Coface Covers DCNS Payments; €57M Falls on France

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PARIS — Moscow has signaled that Russian equipment fitted on the two Mistrals that were built for Russia could stay on board if Egypt, the leading prospective buyer, bought the helicopter carriers, a French official said.

“Russia could accept India and Egypt receiving the equipment,” with Cairo the prime candidate for buying the warships, the official said Sept. 7. Russian authorities “let it be known” in negotiations with French officials about the cancellation of the 2011 sale contract.

Paris and Moscow agreed Aug. 5 that France will repay €949.7 million (US $1.1 billion) to cancel the controversial naval deal. Some €56.7 million of that amount covered Russian telecommunications and missile control systems, and crew training.

François Cornut-Gentille, a member of France's parliament, has written to Finance Minister Michel Sapin asking for full details of the repayment, which has been made.

A release of the naval equipment would help Russia keep close links with Egypt, the Frence official said. Moscow is also keen to maintain ties with Syria and Iran.

Riyadh would finance Egypt’s purchase of the Mistrals as Saudi Arabia lacks a maritime culture and the Egyptian Navy would serve as a “proxy” naval force for the Saudis, the official said.  There is Saudi concern over a perceived threat in Yemen and from Iran, which drives Riyadh to fund a build-up of Egyptian capability.

Russia also wants to stay close to India, which has agreed to a co-production of the Russian Ka-226 helicopter for the Indian military. The two countries are seeking to resolve differences on developing and building the Fifth Generation Fighter Aircraft.

Repayment Details

France promptly and fully repaid  Russia as there was concern the former shareholders of the Yukos oil firm could attempt to seize the warships as part of a US $50 billion claim against Russia, the official said.

Tim Osborne, head of GML, the former holding company of Yukos Oil, declined comment.

It is far from certain such a claim would have worked as the Mistral would have been classed as “navire d’état,” or ship of the state, a legal status which puts military vessels out of reach, a lawyer said. An alternative might have been a commercial claim for the funds paid to Russia.

In other financial disputes, there have been attempts to seize ships as assets. In 2012, a US hedge fund asked the Ghana courts to seize an Argentine Navy three-masted training ship in a claim for repayment of Argentine debt, Jean-Paul Pancracio, a Paris-Sorbonne University professor, wrote in a January 2012 blog entry.

In 2000, a Swiss company sought a legal order to seize the Sedov, a Russian ship which sailed to France to take part in a display of tall-masted vessels, according to the International Law Office website. The company also tried to seize bank accounts held in France by the Russian embassy.

Cornut-Gentille, who sits on the parliamentary finance committee, has written to Sapin asking for details of the repayment to Russia.

The government’s draft bill submitted to parliament says there will be no economic impact on French companies, which are covered by the Coface export credit agency. What is the extent of that coverage and what is the procedure for that cover, Cornut-Gentille has asked.

Coface reimburses DCNS for repaying the advance payment of €893 million, and the French government has sent €56.7 million for the Russian systems.

Among other questions from Cornut-Gentille:

• When and how was the payment to Russia made or will be made?

• What effect will the payment have on the 2015 budget, and will it be raised by canceling missions or programs?

• If there are no cancellations, then how will the payment be financed?

Sistemy Upravleniya designed and built telecommunications and missile control systems for the Russian Mistral, Tass news agency has reported.

DCNS was prime contractor for the Vladivostok and Sevastopol, held at Saint-Nazaire, northwestern France. DCNS, which is 35 percent held by Thales, declined comment.

France and Russia reached an agreement Aug. 5 to cancel the  €1.2 billion Mistral deal, with Paris free to resell the ships and simply inform Moscow of any deal.

Egypt bought a $5.2 billion French arms package comprising a DCNS multimission frigate, four Gowind corvettes and 24 Rafale fighter jets, along with MBDA and Sagem missiles, and is in talks for acquiring two more corvettes.

India is in talks with France on an off-the-shelf order for 36 Rafales.

The Russian deputy prime minister and France's secretary-general for national defense and security exchanged letters on Aug. 5 setting out the terms which allowed their respective heads of state to approve the contract cancellation.

Email: ptran@defensenews.com

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