CTO Newsletter

Main headlines from this issue

Saudi localisation blueprint to increase demands for offsets

Saudi Arabia has laid out a sweeping plan to put its armaments industry under a holding company as it prepares for the post-oil era. The kingdom will seek to restructure several military contracts to tie them to Saudi industry. The initiative will lead to increased demands for offsets and technology transfers, and place further burdens on joint ventures.

“Whitewash, cover-up” – but some say findings on South Africa’s ‘strategic defence procurement packages’ were honest

President Jacob Zuma backed the commission’s findings that offsets meant to flow from the arms procurement have substantially materialised and ordered the report to be released in full, generating tremors of disbelief but not surprise. It made no recommendations because it found no wrongdoing.

DCNS to build Australia’s submarines: “Decision driven by corporate welfare rather than defence needs”

Prime Minister Malcolm Turnbull has chosen the state-controlled French DCNS consortium for the contract to build twelve submarines. The submarine fleet will be built in Adelaide. The French media hailed it as the contract of the century. “It offers meaningful workshare and technology transfer”.

Election ahead - Australia launches liferaft to sustain sovereign naval shipbuilding

Prime Minister Malcolm Turnbull has announced a policy for “the salvation” of its naval shipbuilding industry. He said offshore patrol vessels would be built in Adelaide. Forty-eight hours later he confirmed he intends to call an election for July 2nd. Up to three seats are in doubt for the government in South Australia.

Concern over covert IP deal between South Africa and Saudi Arabia

South Africa’s opposition Democratic Alliance party wants to know why a South African company has set up a factory in Saudi Arabia to manufacture shells and ammunition and why neither South Africa’s parliament nor media were informed.

Main headlines from this issue

Dentons finds South Africa’s NIPP policy let down by poor implementation

The local office of global law firm Dentons has published its opinion of South Africa’s National Industrial Participation Programme (NIPP). The mild critique of the policy’s regulatory framework and the NIP Revised Guidelines of 2013 comes as NIPP prepares for review..... lack of contract management skills…. lack of commitment by obligors.

Pakistan backdates offset regulation

Pakistan has backdated the offset regulation placed recently on the online portal of the Directorate General for Defence Purchase. The defence offset policy became effective October 15th, 2014, the regulation says. The date had been left blank.

Uganda demands joint ventures, says companies must understand “rules of the game”

Uganda’s Public Procurement and Disposal of Public Assets Authority has informed visiting representatives of the Nordic Business Association that Uganda is encouraging joint ventures and they should rely on local content. Each delegate gave a personal account of their encounter with corrupt individuals or officials.

Indonesia pursues two joint ventures and a tolling deal with western primes

On her return from a European visit Indonesia’s Minister of State-Owned Enterprises, Rini Soemarno, announced that three co-operation agreements with Western prime contractors are under negotiation.

Canada launches public consultations on F-35 decision – questions role of IP

“We are committed to ensuring that manufacturing contracts for whichever aircraft is chosen will go to Canadian companies”

Main headlines from this issue

India’s DPP-2016 creates new preferred category

India’s DPP-2016 gives priority to a new category of procurement. Indigenous Design, Development and Manufacturing (IDDM), first mentioned in January, replaces ‘Buy (Indian)’ as the most preferred category. The policy document remains incomplete with various annexures and appendices yet to be released, including the offset provisions.

DPP-2016 – COMMENT. A serial killer or a workable blueprint?

DPP-2016 is meant to simplify the procurement process but it is a document of formidable complexity and is incomplete. Buried among the 100 pages of eternal acronyms is a policy that might just work.....

Annual report to Congress reveals strength of offset transactions in Europe

The twentieth annual report to Congress on the impact of offsets in the defence trade reveals that European Defence Agency (EDA) members accounted for 34.62 percent of all offset transactions reported by U.S. firms in 2014 based on quantity…..a statistic that will give the European Commission nightmares.

Turkey’s policy drives domestic added value but fails to generate exports

Turkey’s SSM does not always request domestic added value in defence contracts. While Turkey usually contributes about 70 percent of domestic added value to each defence contract, for some projects SSM is too short of money and time to make the request.....

