CTO Newsletter

Main headlines from this issue

EC holds its ground in reply to trade associations

The European Commission has replied to the thirteen European defence trade associations that wrote to protest the EC’s Interpretative Communication on the practice of offsets. The reply is unlikely to make any of them happy......

Canada: F-35 purchase sparks heated debate on industrial benefits

Canada’s purchase of the F-35 Joint Strike Fighter has generated a new wave of arguments about the contract’s industrial participation benefits. A Liberal Party motion to open the competition for purchase of the new planes was defeated by a coalition vote of the Bloc Québécois and the Conservatives.

Pakistan approaches Sri Lanka, Iran and Turkmenistan in barter mission

Pakistani President Asif Ali Zardari has called for a barter agreement with Sri Lanka to boost trade between the two countries. Pakistan is Sri Lanka’s second largest trading partner in South Asia after India.

Ukraine and Venezuela look at barter options

Ukraine and Venezuela are said to be examining a barter exchange of oil-for-production assistance.

Belarus and Venezuela agree counterpurchase deals

Belarus, seeking alternative sources of oil to replace Russian imports, will supply Venezuela with milk powder and agricultural machinery in return for crude.

Main headlines from this issue

EC attacks Greece for breach of procurement rules over 35 percent offset

The European Commission has determined that Greece is in breach of EU public procurement rules and says it must shelve a 35 percent direct offset requirement. The demand relates to the award of a €22m contract for submarine battery kits.

U.S.- China Commission calls for Congress to investigate China’s aviation offsets

The U.S.-China Economic and Security Review Commission recommends that Congress urge the administration to investigate whether Beijing’s policies for developing its aviation industry conflict with China’s WTO commitments.....

Bulgaria collaborating with Blenheim on an offset fund

Blenheim Capital Partners is in discussions with Bulgaria’s Ministry of Economy and Energy over the possibility of a €50m SME offset fund.

Two institutions call for India to get a grip on its offset policy

Ernst & Young, in a November Indian defence newsletter, sees the limited duration for banked offset credits as a possible deterrence to banking, and backs calls for a longer qualification period. Banked credits currently expire after 30 months.

Poland tells fighter contenders to invest in struggling companies

Dariusz Bogdan, Poland’s Deputy Minister of Economy, has declared that offsets arising from the upcoming tender for sixteen new fighter trainer aircraft will have to target both struggling companies and thriving military aviation firms.

Main headlines from this issue

SPECIAL REPORT – Rigorous Interpretation of EC Directive Leads to Vigorous Protests…

Rigorous Interpretation of EC Directive Leads to Vigorous Protests

Trade Associations Despatch Missive to EC

EDA Sidelined



Member States (MS) of the European Community are in a sulphurous mood following the publication of a European Commission guidance note on offsets. The note warns that offsets whether direct indirect defence-related or civil will in the EC’s viewbecome illegal when the Community’s defence and security procurement directive comes into force in August 2011. Sinning countries could be brought before the EU Court of Justice.

Eight page report in this issue with analysis and comment. Read the European Commission’s response; the trade associations’ letter and why some trade associations declined to sign.

Main headlines from this issue

Vincent Tchenguiz designs a billion dollar offset fund

The Consensus Business Group (CBG), an offset service provider reported to have withdrawn from the offset scene in 2008, is preparing to resume operations. Under the chairmanship and executive control of Vincent Tchenguiz, those operations appear to be significant in scale.

Multi-billion dollar defence deals prompt France to support Indian bid for UN Security Council seat

The French declaration comes against a background of several multi-billion dollar defence deals that India will soon award.

Malaysia’s MAC council aims to augment country’s aerospace manufacturing industry

The Malaysian Aerospace Council (MAC) has held a discussion to review challenges facing the country’s aerospace industry. The working committee discussed ways Malaysia could improve its strategies and consolidate its growth in the field of aerospace manufacturing.

South Africa’s SDP offset programme and external offset packages – “a study in ambiguity”

A presentation on South Africa’s offset process to a public procurement workshop in Istanbul, Turkey, last month, apparently made a lasting impression.....

Poland’s PZL promises assembly for India’s Mahindra

In some positive news for Indian private sector companies, PZL, Airbus Military's subsidiary in Poland, has signed a preliminary MoU with Mahindra and several other Indian companies for aircraft assembly on a tender for 75 aircraft.

Main headlines from this issue

New Turkish offset directive will bring major changes

Turkey’s Undersecretariat for Defence Industries (SSM) is working on a new industrial participation and offset directive. The document, which is scheduled for release before the end of this year, will...........

Turkey endorses a civil procurement offset policy

Turkey’s Undersecretariat for Defence Industries (SSM) has petitioned for the introduction of a civil offset policy to be applied to government procurements. The appeal, we are told, has the backing of the Prime Minister and the Cabinet.

