INS Vikramaditya Hits Delay, Cost Increases
rhsukarsa
On January 20, 2004 India and Russia signed a deal to refurbish and convert the 40,000t Soviet/Russian Admiral Gorshkov into a full carrier by removing the guns, anti-shipping and anti-air missile launchers on the front deck, replacing them with a full runway and ski jump, changing the boilers to diesel fuel, enlarging and strengthening the rear aircraft elevator, and many other modifications. The announced delivery date for INS Vikramaditya was August 2008 – an ambitious schedule, but one that would allow the carrier to enter service in 2009, around the time as their 29,000t light carrier/LHA INS Viraat (formerly HMS Hermes, last of the Centaur class) was scheduled to retire. The new ship will berth at the new Indian Navy facility in Karwar, on India’s west coast.
Initial reports of delays sparked controversy in India, but even the Ministry has now admitted their truth. The INS Viraat’s retirement is now set for 2010-2012 – but even that may not be late enough, as slow negotiations and steadily-lengthening delivery times will push delivery of the Gorshkov back to 2010 at the earliest. Reports of delivery in 2012 or later have surfaced, and the continued absence of a contract that Russia will honor is likely to create further delays. Even as the delivery date for India’s locally-built 37,500 ton escort carrier appears to be slipping well beyond 2013.
Right now, there are 2 major concerns in India. One is that slipping timelines could easily leave India without a serviceable aircraft carrier. The other is the extent of the cost increases, especially if more increases are added once India has paid for most of the budgeted work and is deep into the commitment trap. The carrier purchase has now become the subject of high level diplomacy, involving a shipyard that can’t even execute on commercial contracts, and an agreement in principle that has yet to be finalized into a contract. That hasn’t stopped India from approving further MiG-29K purchases, however – even as Russian sources begin rumbling that perhaps they might just finish and field the Gorshkov for the Russian Navy instead.
Initial reports of delays sparked controversy in India, but even the Ministry has now admitted their truth. The INS Viraat’s retirement is now set for 2010-2012 – but even that may not be late enough, as slow negotiations and steadily-lengthening delivery times will push delivery of the Gorshkov back to 2010 at the earliest. Reports of delivery in 2012 or later have surfaced, and the continued absence of a contract that Russia will honor is likely to create further delays. Even as the delivery date for India’s locally-built 37,500 ton escort carrier appears to be slipping well beyond 2013.
Right now, there are 2 major concerns in India. One is that slipping timelines could easily leave India without a serviceable aircraft carrier. The other is the extent of the cost increases, especially if more increases are added once India has paid for most of the budgeted work and is deep into the commitment trap. The carrier purchase has now become the subject of high level diplomacy, involving a shipyard that can’t even execute on commercial contracts, and an agreement in principle that has yet to be finalized into a contract. That hasn’t stopped India from approving further MiG-29K purchases, however – even as Russian sources begin rumbling that perhaps they might just finish and field the Gorshkov for the Russian Navy instead.
Waiting for Gorshkov
Subsequent updates, however, have proven the critics correct, with even the Ministry admitting as much. Cost estimates and reports concerning the Gorshkov’s final total vary from $700-$1.4 billion, of which $400-500 million has reportedly already been paid. DID’s experience with Indian defense procurement issues is that these figures mean little, beyond defining broad orders of magnitude. Transparency will eventually come, but deals with Russia mean that it will come only from pressure within India, and then only after all other alternatives have been exhausted. Reports until then are really a set of varyingly educated guesses. 
That there is a real issue of both time and cost, however, can no longer be denied. February 2008 news reports are giving figures of up to 3-4 years before refurbishment and testing are complete, and the refurbished ship can join the fleet. This would place its in-service data at 2011-2012, which risks a gap with no serving carriers in the fleet if further delays occur or the INS Viraat retires slightly early.
Meanwhile, China is working hard to refurbish the 58,000t ex-Russian carrier Varyag, and some analysts believe the ship could be operational in a testing capacity by 2010.
Those sunk construction costs, Russian possession of the Gorshkov, the difficulty in finding a substitute carrier to replace the Gorshkov sooner than 2013, and the Chinese push with the Varyag, have all combined to give the Russians substantial leverage in their negotiations.
That there is a real issue of both time and cost, however, can no longer be denied. February 2008 news reports are giving figures of up to 3-4 years before refurbishment and testing are complete, and the refurbished ship can join the fleet. This would place its in-service data at 2011-2012, which risks a gap with no serving carriers in the fleet if further delays occur or the INS Viraat retires slightly early.
