A couple of words on the Polish national armament export development

15 czerwca 2016, 11:52
Fot. MON/Wikimedia, Domena Publiczna

Within the last two months members of the Management Board of PGZ have given a few interviews on the future and development of the Polish armament industry; the Pegaz strategy has been presented. Additionally, the Vice minister of the National Defense, Bartosz Kownacki responsible for the armament, has given an interview.

The future of PGZ under the present management is bright in all these interviews. Also, a need for conquering external markets has been indicated emphasizing that export of the Polish arms does not exist in practice. Minister Kownacki has pointed to several possibilities of developing export – our closest markets, post-Soviet markets where we could actively participate in the modernization of the arms, and own sale of Pegaz as well as the participation in the international supply chain.

The option mentioned as the last one becomes fully realistic when, through smart and efficient negotiations, one attempts to combine the participation of foreign suppliers in the program of the Armament Forces modernization with the supplies of Polish subsets or even ready products for the needs of these concerns. The contract for the supply of Rosomaks via the Patria commercial network is very constructive; naturally, it may be claimed that the greatest portion of the margin will be collected by the foreign business partner, but if own efforts prove fruitless, this solution is perfectly fine, then. As regards the post-Soviet arms modernization, we have a few successes on our account, e.g. renovation of Bulgarian Mig 29.

The market is difficult, though. The Opponent well-entrenched, strong and with resources, so any success in that area will be difficult. Supplies to the neighboring countries, members of NATO, may prove more successful. It is worth noting at this point that the Polish defense industry (private) has been very successful in this area; maybe we’d better consolidate forces, and try to do something that makes sense, e.g. assembly of Rosomaks that may in some countries replace BTR - 80 and the like. As for the post-Soviet equipment modernization, a question must always be asked - is the modernization used by our army and can we be better in this field than Israeli companies?

In the interview Mr Maciej Lew-Mirski said that PGZ will completely resign from the agency contracts, the number of which -  as he said - exceeds 100 and some are exclusive; as for the promotion and sale of the Polish arms industry products,  the Polish diplomacy will be involved. He announced a comprehensive corporate approach to the problem of agency agreements and super-activeness of PGZ, participation in tenders, the development of own representative network,  etc. This very innovative and bold approach is expected to build a national defense industry export in a short time. As for the participation of the Polish diplomacy in the arms exports, let me be very skeptical. Firstly, our diplomacy has no experience of it to date, so they can’t do it well - an example is the total lack of support of the Polish enterprises in gaining orders in the United Nations (tens of billions of dollars per annum).

Secondly, soon ambassadors and diplomatic personnel are expected to change at a large scale, whereas new people just need to get to know local conditions before they can do anything. Of course, one needs to use diplomacy to support the efforts, lobby for the Polish offer, etc., but diplomacy alone will not lead to the sale of arms, because nowhere in the world diplomacy alone sells weapons. Diplomacy will not be able to indicate what specific industrial cooperation or what offset is currently most desired by the General Staff / the Ministry of National Defense of the importing country, or in what particular solution for some equipment the local military staff is interested.

As for the total departure from the agency agreements, there is a need for negotiations and arrangements on both sides. Of course, some contract are signed by the so-called "runners", whereas other contracts are signed by major players with excellent relationships in their countries, a strong position and good lawyers.

Recently, in one of the distant countries the legal system of which is derived from the common law, which bought a significant amount of our equipment in the past, an exhibition of armaments has been held which is considered significant in that region of the world. The Polish delegation participated, including a prominent representative of Pegaz, director .... He held talks with the local entity with which Pegaz has concluded a contract, he expressed some wishes of the Polish side - they immediately fulfilled those wishes, he referred a lot to our Minister of Defense, by which, as it can  be heard, they were amazed, because they have their own Minister of Defense, and ours is of little interest to them. As it can be heard from there - they have been promised something but so far this promise has not been fulfilled, their queries are ignored, etc. It turns out that this person along with the whole PGZ have lost their face, whereas in this country you can’t do business with people who lose their faces. It is easy to imagine the legal steps taken by the other side.

They file a PI motion with the local court requesting security by prohibiting Pegaz from offering certain products on the local market. They show documents which prove that PGZ ignores the partner, and most probably they obtain such security. Then the proceedings slowly move to  arbitration on account of the inflicted damage. Such a judgment issued by the local court will completely eliminate PGZ from the local market and diplomacy will be helpless, a month-long visit of our Minister of National Defense, etc. will be of no avail. The situation will not change, because there judgments of the courts are respected, which is typical of the common law countries. When will this happen? Probably as soon as they are ready with alternative suppliers (and they feel ignored by PGZ) or PGZ directly offers these products to the local Ministry of Defense. It should be mentioned that Bulgarian and Turkish competition has seriously reviewed on that market.

As for the greatest importer of weapons in the world, the development of the situation on this market does not have to be favorable for us. In this country it is legally prohibited to use agents when concluding contracts for the purchase of weapons. Recently, the industrial cooperation and offset has been increasingly important. The catchword made in India has been increasingly popular in practice. We used to sell a lot of our equipment WZT-3, etc there. Around the Baltexpo date a meeting of the Polish-Indian commission pertaining to the defense cooperation is scheduled to be held. In my opinion nothing unexpected will take place. The other party is not ready with its position yet on what to do with  the contract for WZT-3 which has not been performed by the Polish party. As for minor contracts, it has already taken decisive steps, it took the PHO guarantees;  hopefully, it will not take any further  radical actions in this regard.

They must be waiting for specific  proposals from Poland, WZT 3 Łabędy enjoys popularity there and it is certified by the local army, and as one may know, certification of new equipment may take more than 10 years there. Therefore, there is a chance for renegotiations and performance of the contract. Much can be said about the intentions of the other party on the basis of  the composition of the delegation, and I hope that our party is well prepared for specific talks and it does not attempt to disappoint the delegation at Baltexpo to get rid of the Hindu problem. On a side note, cooperation in the maritime area is virtually nonexistent. All the time there is a risk that  PHO  followed by PGZ will be blacklisted suppliers because of a failure to perform contracts. The other party has turned to the local respected law firm- rendering services to the army since the times of the first vice king of India -to analyze the transformation of the Polish state arms industry and such an analysis has been carried out. In addition, I can also imagine that the structures of our opponent may want to help in our permanent elimination from the local market.

A Saudi friend has recently told me how the delegation of the local Ministry of National Defense felt honored when it was hosted by the director in PGZ, excellent professional, but a woman ... and nobody else from the leadership showed them interest.

In general, the sales of  arms abroad requires a combination of different methods: having one’s representatives in key countries who are well familiar with local realities, cooperation with local service providers rendering agency services and assistance in the field of industrial cooperation, which is increasingly important, and lobbying on the part of the  diplomacy and the Ministry of National Defense.

Hopefully, the announcements of Mr Lew Mirski do not share the fate of the announcements of  Mr., Nowak at the  MSPO fair, who promised each year that export would start off the following year, and we all know how much truth there was in those words.

Jarosław Kruk

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