CTO Newsletter

Main headlines from this issue

The Directive: EC denies Member States were ambushed – diplomat disagrees

European Commission Defence Expert Burkard Schmitt shrugged off any misgivings he might have felt before facing an audience in Brussels from the National Defence Industry Association (NDIA) of smaller EU Member States, and came out fighting.

Kuwait planning radical policy initiatives to encourage joint ventures

Kuwait’s National Offset Company is planning to end its demand for a liquidated damages bank guarantee. The end of the requirement will not be entirely unconditional however......

French delegation promises investments and technology transfers for Indonesia ahead of formal offset policy

France has expressed interest in expanding investment and technology transfers to aircraft component manufacturers in Indonesia, said Budi Darmadi, Director General for Technology at the Indonesian Ministry of Industry.

FOI study exposes the truth about Singapore – and finds that offsets often lead to technological advances for the seller

FOI, a leading Swedish research institute in the areas of defence and security, has published a study based on four ‘representative’ large Swedish defence export orders.

UAE: “The future is about skills, knowledge and technology”

Saif Al Hajeri says that experience over the last two decades has enabled the OPB to bring ‘a sharper focus’ to the industrial projects and partnerships between government and international suppliers.

Main headlines from this issue

Balkan offset conference surrenders to rival’s command performance

SMi and the Abu Dhabi International Offset Conference (ADIOC) put on offset conferences only days apart. The ADIOC event in Abu Dhabi was very different: it had the numbers – more than five hundred registered delegates - but was more of a networking opportunity than an offset conference.....

The EU directive on offsets —the experts’ view

When a discussion on “European Offsets and Austerity Measures” touched on the Commission’s ruling that the practice is illegal, there was plenty of concern, some opposition, and a noticeable absence of support for the decision, both from the panellists and from the floor.

“This is not the end of offsets”

Dr Aris Georgopoulos provided an optimistic assessment of the EU’s Directive on Offsets. The real battle will be fought over Article 346.

EC directive leaves Switzerland high and dry

Per Magnus Larsson, a senior legal advisor and Offset Manager at Armasuisse,  described how his country’s policy may be affected by the developments in Europe.

Having tasted the pleasures of offset, Bulgaria now fears the advance of the EC directive

There could be no doubt about the views of Bulgaria’s Deputy Minister of Economy on the EC Directive.....

Main headlines from this issue

Annual Report to Congress on The Impact Of Offsets cuts back.

More indirects – fewer new offset agreements with EDA member states 

The 15th Annual Report to Congress on the Impact of Offsets in Defence Trade has revealed that in 2009 thirteen U.S. firms reported entering into 56 contracts that had related offset agreements for the sale of defence items and services. These contracts, signed with 21 countries, were valued at $10.68bn.

Comment – An Annual Outing that has Lost Its Way

The Annual Report to Congress is continuing to wither in both size and content. Its release used to be an event that took the reader on a tour of the world with country-specific data; now it is an orphan on an annual outing......

Turkey: SSM overhauls its industrial participation and offset policy

Turkey’s Undersecretariat for Defence Industries (SSM) is about to introduce major changes to its offset directive that will redefine the programme’s objectives. Although subject to final confirmation, we are advised that the new approach will......

Deloitte predicts a harder year ahead as offsets define goals

Many countries have complex and challenging offset requirements that should be incorporated into upfront capture strategies, says Deloitte in its Outlook 2011 report on the aerospace and defence sector.

Vincent Tchenguiz pursues his offset quest with string of small investments

Vincent Tchenguiz has quietly invested as much as £12m ($19m) in a range of defence, cyber security and intelligence companies over the past four years. He has now taken a stake in an Israeli defence technology company as part of a much larger plan to....

Main headlines from this issue

INDIA: DPP-2011 – A recipe for further discord

The Defence Procurement Procedure 2011 (DPP 2011) expands the scope for offset fulfilment to include most aspects of civil aerospace, marking the first official intrusion into the civil sector. Internal security projects and training now also qualify for offset..... Yet the policy remains full of dangerous shadows.

India: DOFA’s secret offset file is found by roadside

An inquiry has been ordered into how a file marked ‘secret’ connected to the $10.4bn acquisition of 126 medium range multi-role combat aircraft (MMRCA) went missing. The document was found on New Year’s Eve on the side of a road. The file dealt with the evaluations of the offset proposals submitted by the six global competitors.

South Korea: DAPA plans changes; FDI disappoints

South Korea’s offset authority, the Defence Acquisition Programme Administration (DAPA), is planning to extend multipliers to SMEs, the first significant multiplier change in the 29 years of Korea’s offset programme.

UAE: OPB offset guarantee clause guaranteed unacceptable

An umbrella agreement that every contractor with an offset obligation must sign to move from the old offset policy to the new policy under the UAE Offset Program Bureau’s (OPB) revised guidelines has hit a snag over the bank guarantee.

Prospects for Indian / South African countertrade

MMTC, India’s state-owned commodity trading company, is to set up an office in South Africa to source coal, gold, diamonds and other minerals.

Main headlines from this issue

Indonesia to present draft offset regulation to parliament

The government of Indonesia has drafted a policy regulation that will make offsets a requirement of defence procurement. A bill enabling the regulation will be presented soon for the approval of Parliament. Indonesia will then establish a formal offset policy, although those responsible for the task recognise that formulating such a policy may take some time.

Change sweeps UK procurement policy, but EC directive is swept under the carpet

Contrary to earlier suggestions a Green Paper published by the British Secretary of State for Defence includes scant reference to offset or industrial participation practices. However, the UK is reviewing its policy to ensure IP remains valid and complements key priorities.

ISRAEL’S 180 PERCENT F-35 OFFSET AGREEMENT WAS PIE IN THE SKY

It was all much ado about nothing. The deal described by the Ministry of Defence bureau was not the one the Americans were aware of.

EVENTS DIARY 2011

Full listing of offset, countertrade, and trade finance events.

“Offsets and the art of bribery”

A doctoral candidate says there is almost no scholarly work that examines offsets as a potential source of corruption. She has set about correcting this anomaly.

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.