Technical Modernization Programme is not Threatened. Defence24 Interview with Minister Czesław Mroczek on the Main Polish Army Purchases

Dear Mr. Minister, almost a year ago you began to direct the MoD department which is responsible for procurement of armament and military equipment. What is your opinion on the proceedings undertaken to modernise the Armed Forces within that period?

We have done a lot of work. The largest proceedings are prepared to be realized. We have prepared documentation needed to select the contractors of most of the naval programme. UAV-related requirements are ready; decision regarding the reconnaissance UAV systems has also been taken.

Preparing the tender documentations in the modernisation programmes required a great deal of work to be done. Within that work we have solved the issue of so called BP [NS – National Security] – issue related to presence of the basic security interest for the State. We have also defined all the tactical-technical requirements, and we also have adopted schemes of action, when it comes to the process of selecting the contractors.

What is more, this year we have already signed contracts related to important programmes, such as integrated individual infantry equipment system dubbed Tytan, we also procured the AJT aircraft. We are getting close to the final stage of one of the biggest tenders – the multi-role helicopter bid. “Wisła” air-defence system tender is also fairly advanced. This year has been rich in events, many of the modernisation programmes are at their final stages.

Your predecessor, General Waldemar Skrzypczak, states that at the present moment the modernisation programme is stuck and it needs to be reviewed. What is your response?

This is hard to comprehend. As I said, we have done a great deal of work and we will use 100% of the assets which have been allocated to the technical modernisation.

When it comes to the schedule of the modernisation programme, significant delays are visible. If we have a look at the initial plan, which was published in December 2012, according to its contents the contracts regarding the “Wisła” and “Narew” programmes were to be signed in 2014, the same assumptions were drawn when it comes to procurement of the multi-role helicopters. The submarines-related contract was to be signed even earlier – in 2013. Within that context, I would like to ask you about the funding of the strategic programmes. FY2013 Budget is as much as PLN 2.5 billion, and this amount is allocated to the modernisation programmes. In 2014 the plan assumes spending at the level of PLN 3.5 billion, and in 2015 the amount is PLN 5 billion. The whole programme is to cost, according to the guidelines, ca. 100-140 billion zlotys. Are you prepared for a situation in which, within the following years, the spending related to the modernisation programmes would be as much as 10-15 billion zlotys per year, so that completion of this ambitious initiative is feasible?

The technical modernisation programme includes assets which are allocated to a long term state investment programme, along with the financial means which are placed within the MoD’s budget. In total, financing of the Technical Modernisation Programme, consists of the following stages: 2013 – PLN 5.9 billion, 2014r. - PLN 8.1 billion, 2015 – PLN 13.5 billion.

The technical modernisation programme shall be treated as a list of tasks which are to be realized along with the respective amounts of money. All is balanced and there is no possibility in which some task is received without a proper cost estimation. The individual projects are entered, in their early phases, as intended projects. Then those intended projects are specified, analyses are carried out, along with feasibility studies which let us find out how much time and money resources would be required to implement those projects.

Next, in the statutorily defined proceedings, which usually provide a certain degree of competition, for example in a tender, we select a contractor, defining the final amount needed to realize the task. The plan is changed then, after all it also contains an institutional order, according to which it needs to be periodically updated. The programme for the period between 2013-2022 has been updated when it comes to the stages between 2015 and 2022, also when it comes to the detailed information on costs and deadlines.

In other words, I confirm the fact that the modernisation plan for the period between 2013 and 2022 includes more than PLN 130 billion of spending.  We have carried out detailed analyses within the scope of threats that may arise and make implementation of the modernisation difficult. That may stem from accumulation of some programmes. We also assessed whether these tasks may be financed throughout the whole planning period. The analyses have shown that no obstacles of this type exist. The plan of technical modernisation consists of long term programmes in which the payment may be distributed across a longer period of time, and the plan has been constructed in a way, for the period between 2015 and 2022 which will let us implement it without any stops.

Annual defence spending is shaped at the level of 1.95% GDP. Out of this amount at least 20% is allocated to the technical modernisation. Having access to the GDP forecast for the upcoming years, we were able to determine the financial means needed to carry out the modernisation  within the period between 2013 and 2022 – PLN 130 billion.

There are some rumours, according to which, this year, assets which are allocated to spending related to the armament will not be fully used, not only within the scope of the Technical Modernisation Programme. Due to that reason MoD would ask the Ministry of Finance (state budget) for additional 3 billion zlotys. Does such threat even exist?