Indonesia: MoD chief outlines technology approach, suggests SOE ministry is uncooperative

The Chief of the Indonesian Defence Ministry’s procurement centre said that his government would implement a technology transfer requirement if the Defence Industry Policy Committee (KKIP) identifies in a purchase any of the seven weapon systems included in the country’s offset policy.

Main headlines from this issue

EC shakes the tree - Member states told to explain procurement decisions

A letter sent by the European Commission last month to the defence ministers of thirteen member states is causing the industry some emotional turbulence. The letter states that the EC is reviewing examples of recent procurements and asks each country to explain its purchasing decision. The EC later issued a notice explaining that.....

Left wing MEPs demand EC investigation of Spain

The spokesman of the United Left party in the European Parliament, Marina Albiol, and MEP Javier Couso of Spain’s Nordic Green Left, a member of the Sub-Committee on Security and Defence, have drawn the attention of the EC to a possible infringement of directive 2009/81/EC by the Spanish government.

UK’s DSIEP policy wanders into the civil sector

AECOM, a major American company known more for its clean water and energy projects and for building iconic skyscrapers than for defence programmes, has become the tenth signatory to the UK’s Security Industrial Engagement Policy (DSIEP).

India: DEFEXPO announces offset seminar

A seminar on offsets has been scheduled for Defexpo India 2016. The land, naval and internal homeland security systems exhibition takes place between March 28th and 31st at Goa.

Navantia’s Australian win ignites local outburst over industrial participation

Australia, which actively seeks to leverage its buying power to create opportunities for Australian firms in international programmes, has been censured by local industrialists and the media for awarding a contract to the Spanish shipbuilder Navantia.

Main headlines from this issue

Israel prepares new regulations, will link undertaking to purchase agreement

Obligors will have to sign detailed undertakings under new regulations being prepared by Israel’s Industrial Cooperation Authority. The rules will also include milestone penalties and holdbacks on procurement payments. Obligors will work with one set of personnel at the ICA and another set at the Investment Promotion Centre.....

Australia introduces a complicated “clearer and simpler framework”

The Australian government intends to replace its Priority Industry Capability (PIC) and Strategic Industry Capability (SIC) plans with “a clearer and simpler framework.” A new Centre for Defence Industry Capability (CDIC) will assume a key role in managing the Australian defence industry.

Implementation delays will lead to cost escalation: “That is why everybody wants to do a programme in India.”

European firms operating in India’s offset environment want supply chain partners to work at 8, 10, or 12 percent margins. In India the cost of capital is 16 percent and no firm operates below 24 percent. “That is a very big challenge that we face when structuring offset programmes,” said.....

Polish Major General: “The defence ministry either does not know what it is doing or it is not being honest”

A retired Major General of the Polish Armed Forces has called for the defence ministry to conduct an urgent analysis of the preparation and execution of the tender for multi-role helicopters….. companies are forced to submit offset proposals which are then not taken into consideration.

China to provide $10bn in financing for Petrobras in exchange for oil

The Brazilian state-controlled oil company Petrobras said it has reached an agreement with the China Development Bank (CDB).....

Main headlines from this issue

Pakistan publishes “impenetrable” offset policy, ignores it

Pakistan has placed a formal offset regulation on the online portal of the Directorate General for Defence Purchase. The regulation states that offset is mandatory for defence procurements over $15m but the effective date of the policy is left blank….. “There is a lot of confusion about the policy.”

Defence expert: Canada’s procurement system is “ramshackle and stuck”

Two years after a new drive to its procurement system the Canadian federal government is officially stuck, says David Perry, the senior analyst and a Fellow with the Canadian Global Affairs Institute. “Nothing has been delivered yet, which is ridiculous,” he says…. “Value propositions remain just an idea”.

Japan offers to build amphibious aircraft in India

The Indian Navy has expressed interest in purchasing six US-2 amphibious aircraft. ShinMaywa Industries, the Japanese equipment manufacturer that produces them, has offered to set up plants in India to help cater to international demand.

Brazil readies legislation to ease public-private partnerships

Brazil’s Finance Ministry has published a draft bill for partnerships between Brazilian public entities and the private sector for the implementation of strategic projects of national significance. The bill, when approved, will create a programme called ‘PPP Mais.’

Brazilian Air Force bombs Sweden

The Brazilian Air Force has acknowledged that by 2022 more than 350 Brazilians will work on the Gripen NG project in Sweden.

