Defence Ministry negligence jeopardizes war effort -UNP

The Sunday Times exclusive revelations on December 3 last year of alleged corruption in the Sri Lanka Air Force procurement of MiG-27 fighter jets from Ukraine has prompted a detailed study. A report of this study was released to the media on Thursday by the main opposition United National Party (UNP). The UNP said the report has been prepared for its Research Unit but did not disclose the authors. Here are edited excerpts:

On 26th July 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 for the overhauling of four existing SLAF MiG 27 aircraft. Soon after, government announced that the MiG 27s met with 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 by the United National Party Research Unit are as follows:

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 the year 2000, three of these planes had been rejected by SLAF on two different occasions.

a. Firstly, on the 25th of May 2000, when the SLAF purchased four MiG 27 aircraft at US $ 1.5 million each;

b. and next on 24th October 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, an MiG 23 UB Trainer was procured at US$ 900,000. By 2006, this Trainer required overhauling. According to the current agreement , the cost of overhauling this Trainer is US$ 1.1 million. The overall cost thus exceeds the purchase price paid in 2000.

The Ministry of Defence issued a statement on 22nd March 2007, titled “MiG 27 – Inside Story” which is carried on the website www.defence.lk. 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.

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 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 with the LTTE. (At the time of purchase, the SLAF had a fleet of eleven Kfirs, four MiG-27s and one F7). However, these salient facts have not been considered in the Defense Ministry statement.

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.

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...

Reviewing and analysing the threat assessment 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. 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 of 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 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 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 8 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.

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 flihts 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:

Contrary to the statement by the Ministry of Defense, the aircraft purchased in 2000 had a life span of between 6 – 9 years.

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.

It is thus clear that these MiG 27s are obsolete. They have exceeded their life span. The Ministry of Defense statement has not evaluated the aircraft according to the market value or any other valuation scheme that is utilized 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.

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 & Investment Subsidiary of UKRSPETSEXPORT – the State Company responsible for the export of military products. Such an organization does not fall within the parameters of a government-to-government contract. Therefore, this deal cannot be exempt from the normal procurement procedures as argued by the Defence Ministry.

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. Furthermore, the price paid for these older MiGs (which aveaged 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).

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 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.

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 the agreement, “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.

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.

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.

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.

It is also interesting to note that Gotabhaya Rajapaksa, the Secretary to the Buyer (the Ministry of Defence) and the Officer vested with responsibility for the procurement of MiG27s, is closely related to Udayanga Weeratunga, Sri Lanka Ambassador in Ukraine. Mr. Weeratunga who is a political appointee carried on business in Ukraine prior to taking up this appointment and has many connections in Ukraine.

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 jeopardizing 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.