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August 5, 2007  Volume 14, Issue 7


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Who profited from the MiG deal?

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

MIG 27s

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.

The Defence Ministry has through criminal negligence endangered the lives of SLAF pilots and countless others while jeopardising the war effort. Many of the facts given in the Ministry of Defence statement MIG 27 Inside Story are completely false and designed to cover up a corrupt deal. They have been fabricated on the basis that the people of Sri Lanka are ignorant of military affairs and will accept anything stated by the Defence Ministry.

 

 


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