As I said, we have 8 billion zlotys allocated to the Technical Modernisation Programme, out of which 6 billion will be used to procure equipment and armament in the Armament Inspectorate. This is the money which is to be used within all the modernisation programmes, excluding the repairs, which are placed within the scope of responsibility of the Armed Forces Support Inspectorate – here the amount is as high as PLN 2 billion. At the moment we have planned spending 6.5 billion out of 8 billion zlotys. We still have two months left until the end of the year. More contracts are going to be signed, and the money is to be spent.

The Technical Modernisation Programme is one of the largest state budget investment programmes. In the future, the spending on the programmes will exceed an amount of PLN 10 billion, and in order to spend the money in line with the procedures and purposes, we need to do a lot of work. Within programmes which are so big it is natural and normal that some delays occur. Causes of such delays vary, they result both from actions of the Ordering Party as well as those of the Contractors. In order to implement the plan within scope which is so wide, we always have a plan “B”. Should a situation occur in which one of the projects which had been planned earlier is impossible to be realized, as an adjustment, it is replaced with a reserve project.

The procedure of the technical dialogue regarding the “Wisła” programme made it possible to select two offers: Patriot system manufactured by the Raytheon company and Eurosam’s SAMP/T system. Why did MoD decide to limit the number of bidders so radically at the initial stages of the procedure, when e.g. detailed financial requirements are unknown? Doesn’t that place MoD in a worse position for negotiation?

Each competitive procedure, including a tender, aims at limiting the number of bidders to a single subject – if we have five bidders, we need to exclude four of them. This is how selection of the contractor is carried out – we need to choose a single subject. Hence we carry out proceedings in which we do not exclude the competition, we rather choose a single subject. The technical dialogue has involved many companies, now two of them will participate in the final procedures, in accordance with the press release we have published earlier. On the basis of the work done so far, two, best in our opinion, offers have been chosen to be involved in the further proceedings. The tender is executed in a competitive way – we define the parameters and criteria of selection of the given offer. It is self-evident that competitiveness produces good results. Since several months we have been witnessing many contracts and memorandums being concluded by the contractors involved in the tenders, linking the contractors with some Polish companies. This happens due to the fact that size of contribution of the Polish industry in the project is one of the criteria in selection procedures, aiming at choosing the specific contractor.

We have found that basic national security interest is present in the “Wisła” programme. This is important, since some of the systems we are procuring are related to the basic safety in our country, and that means that we need to create our own, independent, state capability to maintain the combat readiness of those systems. Due to that one of the most important criteria, besides the price, is the scope of technology transfer, which is one of the basic criteria in construction of the national capabilities. I do not mean solely the minimum capability to repair and maintain the systems or keep them capable. Achieving that minimum national capability is a required condition. Our system of offer selection assumes that the more involvement there is on the side of the Polish industry, the higher the chances are to win the tender in case of the given offer.

It is worth to state one more question, within the context of the Polish industry involvement. If participation of the Polish industry is so important for the “Wisła” programme, why the Polish OPL consortium, which had been representing the Polish armament industry along with MBDA and Thales, was  excluded from the tender? It is said that this decision has pushed the Polish industry into a worse negotiation position, should potential polonisation be considered.

This must be some misunderstanding. The situation is exactly opposite.  That means, the idea which aimed at creating the OPL consortium, which used almost the whole Polish potential within the scope of the air defence, along with one of the foreign bidders was quite risky, since the offer could not have been selected in the proceedings. Connecting the Polish industry fully with a single offer,  in case of selecting any other offer, would not have been involved in the modernisation at all.

Poland would have to realize the project without involving the state industry. We have defined the requirements in a way, thanks to which, no matter who is the selected contractor, implementation of the system will have to be realized with help of the Polish facilities.

The concept you have mentioned assumed that the whole Polish industry is connected to a single bidder, hence the Polish companies bear the risk that they won’t be included in the programme at all, should they not win the tender. This element of armament is so important, that Poland needs to be capable to maintain this system, and the Polish industry needs to be a part of it.

Due to the fact above, the Polish industry, along with the MoD, needs to determine the level of ambition and scope of capabilities that needs to be established on a national level. Creating a specification of what we have and what is the scope of technologies that need to be procured in a way,, that would let the Polish industry maintain the readiness of these systems. And this is our goal which is being realised.

