The possibilities of change of the institutional approach to armament’s purchase. Armament’s Export forecasts

PUBLISHED AT: Monday, 06 October 2014, 16:47
Jarosław Kruk

The purchases currently made by the Polish army - as well as the army's plans for the future attract a widespread criticism. Apart from the charge of purchase of 'poor equipment' – which is understandable, because each producer has its sympathizers and lobbyists – other grievances  regarding mainly the lack of a consistent purchasing strategy and on buying sometimes tanks, sometimes aircraft, etc. What is more, the Ministry of National Defense is alleged to not to take into consideration logistics, issue of spare supply, and after-sales service etc. as a criteria in the selection process. Nobody seems to be thinking about the future development of the weapons systems.

 

Certainly, a significant part of charges are justifiable. While weapons are bought nobody takes into account the cost of maintenance, and their lifetime costs remain completely overlooked. There is an information about an order in Mesko for 15,000 of high explosive shells for the Leopards.

At the same time there are alarming information that only around 50 of the tanks are suitable for combat, each of which has no more than 6 armor-piercing shells.  Other  document issued by the Ministry of National Defense states that the maintenance costs of the F-16s are 150 percent higher than those of the MiG-29 and there are more instances of such "issues". What characterizes all of them? The lack of consultation with the military logistics  or  industry during the process of purchase  It is worth remembering that the purchase price of weapons is only about 20-30 percent of the expenses related to its use during the so-called "product lifecycle".

If everything does not sound so rosy, perhaps it is worth to think about setting up an Armament’s Office – as a central body subordinated to the Ministry of National Defense which would coordinate the purchases, maintenance, and modernization of military equipment. In the Polish practice, the specialized administrative bodies manage better than giants. The head of such office should be civilian and the deputy heads should be military man, with one of them necessarily specializing in logistics. The Armament’s Office should have the opportunity to consult the secret services, including those operating abroad, and establish close cooperation with the Ministry of Economy and the Ministry of Treasury in order to strengthen the production capacity of the Polish defense industry. The offset could be subject to this Office, although I sustain position that the Ministry of Economy is the best place for offset

Recently, the Ministry of National Defense has astounded me with its inefficiency during negotiations. During negotiations on the modernization of the Leopards, the Ministry excluded one of the two German competitors who have the authorization to modernize the tanks. As a consequence the attitude of the last one toward the industry's expectations is rather haughty.

I bet dollars to box of champagne that in fact we will not achieve the 50 percent of Polish participation in the modernization, unless it will be a participation of the total mass or participation in number of elements, and not of the contract value. Things look similar in the case of the Wisła Program. For political reasons, the American supplier are most likely to win it, I evaluate it at 90 percent chance, and since there is only one American supplier in this tender, its  position  toward the industry is as follows: “Your are not the one who decide on the order, but if you will behave well maybe you'll get something out of it”.  The question is what the Polish industry will get.  I hope that it will get something more substantial than the “dismantling of boxes in which the equipment was delivered”. The Ministry of National Defense at its own request, is depriving of all opportunities for effective negotiation and bargain for profitable contracts.
The question is, if it’s deliberate policy or neglect? Every negotiation guidebook, not to mention serious titles, describes situations in which the definite favorite who doesn’t feel breath of competitors on their back is the least inclined to make concessions.

Unfortunately, somehow it worked out that the export of Polish armament seems to be frozen. Among the private companies, Lubawa and WB are doing well. The situation of the state-owned companies is worse. There are several reasons of this, among others: the lack of not bad and modern products and licenses. It is worth noting that the private companies are successfully dealing with this problem by producing the goods and technologies that are sent also outside the traditional recipients of Polish export. Another reason is the lack of a consistent state policy concerning for example the setting up of reserves of armament. Thanks to such reserve the ammunition could be sold from the stock (as the biggest producers do) and the sold ammunition could be completed with the production. It would provide assurance of work for producers.  

And finally , who knows, if  the loss of credibility by Bumar was the most significant failure due to the fact that  this trade name represents Poland on the market as a reliable supplier.  On the traditional market of developing countries the trade with the state-owned or state-backed suppliers is preferred. Confidence is appreciated and contractor cannot afford to lose the face. We have already lost our face and our confidence  in 2007. One year later we observed sudden collapse in the armament export. The actions of  the "young" management board at that time were very helpful. This management board has left tender memories in some building at 26 Stromynka Street in Moscow. In years 2008-2013 it was impossible to rebuild this confidence. Some of the “advisory” agreements signed at that time were very far from meeting standards accepted in the industry. Unfortunately  the time the PHO will be “blacklisted”  by the biggest importer of armament is coming in strides. If it entail blacklisting of the whole of state armament industry? I hope not. Pegaz will have another problem to solve, namely the references. Since it is not the legal successor of the PHO, could not make use of them, after all Bumar have already delivered something. It only remains to use the consortia and references of individual producers. There is a chance of winning something with these, but it will not be so easy.
I hope that Pegaz will manage to restore the confidence on the markets and it will be able to offer modern products.

Jarosław Kruk
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