Meanwhile, China is working hard to refurbish the 58,000t ex-Russian carrier Varyag, and some analysts believe the ship could be operational in a testing capacity by 2010.
Those sunk construction costs, Russian possession of the Gorshkov, the difficulty in finding a substitute carrier to replace the Gorshkov sooner than 2013, and the Chinese push with the Varyag, have all combined to give the Russians substantial leverage in their negotiations.
Gorshkov-Vikramaditya: Aerial Complement
Many of Gorshkov’s key modifications are aircraft-related, including the new arrester gear and ski jump. New boilers and wiring are the other major components. The timelines and cost figures for delivery of the ship do not include aircraft, however, which are contracted separately. The original carrier’s complement was 12 Yak-38 Forger V/STOL fighters, 12 Ka-28 helicopters, and 2 Ka-31 airborne early warning helicopters. The removal of the Gorshkov’s forward missiles, ski ramp, and other modifications will improve the ship’s air complement somewhat. The nature of its original design, however, means that INS Vikramaditya will still fall short of comparably-sized western counterparts like the 43,000t FNS Charles de Gaulle nuclear-powered aircraft carrier, with its 40-plane complement that leans heavily to fighter jets. Carriage ranges given for the refitted Vikramaditya seem to average 12-16 fighters and 4-16 of the compact Ka-28/31 helicopters; diagrams seem to suggest total stowage space for a “footprint” of no more than 15-16 MiG-29Ks, with each Kamov helicopter sporting a comparative footprint of about 0.4, and about 5-6 open footprint spots on deck.
A related $740 million contract for 16 MiG-29K aircraft plus training and maintenance was confirmed on December 22, 2004, with an option for another 30 MiG-29Ks by 2015. They would be operated in STOBAR (Short Take-Off via the ski ramp, But Assisted Recovery via arresting wires) mode, and the MiG-29K was reportedly selected over the larger and more-capable navalized SU-33 because India hopes to operate them from an indigenous smaller carrier as well. The Gorshkov-Vikramaditya’s complement will also include Kamov Ka-31 AEW and/or Ka-28 multi-role helicopters, along with a complement of torpedo tubes, air defense missile systems, et. al. If India does indeed buy E-2C+/E-2D Hawkeye naval AWACS aircraft, as is currently rumored, they would be added to this mix and take up footprint slots of their own.
A related $740 million contract for 16 MiG-29K aircraft plus training and maintenance was confirmed on December 22, 2004, with an option for another 30 MiG-29Ks by 2015. They would be operated in STOBAR (Short Take-Off via the ski ramp, But Assisted Recovery via arresting wires) mode, and the MiG-29K was reportedly selected over the larger and more-capable navalized SU-33 because India hopes to operate them from an indigenous smaller carrier as well. The Gorshkov-Vikramaditya’s complement will also include Kamov Ka-31 AEW and/or Ka-28 multi-role helicopters, along with a complement of torpedo tubes, air defense missile systems, et. al. If India does indeed buy E-2C+/E-2D Hawkeye naval AWACS aircraft, as is currently rumored, they would be added to this mix and take up footprint slots of their own.
Nov 13/08: As negotiations regarding the Gorshkov continue to drag on, pressure for timely resolution is building on the Russian side, as well. Sevmash (Severodvinsk Machine Building Enterprise) shipyard Deputy General-Director Sergey Novoselov tells RIA Novosti new agency that: “We are essentially constructing a new aircraft carrier at the op
en assembly berth of Sevmash. In the last two years, work has only proceeded thanks to internal loans….”
en assembly berth of Sevmash. In the last two years, work has only proceeded thanks to internal loans….”That cannot continue indefinitely – but Sevmash is not backlogged with projects,which means it needs to hang on to the Admiral Gorshkov refit. So, what if India proves unwilling to pay? Novoselov pointed out that even at $2 billion, a refitted Gorshkov costs only 50-67% of the $3-4 billion involved in building a medium sized carrier. Novoselov would not be pinned down to any firm figure, of course, but some Russian defense planners are either taking him seriously, or willing to help him put added pressure on India. RIA Novosti, via Forecast Interational:
“If India won’t pay the money [over the agreed $617 million], we will keep the aircraft carrier ourselves. It will be very useful to us, because the situation in the world is complicated. Vessels like that are needed to patrol the waters of the Atlantic and the Mediterranean,” noted a Russian defense industry official.” If Russia did make that move, India would need compensation for costs incurred to date – reportedly about $400 million.
