CTO Newsletter

Main headlines from this issue

European Commission engages with Offset…but dare not speak its name

The most conspicuous feature of the new European Directive on Defence and Security is what it lacks: there is no explicit mention of offsets. Yet, in an extraordinary turn of events the European Commission brought the issue sharply into focus one week before the GICC conference when it offered a hellfire sermon on the theme that all offsets are illegal.

European Directive gives Hungary A Dilemma

Dr. Ábel Garamhegyi, Hungary’s Special Envoy of the Prime Minister, expressed concern at the European Commission’s interpretation of offsets as an illegal activity. He made the telling inference that a question of legality is supposed to be steady. An interpretation is not supposed to change day by day.

EDA to publish study on use of abatements

Arturo Alfonso-Meiriño, the European Defence Agency’s (EDA) Director, Defence Industry and Market Directorate, disclosed that the agency has conducted an in-house study on the use of abatements and swaps.

Portugal adapts policy after scandals capture headlines – ‘Evolving Multipliers’ Introduced

Ambassador Pedro Catarino declared that the Portuguese Offset Commission, of which he is President, is now prepared to take a more interventionist and proactive approach in the construction of offset programmes.

Malaysia signs a convoy of agreements, but no contracts until the benefits are agreed

Eight contracts, five MoUs, three Letters of Acceptance (LOA), and four Letters of Intent (LOI) were signed...

Main headlines from this issue

Hello DESO, Goodbye EDA – Dramatic post-election shake-up if Conservatives win UK General Election

In an email to CTO ahead of the May 6 general election, Gerald Howarth, the UK?s Shadow (opposition) Defence Minister, said that a Conservative government would include offset strategy in a major reform of the way the country provides defence capability......

Bulgaria to introduce new guidelines pre-offset credit banking allowed

Bulgaria has decided to allow pre-offset activity, introduce credit banking, scrap all multipliers, and to cap its offset requirements at 100 percent of contract value.

Israeli / Turkish industrial cooperation extends to Colombia

Israel and Turkey are together promoting third-country exports of refurbished M60A1 main battle tanks despite political differences that have threatened the strategic ties between the countries.

Russia secures foothold in Latin America

High level meetings have taken place between Russian government officials and their counterparts from several Latin American countries that will result in compensation (buy-back) structures and other forms of reciprocity.

India: Senior IAF officer calls for national aerospace technology poicy

Indigenisation is not happening fast enough. ACM Barbora believes that the aviation sector is a vital part of India?s economic growth and noted that: ?While China produced an entire Airbus, some of our state-run firms like HAL supply only doors or undercarriage for passenger jets\.

Main headlines from this issue

South Africa’s $114bn Industrialisation Programme: 30 percent offset target as NIPP and CSDP merge

The results of South Africa’s policy action plan, launched in February, are starting to become clear but questions still remain regarding ....... Contractors may face a bare-knuckle fight to comply under a complicated policy that is forever adding further features.

Australia and the accidental global supply chain

Australia’s new defence procurement battle lines have apparently been re-drawn. Minister Greg Combet said that the Global Supply Chain, or GSC programme, was an initiative that did not form part of the practical initiatives identified to enable Australia’s defence industry to be competitive.

India will criminalise telecom vendors failing to transfer technology

India’s Department of Telecommunications has declared mandatory the transfer of technology from equipment vendors to Indian manufacturers selling equipment to any operator.

Canada’s space programme attacked for absence of domestic benefits

The message was glum. Canada is moving ahead with a C$27m ($26.7m) space programme that industry representatives say provides almost no direct benefit for domestic firms.

Events Diary – Complete Details in This Issue

Events Diary – Complete Details in This Issue...

Main headlines from this issue

Taiwan insists “F-16s must have industrial cooperation”

Taiwan's defence ministry has denied a report claiming that the administration of President Ma Ying-jeou has abandoned a project to assemble 66 F-16s in Taiwan. The ministry said that the U.S. Government has already included in its pricing letter an industrial co-operation programme related to the purchase of C/D versions of the fighter jets.

