MOSCOW - For the first time in memory, one of Russia's arms customers may return a shipment deemed defective.
Algeria's effort to send back 15 MiG-29 fighter jets might scuttle the rest of an $8 billion arms deal clinched in 2006, Russia's biggest export package since the Soviet Union collapsed. Yet the weapons contracts may not be the biggest prize at risk.
Observers say the arms deal, which included the forgiveness of $4.7 billion in Soviet-era debt, was part of Moscow's effort to open Algeria's vast natural-gas reserves to Russian companies. If the arms deal sours, they say, so might the prospect of a natural-gas cartel.
Yet if Russia takes back the jets, as the defense minister has hinted it would, it might set a troubling precedent for the country's defense industry. India, for example, might try to return the Admiral Gorshkov aircraft carrier, whose price tag - including an overhaul and upgrade - has jumped from $1.5 billion to $2.7 billion, said Alexander Khamchikhin, an analyst with the Institute for Political and Military Analysis, a think tank here.
The $1.3 billion contract for 26 MiG-29CMT and six MiG-29UB fighters was signed between Moscow and Algiers in March 2006, a part of the sprawling arms deal clinched during the brief visit of President Vladimir Putin to the North African country.
Besides the MiGs, Algeria is to buy 28 Su-30MK fighters, which account for $1.5 billion of the deal; 16 Yak-130 training aircraft; four S-300PMU-2 missile air-defense systems; 38 Pantsir-S1 missile-and-gun air-defense systems; 185 T-90S tanks; 216 Kornet-E antitank missiles; and eight Krasnopol guided artillery shells.
All told, the package accounts for one-quarter of Rosoboronexport's current contract portfolio.
Deliveries of the aircraft began within a year of the contract signing. Algerian government officials said the Air Force soon discovered technical problems with the MiGs. After an investigation, the officials concluded that the aircraft were assembled with fuselages from used aircraft. In May 2007, after each of the 15 jets had been flown 80 to 90 hours, Algeria froze payments on the MiGs, the Russian industry official said.
The official denied that the fuselages were used, saying they were produced in the late 1990s and stored since then. He also said Russian technicians were fixing the problems - all of which were minor and technical - in Algeria.
Nevertheless, in October, Algeria froze all payments under the deal until Russia took back the MiGs, the Kommersant newspaper reported Feb. 18.
Algiers had paid a total of $423 million at that point, Kommersant said.
A second aviation industry source said Algiers wants the planes replaced with new-construction aircraft.
Moscow has made no public confirmation that it would take back the jets. But one Russian defense industry official said the proposal was under discussion by Russia's Federal Agency for Military and Technical Cooperation, MiG Corporation, state-owned arms trader Rosoboronexport and the Algerian Air Force. Officials with Rosobo-ronexport and MiG declined to comment.
And on Feb. 20, Russian Defense Minister Anatoly Serdyukov indirectly confirmed that Russia would indeed take them back, a source close to the ministry leadership said.
Algeria had no problems with the four Su-30MKA fighters delivered in December, said a source in Russia's government-controlled United Aircraft Corp. (UAC).
Sukhoi is part of UAC; MiG is to be merged into the group later this year. Russian aviation industry sources said the problems with the Algerian deal had nothing to do with the imminent merger.
Some observers believe that more than faulty airplanes led Algeria to try to return the jets.
They pointed to France's recent and aggressive attempts to pitch its Dassault Mirage fighter jet to Algiers, speculating that French pressure - or perhaps just the emergence of an alternative - had led to the MiGs' return.
But they also noted that during Putin's 2006 visit to Algiers, he and Algerian President Abdelaziz Bouteflika also agreed to open the Algerian energy market to Russian companies. They signed memorandums of understanding intended to lay the path toward joint ventures between Russia's Gazprom and Algeria's Sonatrach, the countries' gas monopolies.
Algerian political factions that expected to benefit when Western players entered Algeria's energy sector were upset by the energy agreements with Russia, said Ruslan Pukhov, an analyst with the Center for Analysis of Strategies and Technologies, a think tank here.
Pukhov suggested that they might have pushed the government to return the MiGs in an attempt to scuttle energy deals with Russian firms.
"Putin influenced Bouteflika during his visit in 2006 not to allow Western companies into the Algerian energy sector, and certain members of the local gas lobby, as well as the West-leaning military, were looking for a chance to take revenge on Russia," Pukhov said.
In January, the agreements expired without concrete progress, further straining Algiers-Moscow relations.
On Feb. 18, Bouteflika - who is expected to run for a third presidential term in April 2009 - flew to Moscow to mend ties. He started with a paean to the concept of an OPEC-like natural-gas cartel, which Iran proposed in 2006 and which Putin had publicly called "an interesting idea."
"It is clear that countries such as Russia, Qatar and Algeria already play a major role on international gas markets, and they should coordinate their activities even more," Bouteflika told the state-owned ITAR-TASS news agency the day before his Feb. 19 meeting with Putin.
Russia, the world's leading supplier of natural gas, supplies about half of all gas used by the European Union; Algeria, 20 percent. Russia has repeatedly been accused of tightening gas exports to intimidate Western-leaning former Soviet republics; Moscow insists it follows free-market rules.
For his part, Putin said he and the Algerian president had "many issues of military and technical cooperation" to discuss in the closed-door talks.
Afterward, the leaders announced that Russian Railways, a state-owned company, would build railway lines in Algeria for $1 billion.
Putin also called on the Algerian government to treat Russian companies as it does European firms after an expected free-trade zone connects Algeria and the European Union in 2012.
But they said nothing about a gas cartel or the arms deal.
That same day, Gazprom Chief Executive Alexei Miller flew to Iran to discuss with the government "joint activity in the transport, refinement and marketing of natural gas," a Gazprom statement said. ■
E-mail: nabdullaev@defensenews.com.
The Army's Future Combat Systems (FCS) program is ready to test a few components that soldiers may have in their hands by 2010.
Help