Kuwait: “We don’t need the money, we need the management”

Kuwait’s recent National Offset Company (NOC) boardroom sweep has led to the introduction of significant reforms in offset implementation. Obligors have to brace themselves for a new way of thinking.

Minister sets a quota for Indonesia’s ad hoc defence offset policy

Indonesia will now insist on binding all military procurements from foreign companies to technology transfer and joint production projects, the Deputy Defence Minister, Sjafrie Sjamsoeddin, has declared. The seller would have to propose.......

How Alenia Aeronautica contended with a high attrition rate in Turkey

Pierluigi Parolin, Alenia Aeronautica’s Senior Advisor for Offset, offered Izmir conference delegates a revealing look at the high attrition rate in Turkey between offset planning and implementation.......

Main headlines from this issue

Offset gives Ferrostaal starring role in Nelson Mandela movie

South Africa’s Department of Trade and Industry (DTI) has been forced to answer opposition concerns about the \moral appropriateness\" of accepting an investment by Ferrostaal in a R260m ($36m) movie depicting the life of Nelson Mandela. The investment qualified for offset credits.

South Africa’s NIPP review describes progress but “hides figures”

\The National Industrial Participation Programme (NIPP) is working and it is working by and large along the lines intended\" the Department of Trade and Industry (DTI) said in the NIPP Performance Review 2009.

Offsets cost South African Airways 3-5 percent – was it worth it?

South African Airways (SAA) recently disclosed to the South African Parliament's Public Enterprises Committee that it paid 3 to 5 percent above market price for its aircraft.

Ukraine looks to offset to boost defence industry

Ukraine and Russia have reached agreement on the key characteristics of a further plan for the joint production of the An-70 military-transport aircraft..... Ukraine’s new government is showing great interest in defence projects and military-technical cooperation...

Mexico: domestic facility swings it for Eurocopter

The Mexican MoD has signed an agreement with Eurocopter for the purchase of a further six EC725 helicopters at a cost of about $212m.

Main headlines from this issue

Will India missive misfire? Trade Associations’ letter to India’s defence minister not welcomed

A letter sent to India’s Defence Minister, A.K. Anthony on August 25, 2010, on behalf of the aerospace trade associations of the U.S.A., Canada, UK, France, Germany, and the U.S.-India Business Council has generated a stormy atmosphere in India’s MoD. We reprint the letter in full.

Indonesia revives obsolete countertrade policy

Indonesia has introduced mandatory counterpurchase clauses in the tender documents of at least two large projects in the power generation sector. The bid documents say the terms of the countertrade guidelines enacted in 1982 must be followed.

UK prepares for IP policy changes and possible withdrawal from EDA

Britain’s MoD has decided to review its industrial participation policy to ensure that it meets the new objectives of the coalition government. The review will be part of a Green Paper.

Greece submits bill for amnesty on offset defaults

The Greek MoD has submitted legislation before Parliament to address conflicts between the ministry and obligors over expired offset contracts and their penalties.

Poland promises technology transfer for India

Poland has offered technology transfer and a joint venture with Indian industry as part of a bid to supply tank recovery vehicles to India.

Main headlines from this issue

Canada offers obligors limited credit banking

Industry Canada is to permit a limited form of banking of Industrial and Regional Benefit (IRB) transactions in advance of an upcoming procurement and in the event of overachievement of IRB credits. The policy is not straightforward.

Offset mix-up puts Siemens out of Israel Railways bid

Siemens has been eliminated from a major tender of Israel Railways because it misunderstood the terms of reference and failed to present a detailed industrial cooperation implementation plan.

Thai chickens return as corruption indictments are dropped

Thailand’s Attorney-General has defended his decision not to indict three former politicians accused of corruption in connection with the purchase of fire trucks and boats at a cost of 6.8bn baht ($217m).

Bulgaria signs off second offset contract

Bulgaria has successfully completed the indirect offset obligations for the Textron commitment. Textron had a 110 percent commitment, 70 percent of which was indirect and 30 percent direct, contracted under the previous regulations when Bulgaria used multipliers.

Chile and Colombia to participate in production of Embraer’s transport aircraft

Chile will buy six Embraer KC-390 military transport aircraft and will join Brazil in the planes’ development. Chile anticipates that Chilean industry will take part in the production of a major component.

Main headlines from this issue

Peru publishes offset guidelines – with a flexible approach to the basics

Peru has launched an official offset policy. The 23-page ‘directive,’ currently available only in Spanish, requires offsets for defence procurements and services exceeding $7m in value.