Canada still adjusting its policy

Since introducing its revised Industrial and Regional Benefits (IRB) policy last October, Industry Canada has been busy applying a steady drip of important new amendments. The changes affect credit banking, direct offsets, multipliers, and more...

Slovenia: Review of a policy in decay

Dusan Bevc, Head of Business Network International’s Industrial Cooperation Group, suppressed nothing as he lay before his audience a litany of shortcomings in his country’s offset process. Slovenia’s policy might be on the way to comfortable irrelevance.

Positive signs following Greek MOD discussions on penalties

 A Greek daily newspaper reports that following an internal Defence Ministry summit chaired by Deputy Minister Panos Beglitis an approach has been found to defuse the standoff between the MoD and defence contractors with offset obligations.

Ecudor and Uruguay reach agreement on bilateral oil barter

Ecuadorian President Rafael Correa has agreed that Petroecuador will supply Uruguay with 360,000 barrels of crude. In exchange, Ancap will provide Ecuador an equal amount of gasoline. Mr. Correa described the deal as a step toward regional integration.

Main headlines from this issue

South Africa’s NIPP and CSDP to be merged – NIPP to become a pre-tender process

The S. African government has launched a wide-ranging policy action plan to develop the relationship between its National Industrial Participation Programme (NIPP) and the Department of Public Enterprises’ Competitive Supplier Development Programme (CSDP). The move would transfer a range of key purchases for infrastructure programmes to......

India sends mixed signals about ‘Fuzzy Offsets’

Speaking at the DRDO Technology Day Awards Ceremony, India’s Defence Minister, A.K. Antony, stressed the need for self-reliance. He urged the public and private sectors to work together to create modern facilities with a large manufacturing base. It was time for the DRDO to shed its reticence about working with private industry, he said.

Blenheim applies for UKFSA and MIFID Authorisation

In a tactic designed to outpace competitor offset service providers Blenheim has submitted an application to the UK Financial Services Authority to be regulated by the FSA. It is also seeking authorisation for a Markets in Financial Instruments Directive (MiFID) passport.

Indonesia: “We need more offsets”

Indonesia’s Defence Minister has called for the regeneration of strategic industries ..... Although Indonesia has no formal offset procedure, it is now government policy to extract benefits from foreign suppliers of military equipment to support indigenisation and acquire technology transfer......

EDA says code is already making a difference

An European Defence Agency bulletin comments that offset remains one of the most controversial practices in defence procurement, frequently inefficient, unnecessarily duplicative, and market distorting. Yet, it says,......

Main headlines from this issue

EU’s pillars of wisdom produce piles of legal confusion

The EU’s Defence Procurement Directive makes no mention of offsets, says Dr Aris Georgopoulos, Head of the Research Unit on Defence at the Law School of England’s University of Nottingham…… because they fit the EU definition of an “obstacle to trade” and are therefore incompatible in principle with EU law.

Bulgaria legislating for major policy changes – no more multipliers

Bulgaria’s Council of Ministers plans to approve legislative amendments within two months to remove offset coefficients, cap the quota to 100 percent of purchase contract value (100 percent is currently the minimum level), and allow pre-offset activities and the banking and transfer of offset credits.

Colombia: Obligors will feel the pressure as agency begins to bite

Colombia’s offset policy is youthful, originating in 2007 and modified a year later. Already, though, it is showing signs of stress…. Obligors don’t have to pay the penalty until the fourth year, so after two years they get a timely kick in the pants.

Israel looks to the North and to the South

Israel’s Industrial Cooperation Authority (ICA) is focused on generating investment in the country’s northern and southern regions. Gabriel Golomb, the ICA’s Deputy Director General, spoke of the importance of improving employment opportunities for SMEs in those peripheral locations.

