Procurement: Beware The Terms And Conditions

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March 23, 2019: In early 2019 Belarus delivered four operational MiG-29 fighters to Serbia. These aircraft had actually become Serbian a year earlier but Belarus had agreed to do some repairs and upgrades to make the aircraft usable. The Serbian air force now has 14 MiG-29s, three MiG-21s and 22 J-22 ground attack aircraft. The J-22 was designed and built in Yugoslavia, which dissolved in the early 1990s. Only about a third of the Serb J-22s are operational because no one is offering upgrades or overhauls. MiG-29s have lots of upgrade and refurbishment options, not all of them favorable. Buyers must study the many “terms and conditions” in the purchase or transfer agreement.

The Belarus MiG-29s are not as up-to-date as the six received from Russia earlier but Belarus had done the upgrades at about a third of what Russia demanded from Serbia. Belarus and Serbia both learned to be wary of “free” military aircraft from Russia, especially when the gifts came with the stipulation that Russia would provide spare parts and upgrade services at whatever price Russia set.

While Russia is still manufacturing and exporting MiG-29s Belarus has retired all its MiG-29s and is selling or giving them away. The four free Belarus MiG-29s going to Serbia were subject to the similar upgrade costs and terms as the six free MiG-29s Serbia already received from Russia but with the understanding that Belarus would provide the repair and upgrade services at reasonable prices. This issue has caused a lot of bad feelings (towards Russia) in Serbia but it was the best deal cash-poor Serbia could obtain in the years before Belarus came along with a better offer. In short, if you get a free MiG-29 from Russia you can only get upgrades, at inflated prices, from Russian firms. That’s the kind of support military aircraft operators try to avoid.

The extent of this mess became visible in October 2017 when, after a year of negotiations over terms, Russia began delivering free military equipment to Serbia. The most visible items were the six MiG-29 fighters that were supposed to arrive in March 2017 but delays were experienced. At first, there was no explanation for the delays but it was believed to be all about the terms of the gift (which included 60 armored vehicles and various other items). This deal was meant to save Serbia a lot of money but the Russians wanted the Serbs to pay for upgrades to bring these MiG-29s up to the latest standards. The actual costs for this was not announced but it was later revealed that Russia was financing the upgrade deal and the initial price was over $40 million per aircraft. That was more than Serbia was willing to pay or could afford and the first two MiG-29s did not arrive until 2018. Eventually, Serbia negotiated reductions in the extent and cost of the repairs and upgrades but they were still believed to be over $30 million per aircraft. If this all sounds rather murky and mysterious, that is normal for the Balkans and especially for the many dealings Serbia and Russia have endured since the 19th century. Both countries remain aware that this relationship played a key role in triggering World War I in 1914 and ever since Russian “aid and protection” has always cost more than Serbia expected.

This MiG-29 saga also goes way back. Serbia got its first MiG-29s (four of them) in the early 1990s when Yugoslavia came apart as a side effect of the collapse of communist rule in East Europe and Russia. At the time Russia told Serbia that it would provide more free or cheap MiG-29s but never did. There were always money (Russia was broke) or political (the West objected to sending more weapons to an unstable area) reasons for Russia not sending Serbia the promised military aid. But in 2016 Russia was making a big deal about keeping an old promise. That’s how Russia diplomacy works in the Balkans.

This deal was not a sudden decision. In late 2014 the Russian president sent some essential supplies to Serbia, as a personal gift, to put some of Serbia’s MiG-21 and MiG-29 aircraft back in service. The essential supplies consisted of special batteries the MiGs required to operate. Why did the Serbs lack batteries? Therein lies an interesting tale.

Serbian Air Force officials knew in 2013 that they had to obtain additional batteries and asked the Defense Ministry to order them. This was done, but not before someone in the Defense Ministry noted that India offered the same batteries (manufactured for their own MiGs and for export) at a third of what the Russians (the usual supplier) charged. So Serbia ordered from India. Russia found out and demanded that Serbia cancel that order or else Russia would withhold MiG parts and maintenance services only Russia could provide. Serbia protested but was reminded that in 1999 Russia was the only major power that had backed them when they sought, in vain, to prevent their Kosovo province from becoming an independent state (something NATO supported). The Serbs felt they owned their “big brother” something and gave in. However, the Serbs pointed out that money was short and it would be a while before they could scrape together the funds to pay for the pricey Russian batteries.

While all this was going on the Serb air force ran out of batteries. Thus by mid-2014, the Serbian air force revealed that none of its combat aircraft (26 MiG-21s, four MiG-29s and 18 J-22s) were available for duty because the Defense Ministry was having problems finding enough cash to buy batteries and other essential supplies for the aircraft.

Serbia never had much of an air force to begin with and the cost of maintenance has been a struggle just to take care of basics. By late 2014 the air force insisted that three MiG-21s and three MiG-29s were available for emergency service but no one had seen any of them flying for months. Some of the older aircraft have been out of action for so long that it would take a major refurbishment to get them back into the air. Most of the non-combat aircraft are also grounded because of maintenance problems also related to procurement costs.

At first, it was believed that the battery situation was clearly another example of the Defense Ministry procurement bureaucracy getting in the way. In the past, the procurement bureaucrats had been involved in some situations where the troops complained of a torturous and lengthy process for ordering equipment. There were even cases where the procurement bureaucrats seemed to ignore how delays in obtaining parts or supplies would impact equipment readiness. But in this case, the procurement officials were trying to save some money so that more critical parts or maintenance supplies could also be purchased. Russia, as it has often done to others in the past, gets very disruptive and threatening when anyone seeks to buy MiG parts or services from anyone but Russia.

Normally all this procurement politics is classified as “state secrets” but word of the battery fiasco got out because of the high handed behavior of the Russians. Thus, in that case, there were no calls for an investigation to find and prosecute the “spy” who made this item public. Russia tried to break the deadlock and portray itself as the good guy by donating some of the needed batteries. But many other batteries must be bought at the usual price, which is three times what the Indians charge. Buy Russian, or else and never forget who your Big Brother is.

Mindful of the ill will generated by all this the 2016 MiG-29 deal was accompanied by the donation of 60 used armored vehicles (30 T-72 tanks and 30 BRDM-2 wheeled reconnaissance vehicles). Many Serbs withheld their thanks until Russia actually delivered. Similar situations regularly occur elsewhere in the Balkans. For example in October 2017 Bulgarian pilots refused to fly their MiG-29s because of safety issues. India has had similar problems and in some cases, especially since 1991, some buyers demand, and got, a “money back if not satisfied” clause in the purchase contract. That clause has been exercised a few times, often in the case of MiG-29s. In early 2018 Russia made another peace offering; providing $2.5 million to pay for MiG-29 flight training. Serbia thanked Russia but has not forgotten.

These were not isolated examples of poor Russian support. It even occurs for equipment purchased for the Russian armed forces. Even with the Russian government able to directly threaten managers of Russian firms providing substandard support to Russian customers, there is no quick or easily implemented fix. China has noticed this and has developed a reputation for providing more prompt, affordable and responsive support for equipment similar (or nearly identical to the Russian original) Chinese armored vehicles, aircraft and so on. This has not motivated the Russians to change their ways. China is taking more and more export customers from Russia. Yet China is not totally independent of Russia for some items, like military aircraft engines and a few other military technologies. Year by year China becomes less dependent on Russia and more popular as a supplier than Russia for the same military equipment.

 


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