CTO Newsletter

Main headlines from this issue

Kuwait offset program: Contractors left hanging as program suspended – Validity of bank guarantees questioned

The decision of Kuwait’s Council of Ministers to transfer responsibility for management of the country’s offset program from one government agency to another, to disconnect the Ministry of Finance from the National Offset Company, and to suspend the entire civil and defence program, has caused immense confusion. No-one has come out with an official statement or clarified the situation to foreign contractors.

Poland appoints a Brigadier General to head the MoD’S offset bureau

The Polish government has appointed Brigadier General Stanis?aw Butlak to head the offset bureau at the MoD. The high rank demonstrates Poland’s commitment to continue crucial offsets under the country’s defence procurement policy.

Canada: Bidders must overachieve to get maximum points – secretariat staff arrangement now in place

According to a recent RfP Canada now appears to expect companies to over-perform in order to receive maximum points in their contract bids…… An initial secretariat staff arrangement is now in place in Public Works and Government Services Canada to support the early implementation of the Defence Procurement Strategy.

South Africa: Denel seeks civil benefits

Denel Aviation is holding discussions with government departments in South Africa to participate in offsets arising from the acquisition of new fleets by South African Airways and South Africa Express Airways.....

Canada: F-35 work rises significantly

Industry Canada has tabled a report identifying the value of work that Canadian firms have secured on the F-35 as US$587m. That is an increase of $83m over the results published in the fall 2013.

Main headlines from this issue

Kuwait: Civil and defence offset policy suspended – MoF Cancels NOC contract

Kuwait’s Council of Ministers has passed a resolution suspending the offset program on all government defence and civil procurements, current and future. The decision reflects the council’s recognition that the Kuwait Direct Investment Promotion Authority (KDIPA) is not ready to manage the offset program, and won’t be for some time.

Turkey’s civil program: different guidelines for different ministries

The Turkish government has decided that each ministry participating in the new civil industrial participation program can apply its own offset policy. There will be no central authority. The penalty for non-performance has been set at.....

South Africa: AMD study finds DIP has delivered the goods – Policy review imminent

A review of the DIP policy is imminent following the release of the South African Defence Review 2014. We are told that the Defence Review still needs to be approved by Parliament and only then might Armscor re-evaluate the current DIP policy to ensure alignment with the document.

South Africa: Leaked letter – two evidence leaders challenge Arms Procurement Commission’s credibility

Two evidence leaders have accused the commission of deliberately excluding them from meetings, and challenged its credibility.....

Japan: MHI’S F-35 participation “Nowhere in sight”

Mitsubishi Heavy Industries’ swelling participation in the F-35 stealth fighter program could be delayed for the second straight year by an intra-governmental spat over subsidies.

Main headlines from this issue

Poland’s largest arms procurements will not be based on fully competitive tenders: “We will rely on Article 346”

The Deputy Defence Minister said that Poland's largest arms procurements, the missile defence program, the acquisition of military helicopters, and the requirement for unmanned aircraft, will not be based on fully competitive tenders because they would not allow the government to impose requirements such as “Polonisation.”

Spanish IP policy: “I am not allowed to explain anything”

Spain’s industrial participation policy remains a mystery even to personnel at the MoD. Nobody seems to know what the policy is or what effect the recently announced organisational restructuring within the MoD will have on existing industrial participation contracts.

Feisty MP tells Seriti Commission “all offset deals are crooked”

Judge Willie Seriti has begun phase two of the commission’s public hearings by calling Cape Town Mayor Patricia De Lille to testify about the allegations she presented to parliament in 1999 when she was an MP.  “You cannot thumb-suck something because you want to sell this deal to the country…”

McKinsey raises the bar on offsets but should consider a different kind of bar

Although they are not usually reported in annual filings, offset contracts are increasingly becoming a C-suite agenda item, says McKinsey & Company in an insight report on the industry.  The report is replete with banalities.....

Kenyan law imposes 30 percent partnership quota for construction projects

The regulations restrict the categories of work open to foreign contractors and also stipulate that foreign contractors must either enter into joint ventures with local contractors or locally subcontract a percentage of the work.

