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DEFENCE I OFFSET

Jarosław Kruk 

THE REFORM OF THE ARMED FORCES AND THE CONSOLIDATION OF THE POLISH DEFENCE INDUSTRY AND ITS PROSPECTS

31/07/2013

In recent weeks we have seen some important events in the broadly understood sphere of defence.

The president signed a law reforming command the structure of Armed Forces.

However, the opposition announced that he will bring this case to the Constitutional Tribunal, accusing non-compliance with Constitution on several issues. It would be good if Tribunal could hear the case before the entry into force of this important amendment, because any subsequent questioning of it could introduce big mess. As regards the legitimacy of complaint I have no formed opinion. I only point out that even the most authoritative legal opinion does not always “have influence” on the Tribunal.

The cuts in military expenses were officially announced. They will amount more than 3 billion zlotys, which constitutes over 10% of the Ministry of National Defence’s budget.

The Minister Siemoniak announces that the cuts will not affect soldiers, mission and the most important areas of modernization. The Minister Skrzypczak make the same declarations about modernization of Armed Forces.

Could we believe them?

Knowing the structure of military expenses the answer to this question seems be negative. On the other hand, wecannot make any charges for statements ofministers. The greatest part of expenses is rigid and they can’t be too much restricted. The purchases of new weapons and training are still to reduce.

We should hope that the modernization will continue in reality and not only in media’s statements. In the majority of contracts we can negotiate extension of the payment terms, and different kind of postponements, etc. In addition, we must remember that the primary criterion for selecting suppliers – of course when the offered equipment hascomparable combat characteristics – it should be how the foreign supplier is ready to cooperate with the Polish defence industry. This includes, in particular, the production (of the whole or of the part), servicing in Poland, transfer of source codes, as well as it enables our scientific institutes and companies to participate in the development and modernization of the equipment purchased. Current legal status provides that opportunity.

Introduction of Defence Directive does not necessarily mean a complete surrender towards the defence industries of France and Germany, in the interest of which the Commission acts. A good will, a team adjusted to working together and skilful use of the experience of other countries which protect their own defence industry, such as Scandinavian countries are sufficient. All projects, such as missile defence or anti-aircraft defence will enableeasily the justification of art. 346 of the Treaty. Moreover, the public procurement law guarantees a lot, but only when you want to undertake something and not when the only wish is to acquire cool “toys”. These priorities would have to be clearly defined by the Government.

Let’s not forget that when you buy the armament the important factor is the cost in so-calledproduct lifecycle and the opportunity of servicing and modernization. Undoubtedly the situation when there is no alternative of servicing and repair equipment threats to the basic interests of security of State – in particular in crisis situation– or when the supplier requires unjustified charges for the possibility of modernization of the equipment or its adaptation to the changing conditions. The latestsituation can impairsignificantly the defensive possibilities of State. It must be emphasised thatthe state of the defence industry, in particular its abilities to secure the current needs of renovation and modernization of military equipment are one of the key capabilities of defence of State.

Recently the Press reported that there are talks concerning the merger of HSW and PHO. According to these press reports, HSW would gain significant independence, and would be at  the head of Division Land. I doubt whether such agreement would guarantee real independence of HSW and how reliable and credible is itslegal force? In the current legal situation the owner could always change the Supervisory Board and the Management Board, as well asmake amendments to the articles of association, unless the Ministry of Treasury or the Ministry of National Defence will be a shareholder of the new company and personal rights will be granted to it. I wonder just in what form they will appear?

From the recent statements of the Minister Rafał Baniakit follows that everything is in principle determined and HSW will be absorbed soon by Bumar, and negotiations between two companies have to end in success. The Minister presented this approach during the Parliamentary Commission of defence, but if the end of August is a real deadline for the completion of that situation? In my opinion that will not happen. Making that decision concerning consolidation, despite the probable formal agreement of HSW will be anyway unpopular. In the current political realities the unpopular decisions will be postponed.

The début of PHO on the stock market certainly would be better if HSW would be member of a team, then it would have to take place in the summer or autumn of 2015.

Counting on this turn of situation and hoping that the introduction on the stock market would appease animosities is controversial and risky. The supportersof this consolidation indicate that in all European countries where there has been an alliance around a single institute, it was increased the development of new technologies, export, etc. In terms of new export of Bumar (I’m sorry for the slip of the tongue – PHO), time will tell, we should watch it attentively.

 

 

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