Oct 18/08: The Hindu newspaper quotes Sevmash Shipyard’s deputy director for foreign defence contracts Sergei Novosyolov, who says that Gorshkov will be taken out of dry dock by the end of the month.
“The ship’s hull has been fully done and painted and scaffolding will be dismantled by the end of October…”
Sept 21/08: Still no firm deal on the Gorshkov refit, but India’s Defence Acquisition Committee (DAC) has given approval in principle to add another 29 MiG-29Ks to the original 16-plane, $1.5 billion deal.
No price negotiations have taken place, but the contract is expected to be worth close to $2 billion. The Navy is reported to have set its sights on a 3-squadron goal for its MiG-29K/KUB force. Indian Express report.
Sept 19/08: Indian Express reports that after Indian officials expressed concern over the slow progress in overhauling Gorshkov at the Sevmash shipyard in North Sea, Russian asked South Block to immediately pay the cash-strapped shipyard $200 million, “without prejudice to the on-going price negotiations,” in order to speed up work.
The report adds that Russian Defence Minister A Serdyukov’s visit to Delhi later in September 2008 is expected to result in a revised price for the Gorshkov refit, which must then receive political aproval in India.
June 3/08: Press Trust of India reports that Russia’s Sevmash shipyard has promised readiness by 2012 – maybe. RIA Novosti quotes Sevmash officials as saying that:
“The successful solution of all the financial issues will enable the shipbuilders to sail the aircraft carrier out into the Barents Sea for trials. In the winter of 2012, the ship is expected to be finally refitted and trials will continue in the summer of that year… At the end of 2012, the aircraft carrier is expected to be fully prepared for its transfer to the Indian navy in accordance with the schedule approved by the Russian Navy.”
Negotiations and maneuvering around the contract’s final details continue, and Sevmash’s history of delivery, detailed below, must also be considered when evaluating such statements.
June 2/08: Defense News reports that India’s MiG-29Ks will be based on land, because the country has no operational carriers. With INS Viraat unavailable due to upgrades and Vikramaditya badly behind schedule, the MiG-29Ks will go to the Naval Aviation Centre at INS Hansa in Goa instead. Hansa is the based used to train naval pilots. Deliveries of all 16 MiG-29Ks are expected to be complete by 2009.
“If India won’t pay the money [over the agreed $617 million], we will keep the aircraft carrier ourselves. It will be very useful to us, because the situation in the world is complicated. Vessels like that are needed to patrol the waters of the Atlantic and the Mediterranean,” noted a Russian defense industry official.” If Russia did make that move, India would need compensation for costs incurred to date – reportedly about $400 million.
Oct 18/08: The Hindu newspaper quotes Sevmash Shipyard’s deputy director for foreign defence contracts Sergei Novosyolov, who says that Gorshkov will be taken out of dry dock by the end of the month.
“The ship’s hull has been fully done and painted and scaffolding will be dismantled by the end of October…”
Sept 21/08: Still no firm deal on the Gorshkov refit, but India’s Defence Acquisition Committee (DAC) has given approval in principle to add another 29 MiG-29Ks to the original 16-plane, $1.5 billion deal.
No price negotiations have taken place, but the contract is expected to be worth close to $2 billion. The Navy is reported to have set its sights on a 3-squadron goal for its MiG-29K/KUB force. Indian Express report.
Sept 19/08: Indian Express reports that after Indian officials expressed concern over the slow progress in overhauling Gorshkov at the Sevmash shipyard in North Sea, Russian asked South Block to immediately pay the cash-strapped shipyard $200 million, “without prejudice to the on-going price negotiations,” in order to speed up work.
The report adds that Russian Defence Minister A Serdyukov’s visit to Delhi later in September 2008 is expected to result in a revised price for the Gorshkov refit, which must then receive political aproval in India.
June 3/08: Press Trust of India reports that Russia’s Sevmash shipyard has promised readiness by 2012 – maybe. RIA Novosti quotes Sevmash officials as saying that:
“The successful solution of all the financial issues will enable the shipbuilders to sail the aircraft carrier out into the Barents Sea for trials. In the winter of 2012, the ship is expected to be finally refitted and trials will continue in the summer of that year… At the end of 2012, the aircraft carrier is expected to be fully prepared for its transfer to the Indian navy in accordance with the schedule approved by the Russian Navy.”
