Russia hiking price of Sukhoi

Russia hiking price of Sukhoi

The decades-old defence ties between India and its strategic partner Russia have hit a new low. Moscow now wants to renegotiate the Su-30 MKI deal, virtually doubling the figure in the yearly cost escalation clause. Only 60 of the aircraft, which are India’s mainstay multi-role fighters for the future, have been delivered till now. While Russia is willing to deliver 40 more at the current cost escalation of 2.55 per cent per annum, it wants to hike that to a minimum of 5 per cent for the remaining 138.
Russia also has plans to modify the cost package of the Gorshkov aircraft carrier deal, which was to provide the Indian Navy a floating airfield by next year.
Official sources confirmed to The Sunday Express that during their visit to Moscow this week, Defence Secretary Shekhar Dutt, Secretary (Defence-Finance) V K Mishra and Hindustan Aeronautics Limited Chairman Ashok Baweja were informed by their Russian counterparts that prices of Su-30 MKI fighters have hardened due to the falling dollar and double digit inflation in Russia.
Dutt met Russian Defence Minister Anatoly Serdyukov, Head of Russian Military and Technical Cooperation Mikhail Dmitriyev and defence contractor Rosboronexport’s chief Sergei Chemesov and returned to India on Thursday.
The visiting Indian delegation was informed that Russia would like to foreclose the Su-30 MKI deal after the delivery of the first 100 aircraft to New Delhi due to the rising cost of the contract (see graphic). The Russians want India to renegotiate the remaining contract of 138 fighters at an yearly cost escalation of minimum 5 per cent instead of the agreed 2.55 per cent.
However, as a special gesture to the Indians, the Russians were willing to reduce the yearly cost escalation to 4.5 per cent from 5 per cent. The other option offered to the Indians was to switch the contract to the much more stable Euro at the prevailing 2.55 per cent yearly escalation.
Simply put, the Russians want India to cough up Rs 220-300 crore, or nearly half-a-billion dollars, more if they want the Su-30 MKIs delivered in time and with the same specification. Right now the total contract is worth over $8.5 billion. India is in a fix as given the importance of the Su-30 MKI, its force levels will decline vis-a-vis its neighbours if it does not agree to the new terms.
While the Russian logic for the price increase is hardening of the rouble vis-a-vis the dollar, and that the Russian inflation is now pegged at a steep 10-10.5 per cent, New Delhi thinks that Moscow is acting tough as India is looking towards the West and the US in particular for the purchase of hardware. The last straw was apparently the decision to award a contract for 197 Army helicopters, worth $600 million, to French Eurocopter last month.
Sources confirmed that Dutt and his team reminded the Russians that they had agreed to supply 40 more Su-30 MKIs in March 2007 with the cost escalation fixed at 2.55 per cent. The Indian team also said that they would have a hard time explaining to the Central Vigilance Commission, Comptroller and Auditor General of India and Parliament the need to re-open the decade-old deal after the last contract had been signed at the prevailing rate.
The Defence Secretary said that New Delhi had no problem switching over to Euro but then the cost escalation clause should be brought down to less than 2 per cent due to the higher exchange rate for the currency.
With India refusing to commit on the changes, the negotiations have hit a stalemate, with the next round in Delhi soon. Officials say there is likely to be hard bargaining.
In another blow to India, besides the proposed hike in the Su-30 MKI contract, the Russians want to present a modified proposal for the Gorshkov aircraft carrier that is being built at Sevmash shipyard in Serverodvinsk city in north Russia. Even though India has already paid $113 million beyond the contract, Russia apparently wants more so that the carrier can be delivered by August 2008. The delay is on account of shortage of funds at the Sevmash shipyard and a gross underestimation of the cost of cabling of the ship.
HIGH COST, LOW TIES
SUKHOI-30 MKI DEAL
The P V Narasimha Rao government signed the first Su-30 fighter contract with Russia in 1995. To date India and Russia have broadly signed a total of four Su-30 MKI contracts.
Ist contract: 8 Su-30 K plus 40 Su-30 MKI
II contract : 10 Su-30 K
III contract : 140 Su-30 MKI licenced production
IV contract : 40 Su-30 MKI (signed March 2007)
Aircraft Price $33.5-36.5million
Cost Escalation 2.55% per annum
Total number of aircraft delivered to date : 60
New Russian proposal : Only first 100 aircraft to be delivered at 2.55 per cent annual cost escalation. The contract for the remaining 138 to be renegotiated at 5 per cent cost escalation due to falling dollar. This translates into an escalation of nearly $3-4 million per aircraft and total increase of nearly Rs 220-300 crore.
Gorshkov Aircraft Carrier
Deal signed in 2004 during the NDA regime and the total cost of the floating airfield with MiG-29K fighters was $2 billion. Named Vikramaditya, the carrier was to be the showpiece of 2008 Independence Day
New Russian proposal
Russia wants India to pay more for getting the carrier, expected towards the end of this month, on time. With serious underestimation of cabling required and alleged diversion of resources from Sevmash shipyard, the delivery stands delayed to 2010 unless India coughs up more dollars. It has already paid an additional $113 million for Gorshkov.