Main headlines from this issue

Indonesia’s new strategy is slip-sliding away

Indonesia’s countertrade and offset guidelines appear to be in trouble. The guidelines are ready but will not address some key issues because the government has not agreed on some aspects of policy, and are concerned about a lack of experience in application.

Kuwait to suspend civil offset policy

Kuwait is understood to be placing its civil offset policy on hold. The suspension is expected to be confirmed later this year and to last for up to a year. Government officials declined to comment. The policy has been in force since 1992.

EDA surrenders – offset portal closed

The European Defence Agency’s (EDA) offset portal is gone, victim to a boycott by disaffected member states.....

European Union paper sees small loophole in Article 346

A paper examining the application of EU law to defence issues has found a loophole in Article 346 TFEU. But states that it may be too small to squeeze through a fat offset contract.

Poland: President signs the new law

Poland’s President Bronislaw Komorowski has signed the New Offset Act. The Act will be published in the Official Journal and will come into force by early August.

Main headlines from this issue

Denmark’s new guidelines show determination – multipliers and penalty provisions retained

Denmark’s new industrial cooperation guidelines retain multipliers and penalty provisions, becoming one of the few EC member states to do so on a formal basis. A new National Defence Industrial Strategy has been issued in relation to the new guidelines.....

Substantial confusion remains as Poland’s parliament passes new offset law

Poland’s new offset law has passed through parliament and is expected to be signed into law by President Bronislaw Komorowski. Barring the unforeseen the new offset law will become effective by August.....

Polish government refuses to face contractors at DKF conference

The Deutsches Kompensation Forum (DKF) / Wierzbowski Eversheds conference in Warsaw, Poland, was knocked for six on June 30th as two key speakers pulled out, leaving more than a hundred delegates bemused but hardly surprised.

Turkey’s new civil offset policy gets prenuptial contract

Turkey is preparing to roll out an eccentric, convoluted, yet formal civil offset policy. The Turkish parliament has approved primary legislation to justify civil offsets. Five ministries will include industrial participation requirements in selective tenders from August.

Americans in a muddle over the Buy American Act

When the Buy American Act (BAA) requires the American administration at national or state level to use local content, does that amount to an offset? “American and foreign contractors are not speaking the same language,” said ECCO Chairman Christian Sylvain.

Main headlines from this issue

Frankenstein’s Law: Poland’s 100 percent penalties rise from the dead

Changes to Poland’s offset law will see the return of some eye-watering requirements. Penalties will be set at 100 percent of the non-performed or under-performed offset commitment, and the submission of a performance guarantee will be obligatory.....

New Vietnamese law looks at the technical submission of the bidders

Vietnam has announced that legislation enacted by the National Assembly last November to apply a new method of selecting contractors will take effect from July 1st, 2014. The law looks both at the price and the technical submission of the bidders.

South Africa: Arms Procurement Commission told bidders were hijacked with offset demands after they had won contracts

The government's chief negotiator for the 1999 arms deal, Jayendra Naidoo, told the commission that negotiators had to reduce the cost of the package and get \substantial and solid\" offset deals after the preferred bidders had been chosen. The bidders already felt they had won contracts and so were reluctant to improve their bids.

Philippines: more obligations as Health Ministry subscribes to policy

The Philippines International Trading Corporation (PITC), the management authority for the country’s countertrade and offset program, is seeing a surge in the number of contracts engaging in the process. The country’s Department of Health recently adopted the policy.

“Taiwan has no credit cap” – direct industrial cooperation requirement increased

Taiwan’s Industrial Cooperation Programme Office (ICPO) has firmly denied that the country limits the credits that may be issued at any one time to $20m. Several contractors had expressed concern at suggestions of a limit last year.

Main headlines from this issue

Kuwait moves the offset program from the Finance Ministry to the KDIPA – Official

Kuwait’s Council of Ministers has approved a proposal to move the offset program from the Finance Ministry to the Kuwait Direct Investment Promotion Authority (KDIPA). Offsets will be managed by a department within the KDIPA.....