Negotiations and maneuvering around the contract’s final details continue, and Sevmash’s history of delivery, detailed below, must also be considered when evaluating such statements.
June 2/08: Defense News reports that India’s MiG-29Ks will be based on land, because the country has no operational carriers. With INS Viraat unavailable due to upgrades and Vikramaditya badly behind schedule, the MiG-29Ks will go to the Naval Aviation Centre at INS Hansa in Goa instead. Hansa is the based used to train naval pilots. Deliveries of all 16 MiG-29Ks are expected to be complete by 2009.
May 30/08: Reuters reports that American Secretary of Defense Robert Gates was asked about rumours that the USS Kitty Hawk might be sold to India at the at the Shangri-La Dialogue forum of regional analysts, defense and security officials. “I am aware of no such plans,” Gates replied.
May 9/08: News Post India’s “Indian Navy To Order Another Aircraft Carrier” claims that the Indian Navy will supplement the Vikramaditya with 2 of its 37,500t indigenous “Air Defence Ship” carriers, instead of just one. The article also includes additional information about the Vikramaditya’s schedule and the potential risks.
May 9/08: News Post India’s “Indian Navy To Order Another Aircraft Carrier” claims that the Indian Navy will supplement the Vikramaditya with 2 of its 37,500t indigenous “Air Defence Ship” carriers, instead of just one. The article also includes additional information about the Vikramaditya’s schedule and the potential risks.
April 9/08: Despite an agreement that was supposed to be finalized in March, Indian Defence Secretary Vijay Singh describes the parties as still “locked in intense negotiations over the price details,” adding that “technical assessment of the work needed on the carrier is still on…” The expected responses re: the deal being on track, and having a final price proposal to bring to the Cabinet “soon,” were also voiced.
March 18/08: During Chief of Naval Staff Sureesh Mehta’s visit to Russia, the first serially produced MiG-29KUB (tail number 113) performs its maiden flight at the RAC MiG test airfield in Lukhovitsy near Moscow. The MiG-29KUB is the 2-seat variant of the carrier-capable MiG-29K.
March 10/08: The Indian government’s DDI News reports that “India has reconciled to a price hike for procurement of Russian carrier Admiral Gorshkov and the government has constituted an experts committee to work out the increase.”
Naval Chief Sureesh Mehta, who had opposed additional payments under the contract, said that: “There will be some price hike. We need to pay extra amount and whatever amount is due as per contracts we will pay.” This does not sound like an encouraging report from ongoing negotiations.
March 3/08: India opts to pay Russia more, in hopes of getting the Gorshkov ready in time. Figures given vary between $500 million and $1.2 billion; exactly how much more India will agree to pay will be decided later in March 2008, after 2 more rounds of negotiations. India’s Defence Secretary Vijay Singh is quoted as saying that:
“It should be completed by mid-2010. After that, it will undergo 18 months of extensive sea trials by the Russian navy to ensure all systems are working properly.”
Retired Admiral Arun Prakash was head of the Indian Navy in 2004 when the original deal was “laboriously and painstakingly negotiated for 11 months, and the contract sealed and signed.” He told BusinessWeek that he is disappointed by Russia “reneging on the deal” and says Russia “gifted” the Gorshkov to India in exchange for a $1.5 billion contract to buy planes and helicopters and “revive their terminally ill shipbuilding and aircraft manufacturing industries.”
India will also reportedly send 500 shipyard workers, technicians and managers to Russia, to take direct charge of the work, cover Russia’s labor shortage, and keep an eye on quality control so that it’s caught immediately. Whether this will suffice, in the wake of Sevmash shipyard disasters like the Odfjell contract (q.v. Feb 21/08), remains to be seen.
What also remains to be seen at this point is whether India’s MiG-29K contract becomes the next bottleneck. India remains the only customer for this substantially different aircraft, and MiG will need to make production line changes that the existing contract may not adequately finance.
Naval Chief Sureesh Mehta, who had opposed additional payments under the contract, said that: “There will be some price hike. We need to pay extra amount and whatever amount is due as per contracts we will pay.” This does not sound like an encouraging report from ongoing negotiations.