Main headlines from this issue

Offset frustrations in Taiwan set to continue as new president takes over

Defence contractors with obligations in Taiwan continue to be deeply frustrated with the difficulties they say they encounter while implementing the industrial cooperation programme. Obligors complain of a lack of administrative clarity…….. The Industrial Development Bureau rejects accusations of political influence and retorts that.....

India ends uncertainty over the national offset policy: “It’s gone!”

India has scrapped plans for a national offset policy. A government official told the local media: “We realized that all departments have different requirements, and having a one-size-fits-all policy may not be prudent.”

Transparency International's 2015 report takes a selective look at offsets – omits Malaysia, includes Scandinavia

Transparency International's Government Defence Index for 2015 has focused selectively on the offset policies of several countries, omitting a number of countries with poor reputations.

Poland raises the temperature with Airbus and concedes it could face claims for damages

Poland’s deputy minister of defence, Bartosz Kownacki, has set Airbus Helicopters a deadline to reach an agreement over industrial offsets for the supply of 50 H225M Caracal helicopters.

Indonesia capitalises on technologies received

PT PAL, Indonesia’s state-owned shipbuilder, is set to deliver the first warship to be exported by the country’s domestic shipbuilding industry, a Strategic Sealift Vessel. The warship was built and developed entirely by PT PAL in collaboration with Damen Schelde Naval Shipbuilding through a transfer-of-technology mechanism.

Main headlines from this issue

The ‘Make in India’ makeover takes shape – new ‘IDDM’ policy announced

India’s Defence Acquisition Council is set to raise the country’s offset threshold from Rs 300 crore ($45m) to Rs 2,000 crore ($300m). The mandatory requirement for indigenous content will remain at a minimum of 30 percent. Defence minister Manohar Parrikar said that the threshold is changing because offsets increase the cost of the product by 14-18 percent.

India: A pivotal moment still in the balance

Offset practitioners have largely welcomed the reported changes to India’s offset policy but any champagne corks remain stoppered at least until the formal publication of DPP 2016. Whether the revisions mark a new day and better opportunities for India, its local industry and foreign suppliers will depend largely on the language of the final draft.....

High quota and tough performance penalties characterise Turkish Health Ministry’s new offset policy

Turkey’s Ministry of Health has published regulations concerning its Health Industry Partnership Programme. The regulations remain faithful to traditional offset principles, laying down the threshold, quota, penalties, and multipliers. They are as lengthy, specific, and unyielding as the opus published by India.

U.S. government calls for report into impact of technology transfer to China

The U.S. government has called for a report on “The qualitative and quantitative nature of the transfer of United States production activities to the People's Republic of China.”

Russia sees Indonesia as alternative to Western component suppliers

Russia continues to deliberate over the extent of technology transfers and component production in Indonesia concerning the sale of MS-21 aircraft.

Main headlines from this issue

India changes offset rules: restores services and predicts defined projects

In response to frequent amendment requests from vendors, India is releasing a series of important policy revisions. The changes come as the MoD prepares to publish a new Defence Procurement Procedure (DPP)…. Quality assurance services and training remain suspended and do not yet qualify for credits.

Russia marches into India

President Vladimir Putin signed sixteen deals with Prime Minister Narendra Modi during a meeting at the Kremlin. The deals include an agreement for the joint manufacture of 226 military helicopters and the construction of twelve atomic energy plants with involvement of local companies in India.

Influential Egyptian agency “well placed to become the offset authority”

The Arab Organization for Industrialization, a key agency linked to the Egyptian defence ministry, has signed an array of partnership agreements with Western defence companies over the past few weeks and reportedly seems well placed to become the Egyptian offset authority.

Mixed blessing for the Philippines’ countertrade policy as volumes reach new highs

The Philippines International Trading Corp (PITC) has responded to a significant increase in government procurement by recording countertrade contracts worth at least 1.5 billion pesos ($33m) in 2015, about four times the level of previous volumes.

Political imperatives tempt Japanese into maritime ventures with Indonesia

Japan and Indonesia will begin talks on the transfer of defence technology to Jakarta. Agreement was reached during discussions between the respective defence and foreign ministers. “Future military deals will only be with partners who embrace this approach”.

