CTO Newsletter

Main headlines from this issue

Poland Declares War – First Test Case Looms Over the Directive

Poland will plead Article 346 as justification for a decision to demand offsets for a purchase of training planes. The government will state that it is not breaching the ban on offsets under EC Procurement Directive 2009 because the planes are essential for its security interests. Poland’s deliciously irreverent Ministry of National Defence has decided to take on the European Commission directly.....

The UK’s IP policy and the law of diminishing returns

The level of industrial participation in the UK is undergoing a sharp decline. The value of direct IP work placed in Britain for the fiscal year April 2010 to March 2011 was only £153m ($250m).

CSDP policy will oblige foreign OEMS to make South Africa a manufacturing hub

The next step in South Africa’s Competitive Supplier Development Programme (CSDP) will be to build a global manufacturing hub by implementing fleet procurements through strategic partnerships with a global original equipment manufacturer (OEM).

Japan wins domestic production offer for f-35

Lockheed Martin says it is willing to outsource some production of its F-35 Joint Strike Fighter to Japanese firms if the country's government decides to buy them.

Pakistan making serious efforts to attract foreign investors to BOT projects

Pakistan has decided to constitute a ten-member high-level inter-agency forum to pursue implementation of major infrastructure projects by the private sector, particularly involving international firms.

Main headlines from this issue

Barnier given an easy ride as he lays down the law on European offsets

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Michel Barnier the European Commissioner for Internal Marketstold a high level conference on ‘Defence and Security Industries and Markets’ that the EC should ban the “abusive and completely discretionary” use of Article 346 to demand offsets.

U.S. Dept. of Commerce examines the EC Directive, finds ‘security of supply’ conditions “remarkable”

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The briefing paper considers “the real risks to business” under the new Directive.

Philippines: outbreak of tenders wanting countertrade puts PITC back in the game

The Philippine International Trading Corporation (PITC) has resuscitated its countertrade policy and introduced obligations into some military and penal procurement tenders.

Malaysia calls for regional engagement in offset programs – barbed reminder to Indonesia on countertrade agreements

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Greece: indictment as witnesses shun and dissemble at submarine inquiry

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The parliamentary committee investigating the purchase of four German submarines by the Greek Navy a decade ago issued a unanimous decision for the ex-minister to be indicted on criminal charges of bribe taking and money laundering.

Main headlines from this issue

South Korea: DAPA refines its guidelines

South Korea’s Defence Acquisition Programme Administration (DAPA) indicated in February that it would soon be changing its offset guidelines. The Administration has now published an English translation. The translation however is not straightforward.

Australia: If it walks like a duck and quacks like a duck, it must be an offset!

Malcolm Taylor, CEO of C&I Projects Group, applied with significant effect an Australian offset version of the duck test in his address to the GOCA offset conference in Amsterdam last month. He also predicted that Europe, too, may soon start waddling like an Antipodean duck.

Greek parliament to investigate former defence minister over German submarine contract

An extraordinary plenary session of the Greek parliament voted 226-9 for a probe into the contract awarded in 2000 to Hellenic Shipyards of Greece and Germany’s HDWand Ferrostaal for four submarines. Fifteen legislators abstained.

Philippines details proposed BOT rule changes

The Philippines government has presented planned changes to the implementation of the 20-year-old Build- Operate-Transfer (BOT) law in a bid to move the centrepiece public-private partnership (PPP) program forward.

Brazil obliges Rolls-Royce to boost local content in commercial sector

Rolls-Royce will invest $120m in Brazil in 2011 and 2012 to raise the volume of locally produced components in the equipment it supplies to the oil and gas industry.

Main headlines from this issue

Turkey’s 5th directive moves policy to a new level

SSM is placing greater emphasis on the scope of the IP, revising the multiplier table, lowering the threshold, and raising the quota. It is also offering new incentives for engaging with SMEs in defence projects ........

Structured trade finance will survive the directive, with a geographical shift

Colin Heritage, Managing Director of Stemcor Trade Finance, predicted that the EC Procurement Directive will reduce offset obligations in Western Europe but that Asia, Latin America, South Africa, and in particular the Middle East and India, will see a rapid growth in the practice.

Kuwait: primes baulk at sharing offset feasibility study with other parties

What has changed is the offset project process. Foreign companies may satisfy their offset obligations by proposing direct and indirect projects and selecting a local partner, which may or may not be involved in the project......

Greek procurement law expected by June

A new Greek Procurement Law, which will show how Greece will adapt to the EC Procurement Directive, has to be ready before Parliament rises for its summer break in June.

Kazakh barter default laid to rest after 18 years in Indian court system

The Indian Supreme Court has ruled that Export Credit Guarantee Corporation of India must honour its commitments resulting from a countertrade agreement.

Main headlines from this issue

Oh! Calcutta!