March 3/08: India opts to pay Russia more, in hopes of getting the Gorshkov ready in time. Figures given vary between $500 million and $1.2 billion; exactly how much more India will agree to pay will be decided later in March 2008, after 2 more rounds of negotiations. India’s Defence Secretary Vijay Singh is quoted as saying that:
“It should be completed by mid-2010. After that, it will undergo 18 months of extensive sea trials by the Russian navy to ensure all systems are working properly.”
Retired Admiral Arun Prakash was head of the Indian Navy in 2004 when the original deal was “laboriously and painstakingly negotiated for 11 months, and the contract sealed and signed.” He told BusinessWeek that he is disappointed by Russia “reneging on the deal” and says Russia “gifted” the Gorshkov to India in exchange for a $1.5 billion contract to buy planes and helicopters and “revive their terminally ill shipbuilding and aircraft manufacturing industries.”
India will also reportedly send 500 shipyard workers, technicians and managers to Russia, to take direct charge of the work, cover Russia’s labor shortage, and keep an eye on quality control so that it’s caught immediately. Whether this will suffice, in the wake of Sevmash shipyard disasters like the Odfjell contract (q.v. Feb 21/08), remains to be seen.
What also remains to be seen at this point is whether India’s MiG-29K contract becomes the next bottleneck. India remains the only customer for this substantially different aircraft, and MiG will need to make production line changes that the existing contract may not adequately finance.
Meanwhile, BusinessWeek has its own speculation re: “Why India Talked Up A US Carrier Deal.” As an interesting second perspective on the larger Russia-India relationship, see also the Navhind Times March 4/08 article “India’s Defence: Looking Beyond Russia”.
March 3/08: India’s Defence Minister Shri A K Antony confesses that India’s Sea Harrier fleet has an availability problem, due to the rotation of aircraft through the current upgrade program.
“India’s Sea Harrier Shortage” looks at numbers and planned upgrades for India’s legacy naval aircraft, as the Navy prepares for future operations with MiG-29Ks.
Feb 27/08: India’s Minister of Defence Shri A K Antony, asked about this issue, says:
“The overall progress of repair and re-equipping of the ship, ex-Admiral Gorshkov, in Russia is behind schedule. Execution of contract for construction of three ships of Project 1135.6 (follow-on-ships of Talwar Class) is on schedule. Russia has indicated an increase in price for repair and re-equipping of ex-Admiral Gorshkov. There is no proposal under the active consideration of the Government to contact some other country in this regard. The need for contacting other country does not arise as the existing contract with Russia is still valid.”
A fine politician’s reply, answering nothing at all. If another country contacted India instead, his denial would no longer apply…
Feb 23/08: Progress on Gorshkov? According to the India Times’ Economic Times, Indian Defence Secretary Vijay Singh’s 5-day delegation visit to Sevmash Shipyard, and talks with Russian Energy and Industries Minister Viktor Khristenko, may have made progress. Russian senior officials reportedly assured Singh that the Russian government was making strenuous efforts to improve the situation.
Feb 19-23/08: Crazy Sam’s Carrier Clearance Sale? As reports begin to suggest that Russia and India are too far apart to agree on the Gorshkov refit, speculation grows that the USA intends to solve India’s problem with a stunning offer during Defense Secretary Gates’ imminent visit to india. instead of retiring and decommissioning its last conventionally-powered carrier, the 81,800 ton/ 74,200t USS Kitty Hawk [CV-63, commissioned 1961], would be handed over to India when its current tour in Japan ends in 2008. The procedure would resemble the January 2007 “hot transfer” of the amphibious landing ship USS Trenton [LPD-14], which become INS Jalashva. The cost? This time, it would be free. As in, $0.
Naturally, there is a quid pro quo that accompanies these rumors. In return for an aircraft carrier that would be larger than its counterparts in every navy other than the US Navy, India would select at least 60 F/A-18 E/F Super Hornets in its MMRCA fighter competition, to serve as the carrier’s air wing. Unlike the Gorshkov, the Kitty Hawk is a purpose-built carrier whose full air complement is a whopping “75+” aircraft and helicopters. India has also expressed interest in the USA’s E-2 Hawkeye carrier AWACS aircraft, which would be a natural fit for its new ship.
March 3/08: India’s Defence Minister Shri A K Antony confesses that India’s Sea Harrier fleet has an availability problem, due to the rotation of aircraft through the current upgrade program.
“India’s Sea Harrier Shortage” looks at numbers and planned upgrades for India’s legacy naval aircraft, as the Navy prepares for future operations with MiG-29Ks.