Main headlines from this issue

India has nearly $5bn of offset obligations under contract

India now has 25 defence offset contracts under implementation. Obligations total approximately Rs 29,274 Crore ($4.87bn). Contractors have up to 2022 to fully discharge their commitments. Another 45 contracts worth about $8bn-$10bn are in different stages of progress.

Rubber countertrade deal bounces between Thailand and China

The signing of a Memorandum of Cooperation between Thailand and China on a new 900km (559 mile)  railway development project under a countertrade payment structure was confirmed, denied, confirmed, then maybe’d in the space of a few days. The project is estimated to be worth almost $10bn.

Washington relents, Korean government can smile at last

Washington has finally approved the transfer by Lockheed Martin of 21 jet fighter technologies needed for Korea’s KF-X project. Four key technologies remain blocked. The 21 technologies comprise hundreds of separate technical items.

Poland looks East in development deal with Chinese bank

Poland has signed an MoA with China for strategic partnerships covering, among other things, agreement between Poland's Bank Gospodarstwa Krajowego (BGK), The State Development Bank of Poland, and the Industrial and Commercial Bank of China. Poland wants to ensure access to the infrastructure projects market in Asia for Polish businesses.

Main headlines from this issue

UAE: Further explanation of revised guidelines

In September, Tawazun, the organization responsible for managing offsets in the United Arab Emirates, introduced contractors to significant changes to the Emirates’ guidelines. Those changes included modification of the compliance provisions and multipliers.

South Africa: DTI justifies credits for cost of transferring technology, but not for the technology

The director of South Africa’s Department of Trade and Industry (DTI), William Ramutla, told delegates to the ECCO conference that technology transfer is one of the main National Industrial Participation (NIP) policy objectives. The department is often challenged on its decision to award NIP credits only for the costs incurred in transferring the technology; the value of the technology does not qualify.

UK: “Offset is no longer a cult”

Lord Howe, who deals with all defence issues in the House of Lords, said “We’re not against defence directive EC 2009/81 [but] our interests rest in a more open and competitive defence market that respects our legitimate national security and interests. We have an open mind about whether the directive needs to be radically altered…. because we actually don't have the evidence about its effectiveness yet.”

DAPA summarises new multipliers and makes credit banking easier

Two senior executives from DAPA told ECCO conference delegates that South Korea has adjusted some multipliers and amended its offset credit banking rules to promote the development of SMEs and improve the prospect for defence exports. They were, however, largely clarifying changes revealed before.

Japan to ask Northrop Grumman for offsets

Japan has requested offsets under an FMS application for the supply of three Global Hawk remotely piloted aircraft and associated equipment costing up to $1.2bn. The principal contractor would be Northrop Grumman.

Main headlines from this issue

Twelve nations agree Trans-Pacific Partnership Free Trade Pact – Malaysia wins 12-year delay on ending offsets; Vietnam gets 25 years

Malaysia has come out a clear victor in negotiations over the Trans-Pacific Partnership free trade pact.  Malaysia can delay the closure of its offset policy for more than 12 years; both its defence and civil offset programs will meanwhile remain in force. Vietnam, which has no documented offset policy, has won an exemption for 25 years. It has time to invent one.

FMS Whodunit: Has Kuwait really dumped its offset program?

The U.S. DoD’s Defence Security Cooperation Agency has approved a possible FMS to Kuwait for Sniper Advanced Targeting Pods and associated equipment valued at $115m. Surprisingly, given the Kuwaiti government’s affirmation that it will no longer ask for offsets, the DoD asserts that offset agreements associated with the proposed sale are expected.....

Poland’s new government spells trouble for unsigned deals

The victory of the opposition Law and Justice (PiS) party in Poland’s parliamentary election will bring changes to the country's military procurement plans. The PiS said before the election that it would review military tenders as part of efforts to boost the share of Poland's defence budget spent domestically if it were to win. Polonisation is set to get tougher.

Denmark to manufacture for Pratt & Whitney and Lockheed Martin

Danish defence firm Multicut has won two significant orders. Pratt & Whitney has awarded the firm a contract to manufacture F135 engine components under a ten-year procurement agreement. Lockheed Martin has notified Multicut of a pending contract award……

India eases FDI regulations again

The Indian government has announced FDI reforms in fifteen major sectors of the economy. For defence, India will now permit up to 49 per cent FDI automatically. Levels above 49 percent can be sanctioned by the FIPB.