The aim of the current Indian Defence Minister, A. K. Antony, has been to raise the level of indigenous defence production and reduce the level of inputs. DPP 2011 was published in January and contained very significant changes, particularly in the area of offset. So far, those changes have yet to be felt on the ground......imported defence equipment has increased and the percentage of programs procured offshore is now 75 percent.

EU Directive: implications on offsets

Discussion on the EU directive continued at the GOCA conference, once again producing plenty of heat, but lots of smoke and little clear vision.

Russia drafts legal changes to regulate offsets

The Russian Ministry for Economic Development has drawn up amendments to the 94th Law on State Procurement. The amendment introduces the concept of offset deals in which ........

Poland prepares amendment

Poland is adapting its law to comply with EU directive and practices in the use of offsets. It is not a process that is undertaken with relish. The proposed wording is.....

Polish Treasury probes Bumar’s Malaysian contract

Bumar is to undergo an audit by the Treasury Ministry, which is investigating an agreement signed in 2003 for the sale to Malaysia of 48 PT-91M tanks.... The $380m offset contract is part of the largest export deal ever signed by the Polish arms industry...

Main headlines from this issue

Greek proposal to settle expired offset contracts derided as unrealistic

The Greek MoD has published a draft ‘Ministerial Decision’ to end the country’s expired offset contracts saga. The Greek defence industry has been invited to comment. Some proposals may find their way into the document but informed sources say that the MoD is unlikely to make any fundamental changes.

Indonesia intends to live the dream – policy ready by 2012?

Dr. Ir. Irnanda Laksanawan, Indonesia’s Deputy Minister for State Owned Enterprises, told the JIDD conference that Indonesia will make significant arms procurements in the period to 2014.....

Oman approves higher multipliers and tighter monitoring

Oman will soon announce new offset guidelines. The ‘Partnership for Development’ program is intended to..... The policy is expected to be announced within the next three months, but is subject to final review.

How Malaysia’s ‘MIGHT’ is putting a contrary offset model on the right track

Mohd Yusoff Sulaiman, President and CEO of the Malaysian Industry- Government Group for High Technology (MIGHT), explained that a study in 2001 found that fifty percent of companies in Malaysia participating in offset programs later shut down.....

RAND report takes the shine off those critical of China

Yet another U.S. report critical of China’s relationship with the domestic aerospace industry has been published. The conclusion however also contains some unusually favourable comments that might weaken the impact of the carping community.

Main headlines from this issue

Portuguese court gives go ahead for offset fraud case

A Portuguese court has ruled that three German executives and seven Portuguese businessmen are to face trial charged with robbing the Portuguese state of €34m ($48m). The case centres on the offsets that Man Ferrostaal allegedly promised to deliver with regard to a submarine contract.

India: yet another leak of offset documents meets with the usual refrain: “the file was not sensitive”

The Indian Defence Ministry has launched another inquiry after receiving an anonymous envelope containing four pages of a leaked draft field trial report of 145 M777 Ultra-Light Howitzers to be procured for the army.

Greek Defence Minister: “nasty offsets have corrupted Greece”

“When I talk about the need to have an autonomous defence industrial base I am referring to common defence projects that address the vicious policy of offsets, and the vague and problematic notions of internal defence industrial participation and Greek added value”.....

What are they afraid of? EC refuses to be held to account at GOCA’S Amsterdam conference

The European Commission has refused to send a representative to speak to GOCA delegates on the guidance note the EC published on offsets under the Procurement Directive. A GOCA delegate described the decision as bizarre .........

ECCO INAUGURATED IN PARIS AS OFFSETS FACE EC CHALLENGE

A new offset association, the European Club for Countertrade and Offset (ECCO), held its first board meeting in Paris this March.

Main headlines from this issue

The Directive: EC denies Member States were ambushed – diplomat disagrees

European Commission Defence Expert Burkard Schmitt shrugged off any misgivings he might have felt before facing an audience in Brussels from the National Defence Industry Association (NDIA) of smaller EU Member States, and came out fighting.

Kuwait planning radical policy initiatives to encourage joint ventures

Kuwait’s National Offset Company is planning to end its demand for a liquidated damages bank guarantee. The end of the requirement will not be entirely unconditional however......

French delegation promises investments and technology transfers for Indonesia ahead of formal offset policy

France has expressed interest in expanding investment and technology transfers to aircraft component manufacturers in Indonesia, said Budi Darmadi, Director General for Technology at the Indonesian Ministry of Industry.

FOI study exposes the truth about Singapore – and finds that offsets often lead to technological advances for the seller

FOI, a leading Swedish research institute in the areas of defence and security, has published a study based on four ‘representative’ large Swedish defence export orders.

UAE: “The future is about skills, knowledge and technology”

Saif Al Hajeri says that experience over the last two decades has enabled the OPB to bring ‘a sharper focus’ to the industrial projects and partnerships between government and international suppliers.