Feb 27/08: India’s Minister of Defence Shri A K Antony, asked about this issue, says:
“The overall progress of repair and re-equipping of the ship, ex-Admiral Gorshkov, in Russia is behind schedule. Execution of contract for construction of three ships of Project 1135.6 (follow-on-ships of Talwar Class) is on schedule. Russia has indicated an increase in price for repair and re-equipping of ex-Admiral Gorshkov. There is no proposal under the active consideration of the Government to contact some other country in this regard. The need for contacting other country does not arise as the existing contract with Russia is still valid.”
A fine politician’s reply, answering nothing at all. If another country contacted India instead, his denial would no longer apply…
Feb 23/08: Progress on Gorshkov? According to the India Times’ Economic Times, Indian Defence Secretary Vijay Singh’s 5-day delegation visit to Sevmash Shipyard, and talks with Russian Energy and Industries Minister Viktor Khristenko, may have made progress. Russian senior officials reportedly assured Singh that the Russian government was making strenuous efforts to improve the situation.
Feb 19-23/08: Crazy Sam’s Carrier Clearance Sale? As reports begin to suggest that Russia and India are too far apart to agree on the Gorshkov refit, speculation grows that the USA intends to solve India’s problem with a stunning offer during Defense Secretary Gates’ imminent visit to india. instead of retiring and decommissioning its last conventionally-powered carrier, the 81,800 ton/ 74,200t USS Kitty Hawk [CV-63, commissioned 1961], would be handed over to India when its current tour in Japan ends in 2008. The procedure would resemble the January 2007 “hot transfer” of the amphibious landing ship USS Trenton [LPD-14], which become INS Jalashva. The cost? This time, it would be free. As in, $0.
Naturally, there is a quid pro quo that accompanies these rumors. In return for an aircraft carrier that would be larger than its counterparts in every navy other than the US Navy, India would select at least 60 F/A-18 E/F Super Hornets in its MMRCA fighter competition, to serve as the carrier’s air wing. Unlike the Gorshkov, the Kitty Hawk is a purpose-built carrier whose full air complement is a whopping “75+” aircraft and helicopters. India has also expressed interest in the USA’s E-2 Hawkeye carrier AWACS aircraft, which would be a natural fit for its new ship.
As a number of sources point out, this is a multi-pronged move that would achieve several objectives at once. First, the offer removes all Russian negotiating leverage over India by removing the issues of sunk costs, foreign possession of the Vikramaditya, and any danger of being left without a carrier. The Indian Navy would be greatly strengthened, and its ability to police the Indian Ocean from the Straits of Malacca to South Africa would take a huge leap forward. Any additional work to upgrade or refurbish the carrier could be undertaken in India, providing jobs and expertise while maintaining full national control over the refit. The USA gains financial benefits of its own, as the Navy avoids the expensive task of steaming the Kitty Hawk home and decommissioning it. Americans would almost certainly receive maintenance contracts for the steam catapults, and possibly for some new electronics, but those economic benefits pale in comparison to the multi-billion dollar follow-on wins for Boeing (Super Hornet), Northrop Grumman (E-2 Hawkeye), and possibly even Lockheed Martin (F-16 E/F, F-35B). All of which works to cement a growing strategic alliance between the two countries, and creates deep defense industrial ties as well.
Then there’s the effect on Russia, whose relations with the USA currently border on outright hostility. With the MiG-29Ks no longer necessary for India, that contract would almost certainly be canceled. At which point, the commonality value of choosing the MiG-35 as a lower-cost secondary MMRCA buy drops sharply, opening the door for other MMRCA split-buy options that could include the Saab/BAE JAS-39 Gripen, or a complementary American offer of F-16E/Fs and/or F-35Bs. The combined effect of these blows would be a severe setback for Russia’s arms industry, though rising oil & gas revenues in Russia and other export opportunities may lead to less shrinkage and civilian re-purposing than publications like the Weekly Standard believe.
Then there’s the effect on Russia, whose relations with the USA currently border on outright hostility. With the MiG-29Ks no longer necessary for India, that contract would almost certainly be canceled. At which point, the commonality value of choosing the MiG-35 as a lower-cost secondary MMRCA buy drops sharply, opening the door for other MMRCA split-buy options that could include the Saab/BAE JAS-39 Gripen, or a complementary American offer of F-16E/Fs and/or F-35Bs. The combined effect of these blows would be a severe setback for Russia’s arms industry, though rising oil & gas revenues in Russia and other export opportunities may lead to less shrinkage and civilian re-purposing than publications like the Weekly Standard believe.
