December 5, 2007:
A nasty
situation is developing between India and Russia, over a $1.5 billion deal that
sold the unfinished Russian aircraft carrier Admiral Gorshkov to India, and included
a Russian shipyard performing $700 million worth of repairs, modifications and
upgrades. Another $800 is to be spent on aircraft, weapons and equipment.
Russia now wants a lot more money, while India insists on getting what the
original contract called for. While the carrier is in Russia, India, which has
already paid the Russians half a billion dollars, insist that India now owns
the ship.
The Admiral Gorshkov
entered service in 1987, but was inactivated in 1996 (too expensive to operate
on a post Cold War budget). The Indian deal was made in 2004, and the carrier
was to be ready by 2008. But a year ago reports began coming out of Russia that
the shipyard doing the work, Sevmash, had seriously miscalculated the cost of
the project. The revised costs were now more like $1.1 billion for the $700
million refurb. The situation has since gotten worse, with Sevmash now saying
that it will cost over $2 billion to refurbish the carrier. The Indians are not
happy, and expects the Russian government (which owns many of the entities
involved in this deal) to make good on the original deal.
Given that India currently
has $10 billion worth of Russian military items on order, and has been Russia's
biggest, and most profitable customer for military equipment for decades, the
Gorshkov is looking to be an error of gigantic proportions. The boss of
Sevmash, when the Gorshkov deal was negotiated, has been fired and is under
criminal investigation, on suspicion of financial mismanagement. To make
matters worse, the additional work required on the Gorshkov has caused Sevmash
to turn down lucrative commercial projects (like offshore oil platforms.)
Just to add to the
pressure, India is getting more interested in Western military equipment,
including big ticket items like warplanes and ships. The Indians have grown
tired of the poor performance of Russian equipment, and the poor service they
often receive when it comes to spare parts, or fixing design errors. For
decades, this was tolerated because Russian gear cost less than half what
comparable Western stuff went for. Since India's major foe was Pakistan, which
was equipped with equally shabby Chinese weapons, it all seemed to work out.
But now many Indian generals and admirals, noting the high performance of
American troops in the war on terror, are seriously considering the higher cost
Western way of war.
The Indian government has
told the Indian Navy that no more money will be forthcoming, and that Russia
must comply with the original contract. The Russians, however, complain that
the Indians demanded, after the contract was signed, for substantial changes
that were not in the contract. These changes greatly increased the cost of the
work. The Indians accuse the Russians of not planning the refurb to do what
needed to be done. The Gorshkov situation is doing a lot of damage to the
India-Russia military equipment relationship, and Western firms are taking
note.