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DEFENCE I OFFSET

Jarosław Kruk 

TRANSFORMATION OF POLISH ARMS INDUSTRY, THE OFFSET - IS IT THE END?

03/12/2013

Good news comes first: Minister Karpiński has announced that the changes in the Polish armaments industry should be expected within the upcoming fortnight. Indeed, the management board of the Polish Arms Group (Pegaz) is to be composed of Mr Wojciech Dąbrowski and Mr Andrzej Synowiecki, who are a promise of professionalism and have knowledge of the sector.

What looks less optimistic are the rumours regarding estimates circulating in the Warsaw corridors from which it appears that Polish firms have suffered a lost due to internal competition. And so: PHO (Bumar) is said to have lost about PLN 350 million, Huta Stalowa PLN 200 million, group WB Electronics about PLN 100 million. No comment ….

When continuing the Polish-Polish competition thread, it is worth mentioning that one journalist, driven by dislike towards PHO, in particular towards its ex-chief, wrote three months ago that PHO used agency services when concluding a contract for WZT-3 in the Republic of India. Mr journalist must have forgotten (or maybe not?) that in the Republic of India it is forbidden to use agency services and this may result in entering PHO, and by this very fact the Polish armaments industry, in the blacklist. It doesn’t really matter whether this is true or not – for all I know– it is not true – but what consequences can it bring?

A lot has happened since September, among others the contract for WZT-3 with Indian BELM has been signed and approved by the supervisory board of PHO. Unfortunately, in the meantime “someone” translated that press article and sent it with a relevant comment to Delhi. Then “clouds appeared on the horizon”. Maybe it’s temporal coincidence. This may be…. The fact is that the negotiated contract has not been accepted by the Indians until the present moment.

In this situation there is nothing left but hope that at the December meeting of the Polish-Indian group of military – technical cooperation everything will be solved. Unfortunately,  the fuss around dismissal of Mr Skrzypczak and state election in Delhi may delay the meeting. Our press is now writing about potential and realistic successes of Rosomak in the Republic of India (as a verified product). Probably none of those writing about that is aware of complications on the Indian market and difficulties in finding way around this market as well as existence of strong competition there. I keep my fingers crossed for Rosomak.

As regards unmanned tower for Rosomak, the consortium of Polish firms Huta Stalowa Wola (HSW) and WB Electronics was expected to design and build it within two years. Unfortunately, it seems that there will be a significant delay. The chief of HSW is said to declare that the tower will be ready within four or five years. He is worried only about negotiations regarding contractual penalties with the Ministry of Defence. By the way, Mesko is said to be planning dismissal of 500 people, because MON places no orders for rockets Spike.

I have a gut feeling that in the case of tender for JET, the LMC UK will win. The tender will take place without offset, naturally, which in my opinion may result in its invalidity. No one has repealed the Offset Act. I have recently worked on this case in my free time and at his point I will promote myself. Indeed, competitors who have lost – there are realistic chances, higher than 60% that the tender will be invalidated. I’m ready to assist you with this. Not in order to delay the process of modernization of the armed forces, but in order to ensure that this process is properly conducted and guarantees benefits to the Polish economy.

When analysing the issue of the Offset Act – no one has repealed it and it may turn out that after selection of the winning tender, the winner will be asked to conclude an offset agreement. In my opinion it is admissible by law and our intrepid administration may follow this path if it explores the problem.

The subsequent part of Leopards was purchased under the single source procedure and again it took place without offset. I analysed relevant legislative acts and nowhere could I find a provision which would exempt the purchase of second-hand armament from the offset. So, may the contract for the purchase of these Leopards be considered invalid? Rather not. Because who could file a relevant petition with the court? However, on the occasion of the change of thee political power, the new team may question the transaction as violating the law in force and then it will be quite easy to formulate charges under  Article 231 of the Criminal Code against civil servants who decide about this transaction. Let me remind that offset means that foreign supplier is obligated to invest in Polish economy, more precisely arms industry and regarding the subject of delivery, 100% of the delivery value. Obviously there are so called offset multipliers which prefer investments of the highest technology. The offset is always profitable for economy, which is best proven by the fact that the value of offset transactions is increasing in the world year by year and in 2015 it is expected to reach the value of USD 500 billion. So the German supplier would be obligated to invest great amounts in Bumar – Łabedy and in Wojskowe Zakłady Motoryzacyjne. MON, as the interest of the arms industry presents this in such way that both plants will modernize tanks, so in fact modernization will be financed from the budget.

One should note that the German companies Krauss-Maffei Wegmann and Rheinmetall Defence will sell Polish companies additionally technologies necessary for the overhaul, the cost of which will be ultimately borne by taxpayers . Obviously, the fact that Polish firms will have a lot of orders is a value in itself, but if the offset is applied, we could have  technologies for firms, and these companies would do the modernization of Leopards anyway.

In the middle of the year 2014 the department of offset will be transferred to the Ministry of National Defence, because in fact it is realistically possible to change the act when the work is already in progress. So – it’s the end of the new offset in Poland. The Armament Inspectorate didn’t have courage to apply the Article 346 of the Treaty and to exclude public procurement law. Does this suggest that the Inspectorate will apply offset? This is a misunderstanding. The Ministry of National Defence is only bothered by offset when it buys the “toys”. To keep things in order, agreements concluded up to now will be settled by Ministry of Economy. I access negatively the decision of the government which transfers the offset to the MON, because this entails the actual death of offset as well as heavy loss for the arms industry.

 

 

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