Feb 21/08: “Galrahn” of the respected blog Information Dissemination passes a key tip along to DID. First, recall that the Sevmash shipyard in Severodvinsk, Archangel Oblast is responsible for the Gorshkov refit. Until recently, they also had a $544 million contract to build up to 12 tankers for the Norwegian shipping form Odfjell. When it was signed in 2004, it was promoted as “a historic deal in Norwegian-Russian industrial relations.” Now it has been canceled, and Odfjell CEO Terje Storeng has used terms like “no will to try to understand that this is a commercial project,” “deliberately sabotaged and delayed the project” et. al. to Dagens Næringsliv. No longer:
“Following serious delays in the construction process, combined with demands for further price increases from the Yard, continuous cooperation problems as well as protracted negotiations, Odfjell decided today to serve formal notice of cancellation to Sevmash. The instalments already paid are covered by standard refund guarantees from international banks. Odfjell will further claim full compensation for its costs and losses caused, on account of wilful misconduct and massive contract breaches by the Yard. Unless the matter is solved amicably between the parties, the issue will be solved by arbitration in Sweden, as provided for in the contract.”
Note the Russian official’s comments in the Feb 7/08 entry. Closure may once again become a very real possibility for Sevmash. Worse, Odfjell’s experience has to give India serious pause re: the reliability of Russia’s new refit cost estimates, and the likelihood of further extortion to ‘adjust’ the deal down the road.
“Following serious delays in the construction process, combined with demands for further price increases from the Yard, continuous cooperation problems as well as protracted negotiations, Odfjell decided today to serve formal notice of cancellation to Sevmash. The instalments already paid are covered by standard refund guarantees from international banks. Odfjell will further claim full compensation for its costs and losses caused, on account of wilful misconduct and massive contract breaches by the Yard. Unless the matter is solved amicably between the parties, the issue will be solved by arbitration in Sweden, as provided for in the contract.”
Note the Russian official’s comments in the Feb 7/08 entry. Closure may once again become a very real possibility for Sevmash. Worse, Odfjell’s experience has to give India serious pause re: the reliability of Russia’s new refit cost estimates, and the likelihood of further extortion to ‘adjust’ the deal down the road.
Feb 7/08: Zeenews quotes an unnamed “Russian official” with interesting and somewhat unsettling arguments, in advance of a high-level delegation’s arrival led by Indian Defence Secretary Vijay Singh:
“Moscow feels that the agreement for supply of the 45,000 tonne warship was signed at a time when the Russian ship-building company was in bad shape and India “used” the situation to sign the contract at lower price. The ship-building company was facing closure and was ready to sign any kind of contract when the contract was signed.”
Defense Industry Daily needs to look up the exact definitions to be certain, but we believe this process is known as “shrewd negotiation,” followed by “a deal.” Indian Naval Chief Admiral Sureesh Mehta appears to be using the same lexicon, and has publicly said that there should be no revision to the Goshkov contract. Still, India cannot receive the carrier she wants if the shipyard goes bankrupt, and Russia is holding the carrier. This gives the Russians considerable leverage in negotiations, unless India can find an alternate provider. There may be a way out, however:
“But Russia is willing to “compensate” for the cost of Gorshkov if it gets more military orders, which Moscow insists is not linked to 126 fighter planes that India is planning to buy but other defence purchases.”
“Moscow feels that the agreement for supply of the 45,000 tonne warship was signed at a time when the Russian ship-building company was in bad shape and India “used” the situation to sign the contract at lower price. The ship-building company was facing closure and was ready to sign any kind of contract when the contract was signed.”
Defense Industry Daily needs to look up the exact definitions to be certain, but we believe this process is known as “shrewd negotiation,” followed by “a deal.” Indian Naval Chief Admiral Sureesh Mehta appears to be using the same lexicon, and has publicly said that there should be no revision to the Goshkov contract. Still, India cannot receive the carrier she wants if the shipyard goes bankrupt, and Russia is holding the carrier. This gives the Russians considerable leverage in negotiations, unless India can find an alternate provider. There may be a way out, however:
“But Russia is willing to “compensate” for the cost of Gorshkov if it gets more military orders, which Moscow insists is not linked to 126 fighter planes that India is planning to buy but other defence purchases.”