*Joel Johnson predicts “Revolt of the Defence Ministries”

His theme this year broadened to claim, humorously, that nine of the fastest growing defence companies are in Europe and more than half of them are buying U.S. companies.
\Finmeccanica has bought DRS [Technologies] Fincantieri bought shipyards BAE [Systems] buys everything that’s not nailed down EADS is very slow for some reason that we can’t figure out.\"

Main headlines from this issue

Tempers and conciliation as Greek defence minister promises Offset reforms and renegotiated contracts

 A two-day conference in Athens was the site of stormy scenes at the end of January. The event featured an unbilled slanging match and a walk-out starring an irate protagonist and an outraged government minister. The conference focused on the Greek MoD’s threats against foreign defence contractors who are experiencing difficulties with their offset commitments. The outcome was positive however, even if the process was ugly.

Rosoboronexport pulls back the curtain to reveal Russia’s Offset process

As the day unfolded it was impossible to avoid a political irony. The Deputy Director General of Rosoboronexport, Viktor M. Komardin, was telling us candidly how Russia’s commercial state-owned arms exporting agency responds to the offset demands of its global consumers. He was far more open, it must be said, than many government agencies are prepared to be in Western Europe.

EDA to address abatements

Peter Scaruppe, Assistant Director, Industry & Market, at the European Defence Agency (EDA), informed conference delegates that the next step to be addressed by the Steering Board will be the abatement issue.

Pakistan and Philippines negotiate rice for sugar barters

Pakistan is negotiating a bilateral government-to-government barter agreement with the Philippines.  Pakistan would supply rice; the Philippines would ship sugar.

Indonesia and the U.S. in second debt-for-nature swap

As part of worldwide efforts to reduce climate change, the United States is negotiating a debt-for-nature scheme with Indonesia that will help conserve the country’s forests.

Main headlines from this issue

Fourteenth Annual Offset Report to congress reveals falling values, rise of directs

The fourteenth Annual Report to Congress on the Impact of Offsets in Defence Trade has revealed a large drop in the value of new offset agreements. In 2008, fourteen U.S. defence contractors reported making 52 new offset agreements with seventeen countries. The deals were valued at $3.48bn, an amount equal to 57.1 percent of the total $6.10bn in reported foreign defence sales.

Portugal lightens up on Ferrostaal: Ferrostaal not impressed

As offset punch-ups go, this was shaping up to be a good one. Now Portugal?s Permanent Commission on Offsets (CPC) wants to settle its differences with Ferrostaal and has told CTO that it is hopeful a negotiated solution can be found. 

Czechs buy without Slovakians, Offsets not shared – YET

The Czech Republic and Slovakia announced last October they had reached agreement for the joint purchase of 130 Iveco light armoured vehicles, with the offset benefits to be shared proportionally between them. The Czech MoD has now concluded a contract for 90 Iveco light armoured vehicles, but they have gone ahead alone.

South Africa: Supplier Development Programme to be tightened

A key priority of South Africa?s industrial policy action plan will be to ensure the local procurement of goods and services required for the country?s infrastructure development. The building programme is being undertaken by, among others, parastatals Eskom and Transnet.

India: No Offset funny business, says Singapore Technologies

Reports of a Singapore arms firm being 'blacklisted' in India on corruption charges are far from being so, said Brig. Gen. Patrick Choy, Chief Marketing Officer of Singapore Technologies Kinetics (ST Kinetics).

Main headlines from this issue

Switzerland: Armasuisse forced into private sector partnership – multipliers swept away

Armasuisse, the body responsible for managing Switzerland’s offset programmes, has been formally relieved of some of its functions. It will now share responsibility with two trade associations. The guidelines have been revised and multipliers will no longer be awarded.

“France does not Offset!” But French boast is toast as BAE wins order

It’s enough to make a Frenchman choke on his morning croissant. The French government has bought its first piece of military equipment from Britain in decades. The procurement would not have happened without a highly significant amount of industrial participation for French industry.

America’s BIS overrules objection and imposes new reporting requirements for annual offset report to congress

While Santa was climbing down the country’s chimneys on Christmas Eve, America’s Bureau of Industry and Security (BIS) dropped its own gift on the defence industry...

Portugal signals new focus for 2011, stops giving “cabbages”

Portuguese Defence Minister Augusto Santos Silva, who was appointed in October, has announced that from 2011 “the automobile industry - included in the offset package for the purchase of the German submarines, with controversial results - will cease to be included in these processes.”