Indonesia will award multipliers for offsets and for counterpurchases – high penalty provisions expected

Silmy Karim, a senior member of Indonesia’s Defence Industry Policy Committee (KKIP), has provided a clearer understanding of the requirements that defence contractors will face under Indonesia’s new offset and countertrade guidelines. In an interview with CTO.....

Oman: three candidates compete to head the ‘Partnership for Development’ program

Oman’s Minister of Commerce and Industry is understood to be putting three candidates before the Board of Governors to head the ‘Partnership for Development’ (PFD) program.

New Indian government to tie FDI cap to technology level

India’s Department of Industrial Policy and Promotion (DIPP) has proposed three different caps for FDI in defence: 49 percent, 75 percent and 100 percent.....

EC’s threats against member states in breach of Article 346 are all bark and no bite

Last December a Portuguese MEP, Ana Gomes, wrote an angry letter to José Manuel Barroso, President of the EC, accusing the EC of ignoring its own guidance on the prohibition of offsets under Directive 2009/81. Michael Barnier has replied...

Main headlines from this issue

Denmark halts defence contracts pending new guidelines

Denmark’s parliament has rescinded the country’s industrial cooperation regulations as it prepares new guidelines. Without legislation governing industrial cooperation large procurement contracts cannot be signed.

“Norway will retain its ‘special demands’ for industrial co-operation,” says MoD

John I. Laugerud, the Deputy Armaments Director at Norway’s MoD, is resolute that Norway will retain its “special demands” for industrial co-operation on procurements concerned with national security.....

Thailand: A fairy-tale barter brings down a Prime Minister

Thai Prime Minister Yingluck Shinawatra has been forced out of office and faces impeachment by the country's Senate. She has been indicted for dereliction of duty over her government's controversial rice subsidy scheme.

Qatar unimpressed with UAE offset program

A former U.S. ambassador to Qatar, currently President and Executive Director of the U.S.-Qatar Business Council, wrote in an article for the National Defense Industrial Association that Qatar is not particularly enamoured with the concept of offsets.

SAAB loses Swiss Gripen deal – fallow IP years beckon for Switzerland

The Swiss said goodbye to the $3.4bn procurement of 22 Gripen fighter jets as the referendum narrowly rejected the government’s planned procurement. Swissmem, the trade association that administrates offsets for Armasuisse, said the no-vote will deprive the Swiss economy of CHF 2bn of orders.

SAAB loses Swiss Gripen deal – fallow IP years beckon for Switzerland

The Swiss said goodbye to the $3.4bn procurement of 22 Gripen fighter jets as the referendum narrowly rejected the government’s planned procurement. Swissmem, the trade association that administrates offsets for Armasuisse, said the no-vote will deprive the Swiss economy of CHF 2bn of orders.

Main headlines from this issue

Switzerland: Gripen on the brink

A survey by the leading research and polling institute GfS Bern predicts a close result in the May 18th referendum on the procurement of Gripen fighter aircraft. A negative result would see shrinking offset volumes in Switzerland for the next two years before new armament programs begin to fill the gap.

India’s first ‘Buy and Make (Indian)’ RfP attracts significant interest

The Indian Air Force has issued an RfP seeking participation from domestic companies in a proposed $1.2bn programme to manufacture 106 Pilatus trainer aircraft. Several private sector Indian defence manufacturers have expressed an interest. The RfP was described by the defence industry as the first tender of its kind.

New Saudi appointment promises vigorous civil offset program

Abdul Rahman al-Zamil, who was previously a board member of the MoD’s Economic Offset Committee, has been appointed Chairman of the Council of Saudi Chambers. His first statement as chairman was to announce that a new economic offset program for civil contracts will be introduced after it has been tested for military contracts.

South Africa launches new initiative to stimulate black participation in localisation programs

A new business organization, the Industrialisation Supplier Development Association, has been launched…...ISDA is tasked with improving prospects for higher levels of local content in South Africa’s multibillion-rand infrastructure programme.