Main headlines from this issue

Balkan offset conference surrenders to rival’s command performance

SMi and the Abu Dhabi International Offset Conference (ADIOC) put on offset conferences only days apart. The ADIOC event in Abu Dhabi was very different: it had the numbers – more than five hundred registered delegates - but was more of a networking opportunity than an offset conference.....

The EU directive on offsets —the experts’ view

When a discussion on “European Offsets and Austerity Measures” touched on the Commission’s ruling that the practice is illegal, there was plenty of concern, some opposition, and a noticeable absence of support for the decision, both from the panellists and from the floor.

“This is not the end of offsets”

Dr Aris Georgopoulos provided an optimistic assessment of the EU’s Directive on Offsets. The real battle will be fought over Article 346.

EC directive leaves Switzerland high and dry

Per Magnus Larsson, a senior legal advisor and Offset Manager at Armasuisse,  described how his country’s policy may be affected by the developments in Europe.

Having tasted the pleasures of offset, Bulgaria now fears the advance of the EC directive

There could be no doubt about the views of Bulgaria’s Deputy Minister of Economy on the EC Directive.....

Main headlines from this issue

Annual Report to Congress on The Impact Of Offsets cuts back.

More indirects – fewer new offset agreements with EDA member states 

The 15th Annual Report to Congress on the Impact of Offsets in Defence Trade has revealed that in 2009 thirteen U.S. firms reported entering into 56 contracts that had related offset agreements for the sale of defence items and services. These contracts, signed with 21 countries, were valued at $10.68bn.

Comment – An Annual Outing that has Lost Its Way

The Annual Report to Congress is continuing to wither in both size and content. Its release used to be an event that took the reader on a tour of the world with country-specific data; now it is an orphan on an annual outing......

Turkey: SSM overhauls its industrial participation and offset policy

Turkey’s Undersecretariat for Defence Industries (SSM) is about to introduce major changes to its offset directive that will redefine the programme’s objectives. Although subject to final confirmation, we are advised that the new approach will......

Deloitte predicts a harder year ahead as offsets define goals

Many countries have complex and challenging offset requirements that should be incorporated into upfront capture strategies, says Deloitte in its Outlook 2011 report on the aerospace and defence sector.

Vincent Tchenguiz pursues his offset quest with string of small investments

Vincent Tchenguiz has quietly invested as much as £12m ($19m) in a range of defence, cyber security and intelligence companies over the past four years. He has now taken a stake in an Israeli defence technology company as part of a much larger plan to....

Main headlines from this issue

INDIA: DPP-2011 – A recipe for further discord

The Defence Procurement Procedure 2011 (DPP 2011) expands the scope for offset fulfilment to include most aspects of civil aerospace, marking the first official intrusion into the civil sector. Internal security projects and training now also qualify for offset..... Yet the policy remains full of dangerous shadows.

India: DOFA’s secret offset file is found by roadside

An inquiry has been ordered into how a file marked ‘secret’ connected to the $10.4bn acquisition of 126 medium range multi-role combat aircraft (MMRCA) went missing. The document was found on New Year’s Eve on the side of a road. The file dealt with the evaluations of the offset proposals submitted by the six global competitors.

South Korea: DAPA plans changes; FDI disappoints

South Korea’s offset authority, the Defence Acquisition Programme Administration (DAPA), is planning to extend multipliers to SMEs, the first significant multiplier change in the 29 years of Korea’s offset programme.

UAE: OPB offset guarantee clause guaranteed unacceptable

An umbrella agreement that every contractor with an offset obligation must sign to move from the old offset policy to the new policy under the UAE Offset Program Bureau’s (OPB) revised guidelines has hit a snag over the bank guarantee.

Prospects for Indian / South African countertrade

MMTC, India’s state-owned commodity trading company, is to set up an office in South Africa to source coal, gold, diamonds and other minerals.

Main headlines from this issue

Indonesia to present draft offset regulation to parliament

The government of Indonesia has drafted a policy regulation that will make offsets a requirement of defence procurement. A bill enabling the regulation will be presented soon for the approval of Parliament. Indonesia will then establish a formal offset policy, although those responsible for the task recognise that formulating such a policy may take some time.

Change sweeps UK procurement policy, but EC directive is swept under the carpet

Contrary to earlier suggestions a Green Paper published by the British Secretary of State for Defence includes scant reference to offset or industrial participation practices. However, the UK is reviewing its policy to ensure IP remains valid and complements key priorities.

ISRAEL’S 180 PERCENT F-35 OFFSET AGREEMENT WAS PIE IN THE SKY

It was all much ado about nothing. The deal described by the Ministry of Defence bureau was not the one the Americans were aware of.

EVENTS DIARY 2011

Full listing of offset, countertrade, and trade finance events.

“Offsets and the art of bribery”

A doctoral candidate says there is almost no scholarly work that examines offsets as a potential source of corruption. She has set about correcting this anomaly.