Chinese / Venezuelan development fund has regional outreach potential for China

China and Venezuela have established a $12bn development fund, with China contributing $8bn in exchange for Venezuelan oil. The fund will also help finance infrastructure projects in Venezuela.

Main headlines from this issue

Embraer’s agreement with China’s CDB masks a fight between orders, deliveries and offsets

Embraer has agreed terms for CDB Leasing Co. to finance the leasing and purchase of aircraft for up to $2bn over three years. Without the agreement Embraer would not have been able to sell more aircraft to China...

Switzerland: Armasuisse forced into private sector partnership – Multipliers swept away

Armasuisse, the body responsible for managing Switzerland’s offset programmes, has been formally relieved of some of its functions. It will now share responsibility with two trade associations. The guidelines have been revised and multipliers will no longer be awarded.

Local content discrimination in South Africa rattles Areva

Deconstructing the title might have caused a few headaches, but the meaning of a presentation on ‘Local Content: An Abstract Combinatorial Game of Strategy’ soon became painfully clear.

South Africa: “Controversy on the SDP has compromised fruitful debate” – “Shipbuilding was a missed opportunity”

Professor Richard Haines said that controversy surrounding the SDP has compromised fruitful debate and an exchange of ideas about the conception and implementation of NIPP and DIP. The relevant government agencies often feel under unfair fire.

“Industrial partnership programmes for Sub-Saharan Africa are long overdue”

Dov Hyman, CEO of Dolin International, decried the fact that very few countries in sub-Saharan Africa have developed industrial participation programmes...

Venezuela invites Uruguay to exchange goods for oil

\It would have been unimaginable only a couple of years ago to think that Venezuela would turn to Uruguay for support but times have changed.\"

Main headlines from this issue

Special Report on South Africa: Armscor raises the BEE barrier – COTS might escape DIP

Armscor, which manages Defence Industrial Participation (DIP) programmes on the defence side, is presently rolling out new policy initiatives. The new approach will require further support by foreign prime contractors for the Black Economic Empowerment (BEE) programme and close some loopholes in the offset guidelines.

DTI introduces ‘Direct NIP’

National Industrial Participation (NIP) projects, which used to be unrelated to the tender, must now match the policy of S. Africa’s Competitive Supplier Development Programme (CSDP).

BEE, NIPP and DIP – It really is a complex mix as the CSDP takes root

South Africa’s Competitive Supplier Development Programme (CSDP), a Department of Public Enterprises initiative (DPE), was introduced only a year ago and is now starting to take effect…

GEN. SCHÜR says SDP offsets “Brought incredible benefits to South African industry” – and Denel has reached break even

Maj. Gen. (ret’d.) Otto Schür, formerly Chief Director of Acquisitions at the Department of Defence, presently Denel’s Chief Technical Officer and very much an insider as events unfolded, told conference delegates …

A400M offsets were on ‘Best endeavours’ basis

Maj. Gen. Schür said the contract received for Denel Saab Aerostructures and Aerosud as well as for Saab Grintek Communications for certain components on the aircraft are one-on-one contracts under a “best endeavour” industrial participation clause.

Main headlines from this issue

SPECIAL REPORT: Portugal at war

First it was the Greek honey trap, now Portugal is at war. Weapons are involved but so far the battles have been restricted to legal offices—as well as police raids, wire taps, and public allegations of fraud. The source of the conflict is the German Submarine Consortium’s (GSC) alleged failure to discharge offset commitments. Germany’s MAN Ferrostaal is the prime contractor.

Russia to pay for Thai rice with crude oil or ammunition

Thailand’s Commerce Minister, Pornthiva Nakasai, has disclosed that Russia....

Brazil asks Israel to establish local defence production facilities

Israeli President Shimon Peres and Brazilian Defence Minister Nelson Jobim have discussed expanding the two countries’ economic cooperation.

Danish confederation of industries is upset with lockheed

The Danish Confederation of Industries (DCI) has written to the defence and industry ministers demanding guarantees that the Danish government insists on both industrial participation and buy-back when it buys its next generation of fighter aircraft.