Russia orders compensation initiatives to boost exports

President Vladimir Putin said the easing of central controls together with initiatives to encourage the use of loans; debt repayment initiatives; offsets; and industrial participation should be employed to support Russian military exports.

Main headlines from this issue

Indonesian guidelines demand commodity counterpurchases

Indonesia will publish the official text of its offset guidelines, just three months ahead of the presidential election. A spokesman confirmed that counterpurchase, as distinct from offset, will be a significant component.

Colombia heading for one hundred projects

Colombia, which took its first step towards a formal offset policy in 2004, has signed 47 offset framework agreements so far. Those agreements are worth $2.5bn. About 40 complimentary agreements are worth $1.5bn.

Brazil has noble ambitions, but are they legal?

Three Brazilian presentations left the audience somewhat bewildered. A new National Policy for Offset Agreements, known as PNAC, is awaiting final approval, we were told; new thresholds will be announced on the military side and for different civil sectors. The Ministry of Health and the Ministry of Development, Industry and Foreign Trade are preparing for Brazil’s first mandatory civil offset requirements.

The future for offsets and countertrade

Close to $500m has been or will soon be invested in developing partnerships between leading universities, offset obligors, and recipient countries. Those partnerships in turn are creating global technology parks.

Poland’s defence minister encourages ‘Polonisation’

Poland’s Defence Minister, Tomasz Siemoniak, said that more than half of the Defence Ministry's asset spending goes to domestic suppliers because Poland wants to develop its own industrial potential. Foreign procurement programmes now being implemented therefore call for the involvement of domestic companies.

Main headlines from this issue

The defence directive: Burkard Schmitt sanctions unsolicited offers

Sometimes a presentation leaves you with a big, dumb, grin on your face. Dr Burkard Schmitt, the European Commission’s defence expert at the Internal Market and Services Directorate General, wore his well when he responded to questions with silence after speaking about the current state of the EU defence directive and its impact on offsets.

South Korea: DAPA’s new guidelines put the spotlight on SME exports

South Korea’s Defence Acquisition Programme Administration has revised its offset policy to reflect further emphasis on SME participation and the export of manufactured products. The policy now puts less emphasis on technology transfer.

Poland: soon there will be clarity… followed by confusion

The offset regime is still technically in place and yet the government is already negotiating using the projected rules that are set to come into force.

Kuwaiti court confused by allegedly untruthful submissions

A court in Kuwait hearing an application to rule the National Offset Company’s status void was thrown into confusion by a submission by the NOC’s lawyer…..Then the other side submitted a Ministry certificate allegedly confirming that submission invalid.

Malaysia to revise program management structure on the civil side

Malaysia is planning policy revisions to its national offset policy that will include implementation phases.

Main headlines from this issue

Kuwait’s NOC must prove its case or face closure

A court in Kuwait has called the National Offset Company to present its case at a hearing on March 27th in response to an application that the company’s status be declared void.  A legal team will argue that the NOC is in breach of decrees that led to the establishment of the NOC and to the transfer of the offset program from the Ministry of Finance to the NOC.

The directive: Barnier ignores pleas on subcontracting, pushes ahead regardless

A conference in Brussels on February 24th heard offset delegates express their concerns to senior EC officials in an open and frank debate about the sub-contracting provisions of Directive 2009/81 EC.  Just eight days later Brussels re-convened…..Commissioner Michel Barnier and his underlings, showing disdain for the views expressed earlier, said.....

“A hundred cases of corruption involving offsets are not a lot”

Transparency International is wrong, says an academic study by Switzerland’s University of St.Gallen. There is no evidence that arms trade offsets are often corrupt.

India: DOMW opens dialogue unit for exasperated obligors

The Indian MoD’s Department of Defence Production has opened a “facilitation cell” at the Defence Offsets Management Wing (DOMW).

South Africa: We’re not going to make the deadline, says Judge Seriti

The Commission of Inquiry into South Africa’s arms deal is at risk of not completing its mandate before its term expires in about eight months’ time, Judge Willie Seriti said.