These provisions ensure accountability of government to Parliament in the
utilisation of public funds or funds obtained by way of loans.
Under this Contract, Bellimissa Holdings Limited, the
designated Third Party is obliged to pay Ukrinmash - the seller, for the
delivery of the four planes to MOD - the
buyer. Thus, there are, in fact, two separate and distinct obligations. One is,
for the Third Party to pay the seller. Under this obligation:
(i) the seller can sue the Third Party if no payment is
made, or;
(ii) the Third Party can sue the seller if the planes are
not delivered.
Third party
The second obligation is for the MOD (the buyer) on delivery
of planes by Ukrinmash - (the seller) to pay Bellimissa Holdings Limited (the
designated Third Party). Under this second obligation, the Third Party can sue
the buyer if payment is not made to the Third Party. This is different from a normal
contract of sale where the two parties, the buyer and the seller, may institute
legal action against each other for breach of contract. This is a tripartite
contract which seeks to avoid making budgetary provisions required by the
Guidelines thereby escaping accountability to and scrutiny by parliament.
The contract document defines the buyer as the Ministry of
Defence represented by the Commander of the SLAF and states his address. The
seller is designated as Ukrinmash represented by a Director and the address is
given as 36, Degtinrivska Str, Kiev, 04119, Ukraine.
However, the designation of the person representing
Bellimissa Holdings Limited is not defined in the contract. Neither is the
country of incorporation or its registered address stated in the contract.
Bellimissa Holdings Limited has an office in London but is not registered in
the UK. Bellimissa Holdings is an off-shore company. The relevant details of
the company such as its shareholders, capital and accounts are kept
confidential.
While it is the usual practice for payments for military
equipment to be made direct to the Ukrinmash bank accounts in Kiev, it has come
to light that Ukrinmash also utilises front companies for financial
transactions when requested by the buyers. In fact, Ukrinmash has a reputation
for accommodating the wishes of the buyers. This flexibility has made Ukrinmash
popular with corrupt presidents, ministers and government officials.
For instance, Ukrinmash and UKRSPETSEXPORT were involved in
the sale of weapons to Serbia, utilising front companies to bypass
international sanctions on the sale of weapons. This was revealed during the
trial of the former President Slobodan Milosevic - the Serbian Dictator
responsible for ethnic cleansing in Yugoslavia. The details of these
transactions are contained in the Report of the Investigator from the Office of
the Prosecutor of the International Criminal Tribunal for the former Yugoslavia
Morten Torkildsen.
It is also interesting to note that Gotabaya Rajapakse, the
Secretary to the buyer (the Ministry of Defence) and the Officer vested with
responsibility for the procurement of MIG 27s, is closely related to Udayanga
Weeratunga, Sri Lanka Ambassador in Ukraine.
Weeratunga who is a political appointee carried on business in Ukraine
prior to taking up this appointment and has many connections in Ukraine.
Conclusions
It is clear that the appropriateness of MIG 27s as Ground
Attack Fighters for the current war effort is highly dubious; more so given its
questionable history, capacity and life-span.
The purchase of MIG 27s in 2006 has contravened the
established standards and procedures of government procurement.
The Government of Sri Lanka has lost US$ 10.078 million by
purchasing four MIG 27s whose life span has expired.
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