EU warns Romania, Bulgaria, Czechs over defence procurement

By bne IntelliNews September 3, 2012

Nicholas Watson in Prague -

Romania, a chief member of the EU's awkward squad, appears on another collision course with Brussels as it joins Bulgaria, the Czech Republic and Slovakia on a list of countries that have been warned about transparency in defence procurement.

The European Commission has confirmed to bne that it sent letters to the governments of Romania, Bulgaria and the Czech Republic to highlight EU laws concerning procurement, after it became concerned about possible moves by those member states to conclude major defence deals to buy supersonic fighter jets without holding an open tender.

All three countries are looking to buy fighter jets, part of a wider procurement programme in Emerging Europe over the next decade that the defence industry estimates could generate sales of over 200 jets. With the economic downturn squeezing defence budgets across the world, these tenders are regarded as crucial for an industry suffering from cost cutting and job losses, hence the fierce competition amongst manufacturers such as the US' Lockheed Martin, the Eurofighter consortium (made up of EADS Deutschland, Spain's EADS Casa, BAE Systems and Italy's Alenia Aeronautica), Sweden's Saab and France's Dassault, among others.

EU Commissioner for Internal Market and Services Michel Barnier, who oversees public procurement in the 27-member bloc, wrote the letter, dated May 15, 2012, to the defence ministers of Bulgaria, Romania, Slovakia and the Czech Republic to remind them about EU directives concerning tenders for public procurement and the need for transparency in such procurement. "The decision to acquire combat aircraft is a sovereign decision of your country. However, since combat aircraft are military equipment in the meaning of Directive 2009/81/EC, Member States have to abide to the rules of this Directive when they purchase such aircraft," Barnier wrote in the letter, a copy of which has been obtained by bne. "This means in particular that they have to publish a contract notice in the Official Journal of the European Union and open the procurement procedure must be open to all potential suppliers in the EU."

In confirming the existence of the letter, Stefaan de Tynck, spokesperson for Barnier's office, tells bne that while such government-to-government contracts (G2G) are excluded from the EU directive that covers defence and security contracts, "there is a general statement in the Directive that no exclusion (including G2G) should be used for the purpose of circumventing the provisions of the Directive... [and] used as a means to avoid EU-wide competition and in particular discriminate against potential EU suppliers."

"The letter was sent to clarify obligations under EU law," he adds.

Romania's lack of reply

De Tynck says the Commission has received replies from Bulgaria and the Czech Republic that he described as positive, though pointedly omitted to mention Romania, whose government is just emerging from a battle with Brussels over its attempted (but failed) impeachment of President Traian Basescu. EU Commission President Jose Manuel Barroso said those events in Romanian politics had "shaken our trust" in the country's democratic values.

Recent comments by Romanian officials will have only added to the Commission's worries that the country is preparing to flout EU law and buckle under pressure from the Americans to directly purchase used F-16 jets made by Lockheed Martin, rather than hold a tender in which European companies could participate.

On August 22, Romanian Defence Minister Corneliu Dobritoiu was quoted by the Romanian government news agency Agerpres as saying that Romania could purchase F-16 fighter jets from Portugal to replace its ageing Soviet-made MiG Lancerjets, after an expert team it had sent there concluded that the aircraft were in a "very good" condition. Portugal owns 45 F-16s and is looking to offload them given its dire financial difficulties. "We are in an accelerated process for obtaining all the approvals," Dobritoiu was quoted as saying.

This drew a sharp response from Saab, which as the maker of the Gripen fighter jet expects to be part of any tender held in Romania. "We have no doubt that we are able to offer a New Generation Gripen fighter through innovative procurement methods that would undoubtedly be more cost effective in terms of procurement and also the costs of operation, when compared to second hand fighters," Richard Smith, Saab's Gripen director for Europe, tells bne. "We would hope that in order to ensure the best product, the best total package and the best industrial package, that all the competitors be invited to provide an offer, to be considered seriously."

Worryingly, this is the second time in two years that Romania has tried to shoehorn a deal through with the Americans. In March 2010, the Romanian president's office announced that after a meeting of the Supreme Defence Council (CSAT, in Romanian initials) - an unelected advisory board that has no executive powers but is very influential by dint of its appointment by the country's president - it had been decided to send a proposal to acquire 24 used F-16 fighters from the US Air Force to parliament for a vote. President Basescu in subsequent interviews said it was purely an economic decision, yet that didn't stand up to much scrutiny once Saab had released its proposal showing it would offer the same number of planes, 24 new Gripen C/D multirole jets, for the same price of around €1bn. Furthermore, Saab also offered a number of sweeteners, such as offsetting (a kind of industrial compensation that the US has said it won't provide) 100% of the value of the contract with Romanian companies. That was enough to convince the Romanian parliament and the media, and the president's plan was shelved.

There are also worries about Bulgaria's commitment to an open tender. In October 2011, Bulgaria's Defence Ministry announced it would not, as had been expected, launch a tender for the purchase of fighter jets for the Bulgarian Air Force in 2012, to be completed by 2015. Bulgarian Prime Minister Boyko Borisov the following month reiterated to his Swedish counterpart Fredrick Reinfeldt at a press conference that this was because of budgetary issues, though there are suspicions, through the release of diplomatic cables by Wikileaks and other reports, that Sofia is looking to buy used F-16s, including perhaps some of those belonging to Portugal.

A spokesman for Eurofighter, which is targeting Bulgaria as a potential market, said of Commissioner Barnier's letter: "Eurofighter welcomes initiatives which support an open, fair and transparent competition."

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