February 6, 2008: After two months of intense negotiations, India has agreed to pay Russia an additional half billion dollars to complete refurbishing the aircraft carrier Gorshkov. This is all part of 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 was to be spent on aircraft, weapons and equipment.

Late last year, Russia announced that it wanted a lot more money for the project. India insisted on getting what the original contract called for. The carrier is in Russia, but 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 were not happy, and expected the Russian government (which owns many of the entities involved in this deal) to make good on the original deal.

India sent its own team of technical experts to Russia, and their report apparently confirmed what the Russians reported, about shipyard officials low-balling the cost of the work needed. This is a common tactic for firms building weapons for the nation they are in. It gets more complicated when you try to pull that sort of thing on a foreign customer. The Russian government will cover most of the overrun cost. The Sevmash managers who negotiated the low bid are being prosecuted.