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10/12/2016

Why Russia accepted the Mistral agreement

Global Europe

Why Russia accepted the Mistral agreement

The head of French defence and security has revealed why Russia accepted an agreement on the non-delivery of two Mistral warships that appeared to let France come out on top. La Tribune reports.

Russia’s acceptance of an agreement more favourable to France on the non-delivery of two Mistral projection and command vessels (BPCs) has confused some observers. Louis Gautier, France’s Secretary General of Defence and National Security, and the lead negotiator of the agreement, revealed some clues as to how the deal was reached during a hearing in the Foreign Affairs Committee of the French National Assembly on 8 September.

“On 4 December 2014, the prime minister gave the secretariat general for Defence and National Security (SGDSN) a mandate to conduct an interministerial examination into the file. Naturally this ended with a recommendation: to establish contact and discussions with the Russians on the conditions for suspending the agreement and, in case this decision was confirmed, conditions for the non-delivery of the two BPCs,” Louis Gautier said.

Throughout the five months of negotiations, Louis Gautier utilised differences of opinion between certain Russian negotiators. Some wanted the two ships to be delivered, while others, like the main Russian negotiator Dimitri Rogozine, preferred to seek a settlement.

According to the SGDSN, Dimitri Rogozine, the vice-president of the Russian government, “was not in favour” of buying the two French BPCs in the first place. The head of French security revealed that “the Russian position was not very unified”.

Russia wants to keep France as a partner

Behind Moscow’s acceptance of the agreement, according to Louis Gautier, was a desire to “keep a working relationship with France, or at least keep France as a possible contact”.

He stressed that it was “in Russia’s interest to resolve the question and not allow it to interfere with the rest of the diplomatic relations with our country”. Notably the resolution of the Ukraine crisis and the question of negotiations with Iran.

“My feeling is that both countries wanted to avoid this question coming back and polluting the major diplomatic issues,” he said.

Louis Gautier added that he believed Russia’s reasons were “undoubtedly the same as the French state’s, namely, to avoid long and costly legal disputes”.

France comes out on top

From the outset, Paris had an uphill struggle to reach an advantageous agreement. “From a legal point of view, our starting position was not favourable,” said Louis Gautier.

The two agreements signed by the French government in January 2011 (at commercial and state level) bound France to a series of delivery guarantees for the transfer of technology and equipment to Russia.

The intergovernmental deal included an international arbitration clause, which would be invoked after six months of fruitless discussions, and the industrial agreement between DCNS, a French naval defence company, and Rosoboronexport, the Russian arms imporer, provided for recourse to international arbitration within 14 months of a dispute arising.

In a worst case scenario, the DCNS could have been ordered to pay its Russian contract partner up to 0.2% of the value of the delayed goods per week of delay, to a limit of 5% of the total value.

At first, the amount demanded by the Russians was far higher. But in the end, France reimbursed a sum of €949.7 million, including €56.7 million for the training of the Russian crews.

This figure includes no financial costs, no penalties and no compensation. Louis Gautier said, “This alone was a good result for us.”

Russia’s negotiators had initially demanded reimbursement for adaptations made to the quays at the Ouliss base in Vladivostok and the Kamov helicopters that were supposed to be loaded on the ships.

A deal at what cost?

The final bill for France will depend on the cost of keeping the ships (around €1 million per ship per month) or dismantling them (around €2.5 million), the cost of adapting the ships to the specifications of a new purchaser and any possible discount off their resale price.

“Only when we take off all these costs do we really get an idea of the damage,” Louis Gautier said. “We may be able to sell the BPCs to the Egyptians or the Indians – if they pursue their current intentions – taking into account the standard of their current fleets and their level of cooperation with Russia,” he added.

This was previously published by EurActiv France.