Nov 19/07: India’s MoD confirms delays in the Gorshkov’s delivery and slow progress, without really answering any questions. It acknowledges that the Russian side has submitted a revised Master Schedule, attributing the delays to “Growth of Work.” In response, an apex level Indian committee under the Defence Secretary, and a Steering Committee under a Vice Admiral, have been set up. A team has also been stationed at the shipyard.
No word on the timelines or costs suggested; indeed, these are likely to remain under negotiation.
No word on the timelines or costs suggested; indeed, these are likely to remain under negotiation.
Nov 6/07: A top-level Indian Navy delegation is heading for Moscow to discuss the delay and price escalation in the Admiral Gorshkov aircraft carrier deal. A detailed financial and technical plan outlining the specific justifications and amounts will be presented to the Indian side, who is there to listen rather than to negotiate.
The report pegs the original price quoted for refurbishing the carrier was just under $980 million, adding that the Russians are insisting on cost increases of at least $350 million. Indian officials reportedly fear that the final escalation may end up being much more once they are deep enough into the commitment trap of having paid for work. The report also adds that the Navy “had reconciled itself to the fact that the delivery of the ship would be delayed from the original deadline of August 2008 by a few years,” a surprising development given the limited service life of India’s remaining carrier. If the government is indeed prioritizing cost containment over delivery dates, reconciliation of the INS Viraat’s service life with Gorshkov’s entry may prove difficult.
The report pegs the original price quoted for refurbishing the carrier was just under $980 million, adding that the Russians are insisting on cost increases of at least $350 million. Indian officials reportedly fear that the final escalation may end up being much more once they are deep enough into the commitment trap of having paid for work. The report also adds that the Navy “had reconciled itself to the fact that the delivery of the ship would be delayed from the original deadline of August 2008 by a few years,” a surprising development given the limited service life of India’s remaining carrier. If the government is indeed prioritizing cost containment over delivery dates, reconciliation of the INS Viraat’s service life with Gorshkov’s entry may prove difficult.
Oct 18/07: India’s MoD finally admits the obvious, as part of an announcement concerning an Indo-Russia fighter development deal.
“The Defence Minister described the Agreement on FGFA as a ‘major landmark’ and said that the Indo-Russian relationship is on a trajectory to reach new heights…. Mr. Antony expressed satisfaction at the outcome of discussions on other important projects e.g., supply and licensed production of T-90 tanks, SU-30 MKI aircraft and other strategic issues. He admitted that there has been a delay in the delivery of the repaired and refurbished aircraft carrier Admiral Gorshkov along with supply of deck-based fighter aircraft MiG-29-K and said it was decided that some more studies by technical groups would be done to go through the details. He appreciated the efforts made by the Russian side to resolve issues relating to life cycle support of equipment of Russian origin.”
June 16/07: India Defence: High Level Indian Delegation In Russia To Re-Negotiate Defense Deals Pricing:
“With differences over prices delaying the delivery of upgraded Sukhoi multi-role fighters and Gorshkov aircraft carrier, India today rushed a high-level defence team to Russia with fresh proposals to break the logjam…. The visit of the team assumes significance with Defence Minister AK Antony admitting that New Delhi was facing “problems” in acquisition of the carrier Gorshkov as well as in negotiating a new deal to buy 40 more upgraded Sukhoi-30 fighters for the Indian Air Force.”
May 17/07: India Defence: No Delays in INS Vikramaditya Acquisition from Russia: Defence Minister. “However, sources from the Indian Navy had earlier confirmed reports being circulated in the Indian and Russian media regarding a possible two year delay in the acquisition of the Aircraft Carrier.”
June 16/07: India Defence: High Level Indian Delegation In Russia To Re-Negotiate Defense Deals Pricing:
“With differences over prices delaying the delivery of upgraded Sukhoi multi-role fighters and Gorshkov aircraft carrier, India today rushed a high-level defence team to Russia with fresh proposals to break the logjam…. The visit of the team assumes significance with Defence Minister AK Antony admitting that New Delhi was facing “problems” in acquisition of the carrier Gorshkov as well as in negotiating a new deal to buy 40 more upgraded Sukhoi-30 fighters for the Indian Air Force.”
May 17/07: India Defence: No Delays in INS Vikramaditya Acquisition from Russia: Defence Minister. “However, sources from the Indian Navy had earlier confirmed reports being circulated in the Indian and Russian media regarding a possible two year delay in the acquisition of the Aircraft Carrier.”
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