Pressure builds on India’s MoD as Air Chief Marshal and international defence associations protest…

...about offset policy and agencies. India’s Air Chief Marshal and Chairman of the Chiefs of Staff Committee has reportedly appealed to Defence Minister A.K. Antony to ensure that the Defence Offset Facilitation Agency (DOFA) will become fit for purpose. A coordinated letter on behalf of international aerospace trade associations is ready to be sent to the MoD expressing concerns about the difficulties in complying with India’s offset regulations.

Israel: Pfizer signs to industrial cooperation agreement as mandatory healthcare requirement comes into play

International pharmaceutical companies and manufacturers of medical equipment are now required to enter into industrial cooperation agreements......

China denies demanding “technology for market access”

A senior Chinese executive has denied claims that China forces foreign companies to transfer technologies when they win contracts for work on the country's high-speed rail network and refuted claims that China had pressed foreign companies to transfer their technologies in return for market access.

North Korea forced to barter as sanctions cut off money inflows

North Korea is asking for barters or cash transactions as it exports minerals, resulting in deals collapsing in the final stage of negotiations.

Main headlines from this issue

Kuwait’s NOC receives new board of directors, new focus

A new Board of Directors has been appointed to run Kuwait’s National Offset Company (NOC).........His appointment is bringing a new focus to the NOC’s offset policies, particularly with regard to technology transfer.

Development of Malaysian ‘regional hub’ to be funded by existing and future offset obligations

The Malaysian government has appointed Blenheim Capital Partners in partnership with Masterplan Consulting Sdn. Bhd to support and promote a Malaysian Defence, Science, and Technology Park (MDSTP) through ‘innovative financial solutions’ and offsets.

President Sarkozy says warship deal is certain – but Admiral Vysotsky says it is not

France will build at least two advanced warships for the Russian navy, President Nicolas Sarkozy announced. Admiral Vladimir Vysotsky said: “We do not need the ship but we do need its possibilities”.

Pressure mounts on Canadian government – “more regional benefits if there was competition”

Hostility to Canada’s JSF purchase is gathering pace. The Industrial and Regional Benefits (IRB) so far accruing to the programme are described as meagre compared to those achievable through a competitive process.

Howls of anguish as European MPs condemn Greece and Portugal over “market-distorting” acquisitions

Members of the European Parliament (MEPs) and defence experts are calling on the EU Commission to go after “market-distorting, corrupt side-deals” to major defence contracts between member states. They are citing German submarine sales to Portugal and Greece as examples of malpractice.

Main headlines from this issue

German MOD regards offset as a contradiction to its principle economic policy of maintaining a market economy

Official Position:
“German MOD regards offset as a contradiction to its principle economic policy of maintaining a market economy”

Actual Practice:
Germany demands offset from German subsidiary in Switzerland

Jordan looks to the gulf for an offset policy

Jordan is making local production a condition of defence procurement “as much as possible.” The Kingdom might waive the obligation however if...

Airbus puts the squeeze on South Africa

Airbus Military has threatened to pull out of an industrial partnership that would be implemented should the company win an order to supply South Africa with eight A400M heavy-lift freight planes. The order was cancelled last November. Airbus continues to hold on to the deposit.

China accepts Malaysia’s countertrade and technology transfer terms

Malaysia’s MoD is considering the acquisition of more weapons from China under the 10th Malaysian Plan. Defence Minister Datuk Seri Dr Ahmad Zahid Hamidi said that his ministry was now more willing to purchase arms from China.

Oil-for-loans swap provides China with a greater share of Ecuador’s oil

China and Ecuador are set to deepen their energy relations with the signing of an oil-for-loans swap that will see Ecuador receive a $1bn credit line from the China Development Bank in exchange for 36,000 barrels per day of oil.

Main headlines from this issue

Procurement famine – so Bulgaria re-writes the rule book

How do you generate offset projects during a procurement famine? Bulgaria believes it has the answer. The government has introduced pre-offsets that will be valid for seven years...

Greek MoD has eureka moment

The Greek MoD has for the first time disclosed details of its offset contracts. The ministry has signed 117 contracts since the policy was introduced in the 1980s. Of these, 32 are active and 85 offset contracts have expired.

UAE’S guidelines: a little more light

Particulars of the new UAE offset guidelines are becoming clearer, though different people seem to have different versions, depending on what they have discussed with Offset Programme Bureau (OPB) executives. What is clear is that the new hybrid input/output policy...

Australia’s Defence Priority Capabilities outlined in policy document – “offsets are costly and counterproductive”

Government papers are rarely brief, and their titles are invariably lengthy. The Australian government has outlined in great detail within a 122-page defence policy statement its Priority and Strategic Industry Capabilities.

MALAYSIA: ‘MIGHT’ sees many opportunities for reciprocal benefits in non-defence sectors

Malaysia currently has potential offsets or counter-purchase programmes from at least ten procurement projects. The purchases include the acquisition of electric railway systems and military vehicles, as well as ...