Procurement: Indian Carrier Costs Threaten Russian Arms Sales

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October 12, 2007: The $1.5 billion deal that sold the unfinished Russian aircraft carrier Admiral Gorshkov to India, included a Russian shipyard performing $700 million worth of repairs, modifications and upgrades. Another $800 will be spent on aircraft, weapons and equipment. 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. The situation has since gotten worse, with Sevmash now saying that it will cost over $2 billion to refurbish the carrier. The Indians are not happy, and expects the Russian government (which owns many of the entities involved in this deal) to make good. Given that India currently has $10 billion worth of Russian military items on order, and has been Russia's biggest, and most profitable customer for military equipment for decades, the Gorshkov is looking to be an error of gigantic proportions. The boss of Sevmash, when the Gorshkov deal was negotiated, has been fired and is under criminal investigation, on suspicion of financial mismanagement. To make matters worse, the additional work required on the Gorshkov has caused Sevmash to turn down lucrative commercial projects (like offshore oil platforms.)

Just to add to the pressure, India is getting more interested in Western military equipment, including big ticket items like warplanes and ships. The Indians have grown tired of the poor performance of Russian equipment, and the poor service they often receive when it comes to spare parts, or fixing design errors. For decades, this was tolerated because Russian gear cost less than half what comparable Western stuff went for. Since India's major foe was Pakistan, which was equipped with equally shabby Chinese weapons, it all seemed to work out. But now many Indian generals and admirals, noting the high performance of American troops in the war on terror, are seriously considering the higher cost Western way of war.

 


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