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DEFENCE I OFFSET

Jarosław Kruk 

SUMMARY OF THE YEAR 2013 IN THE POLISH ARMAMENT INDUSTRY MILITARY VARIETIES. LAST YEAR’S POSITIVE AND NEGATIVE EVENTS IN THE POLISH ARMAMENT INDUSTRY

16/01/2014

In 2013 the Polish armament industry was under the influence of the rule of General Skrzypczak. Offset was completely eliminated by the Ministry of National Defense [MON]. One could sense strong Polish – Polish competition. Export remained at a poor level. Towards the end of the year the Polish Armaments Group was established; its aim was to consolidate the Polish armaments industry.

The establishment of this group was a good idea which is expected to help avoid the conflict between Polski Holding Obronny [Polish Defense Holding](PHO), and Huta Stalowa Wola (HSW), and Wojskowe Przedsiębiorstwa Remontowo-Produkcyjne [Military Repair – Production Enterprises] ( WPRP ). It seems that the actions will start with the consolidation of WPRP .

In the Ministry of National Defense the whole department is engaged in these actions- these military men will become unwanted because other owner of PGZ, not the MON will come into office. Limiting the number of WPRPs up to two or three by combining them is worth consideration.

Do we really need so many supervisory boards and cosy jobs?

Certainly, such an action will arouse opposition in the circle of the MON’s. Overcoming this resistance will be a real challenge for the newly established Polish Armaments Group. The next step will be absorption of HSW. This  will be a difficult task given poor results of HSW and political resistance which is associated with the fact that after absorption of HSW there won’t be so many cosy jobs anymore, and it will be more difficult for the forces associated with the centre in Stalowa Wola to conduct independent policy.

At this point I wish PGZ good luck. The merging with PHO will be the hardest task. Everything will  be fine as long as PGZ carries out this procedure as acquisition, in accordance with the Code of Commercial Companies and Partnerships. However, if PGZ  tries or – which it more likely – is forced to acquire PHO in parts, it may meet with resistance on the part of  creditors and minority shareholders, which – in effect – may slow down the processes of merger for several years.

But there will be two fundamental issues to deal with before that of PGZ. The first one will be aimed at establishing cooperation with the MON in such a way that the Ministry of National Defense will place a vast majority of purchases in PGZ. It’s necessary to ensure that foreign suppliers  place the majority of their production process in Poland. The task isn’t easy because MON isn’t able to use solutions which protect Polish industry. Secondly, it’s necessary to strengthen ailing export, and this is a very difficult mission. Since 2007 the network of cooperative and commercial connections has been destroyed, whereas  its reconstruction and simultaneous development requires restoring of confidence in Poland as a reliable supplier which keeps commitments.

Mr. General Skrzypczak ruled the armaments industry in almost absolute manner. He fought off the Polish Defense Holding (PHO). He ruled and distributed contracts. One of his recent moves was purchase of used Leopards and cease of modernization of PT 91, which entailed a slow collapse of Huta Łabędy. MON insisted that the centre in Poznań should perform modernization of Leopards. As far as I know, the centre in Poznań specializes in vehicles, but I’m not sure if they know a lot about tanks.

Because of the lobby war between Mr. General Skrzypczak and the representative of Spike missiles producer, the company in Skarżysko suffered the biggest loss.  Probably it would have to dismiss several hundred people because MON isn’t ordering rockets. Thanks to the press leaks we found out that Spike missiles smoke, therefore they are not fit for the purposes of our army. A question must be asked whether the rockets also smoked when Mr. General Skyprzak was the commander of the Land Forces? If they did, why Mr. General Skrzypczak didn’t notify this matter to the Ministry of National Defense or why he didn’t notify the public prosecutor of an offense which might have been committed in connection with the contract for supply of Spike missiles?

The issue of Mr. General Skrzypczak’s letter to the MON in Israel about drones also calls for  urgent final explanation. Was it a mistake or a slip of the tongue (as Minister Siemoniak says)?

The Public opinion will know the answer when Minister Siemoniak publishes replication of the MON in Israel – probably from July 2013 with decretation made in our MON. In my opinion, the understanding of General Skrzypczak’s letter by the addressee of MON in Israel makes the author’s (Mr. Skrzypczak’s ) intention clear. It is worth improving the aura around modernization of the Armed Forced and presumed corruption.

In terms of news related to the Polish armament industry – rumour has it that – HSW holds no industrial safety certificate which is required under the Act on the Protection of Classified Information. As is well known, consortia HSW and WB Electronics have been commissioned to conduct research and development works related to new unmanned tower for Rosomak. If this is true, it means that unauthorized transfer of classified information to HSW may have taken place. The case would look different if HSW “cut metal to the length” and WB Electronics would work on the remaining issues. Should these hypotheses be confirmed,  then the MON’s practice of failing to check basic issues related to security of the State before placing such an important R&D order is reprehensible.

MON has completely eliminated the offset in the new tenders. It doesn’t apply inclusions which are possible under Art. 346 of the European Treaty, but only follows the simplest public procurement path. In my point of view, a contract for trainer aircraft, purchase of Leopards and purchase of engines licenses from MTU may be considered invalid. Each purchase must be examined separately.  I think that if it is known that a given equipment is not produced in the country, such as training aircraft, the offset is mandatory in today’s legal status.  It is the same if  the purchase is made under the single source procedure – the case of Leopards, when everybody knows that only this specific equipment can be chosen. If the transaction for purchase of Leopards had been made with the offset, then Huta Łabędy or/and the centre in Poznań would have received the technology necessary for their repairs and modernization. It will be necessary to buy these technologies anyway. It will be the taxpayers that will pay for those necessary ones, because they will be included in the cost of renovation and modernization of these tanks.

As for the transfer of offset to the Ministry of National; Defense, which will become a fact  with the  change of the statute, it  is a ridiculous idea, I think. It heralds the real decline of the offset because MON has no knowledge of  this issue, and the offset makes its armament purchases difficult. The MON will preclude Poland from the global offset market the value of which is expected to exceed USD 500 billion in 2016.

 In conclusion just a comment that our officials say they will buy weapons if the supplier decides for the complete transfer of technology. Sounds positive, doesn’t  it? Unfortunately, they don’t realize that obtaining technology involves the necessity of acquisition of certain machines or even production lines. These devices are not  cheap and it is not easy to acquire them. I wonder whether banks will grant credits to the Polish armament industry for orders of the MON – an  unreliable client , capricious, and capable of deleting particular purchases at any moment.

It is a bit paradoxical that responsibility for the purchase of equipment or production line rests with the management board of a firm or a company, not with the MON.

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