Both bidders, both the French, as well as the Americans simply start cooperation with the Polish industry and they do not claim that they are not going to involve the Polish companies in the program, it is just the opposite, one boasts that he is going to give more to the Polish industry than the other one. The to-be-contractors claim that “in their project the Polish industry is to have 50% of involvement”. And these are not my declarations, these are declarations made by the bidders – this is how the tender works. It forces the bidder to offer more within the scope of the industry involvement, otherwise he may not get to sign the contract. Not because of the price, but because he did not involve the Polish subjects in the development of the system.

Let’s talk about the information released by the Armament Inspectorate regarding selection of the participants of the next phase of the “Wisła” programme. Now we need to define the criteria, including the operability, the systems need to be actively used now. The air defence systems, as all the other armament system, undergo constant development and modernisation. If we decide to get an operational system (which is used currently), don’t we aim at getting a solution which, in 2018-2022, will be obsolete?

Operability is understood in a way, that these systems are used, in comparison to those in the R&D phase, which may never be created. I do not think that the French or the Americans will finish their activities related to the offered systems and the development will stop with the version we have been currently assessing. The final contract is to cover the issue, according to which any modifications of the system until it is procured, is to be included in our acquis.

Let’s talk about involvement of the Polish industry. Information has been released  that the “Narew” programme will be started at any moment now [the SHORAD system]. Technical dialogue is to be started start in November.

The tactical and technical requirements are to be defined until the end of the next year.

The Polish industry declares that it is able to develop the “Narew” system on its own. Contrary to the “Wisła” systems, where foreign input is definitely needed. Referring to what you have said, I simply wonder whether an issue of exclusion of an independent offer by the Polish industry would arise, in order not to cut away the national subjects from potential cooperation with the foreign contractor?

No existing Polish system could be involved in the proceedings. However, the Polish industry could become an integrator of the Narew system. Involvement of a foreign partner would make it possible to construct the system. I do not know whether the founders of that consortium, who are quite brave, assume that they would be able, acting in accordance with the requirements and supply deadlines, to base the system on a Polish-made rocket. I don’t think so, but I’m not the one to judge.

We would like to reinforce the Polish capabilities within the scope of the missile systems, which would result from implementation of the “Wisła” programme. We want the “Narew” programme to involve the national industry to a much larger extent. And here we have a full agreement.

We are maintaining a dialogue with the representatives of the scientific-industrial consortium, including institutions such as Warsaw University of Technology, Mesko or the Military Academy of Technology. There is a study which examined the Polish potential and desirable directions we would like to follow. These assessments and plans will be critically analysed. A feasibility study of the Narew programme is to be developed. It will indicate to what extent realisation of the plan of the consortium would be possible. We will basically assess their declarations and by 2016 it is going to turn out, who will participate in the final procedures.

One thing is certain – future of the companies contributing to the Polish missile potential is bright, because we will do anything to improve the national capabilities. We have some potential here and we start to get proper exposure in the region.

Let’s look into the issues related to the Polish Navy. Plan of conducting an analysis regarding the cruise missiles for the submarines was announced. Has it been carried out already?

Yes, and decisions have been made.

What are these decisions?

The Ministry of Defence has redefined the operational requirements. Earlier on we had not assumed that we will equip the submarines with the cruise missiles. The decision made is that the submarine to be procured needs to be capable of being armed with such missiles.

Is the submarine offset going to be connected to the surface vessels tender, e.g. Miecznik and Czapla one?

As a result of the whole naval programme, similarly as in case of the missile systems, we will create our capability to maintain all the vessels in a combat-ready status. That means that in each of the programmes, participation of the Polish industry will be required. And our capabilities will be constructed on the basis of an offset; potential contractors will be obliged to involve the Polish industry, since it will be one of the key criteria of the proceedings. When it comes to Miecznik or Czapla programmes, Polish industry may be the integrating Party. For me it is a very pleasant surprise that the Polish shipyard industry gets better and better. And not only do I mean the state companies here – the Kormoran vessel is being constructed by a private shipyard, Shipbuilding Repair Shipyard. These companies, in addition to the Pegaz accumulated shipyard potential, may play a key role here. After the naval programme is completed within such a wide scope, the Polish potential may get significantly better.

Let’s get down to modernization of the Leopard tanks. We know that there are negotiations going on with the KMW German partner. What was the reason for getting only a single foreign partner involved? We know that in the beginning there was more than just one offer, but the remaining ones have been rejected. What stage of the negotiation process have we reached, and isn’t single partner pushing us towards a less beneficial negotiation point?

In these proceedings MoD decision is very beneficial for the Polish defence industry, since the role of integrating party has been granted to a Polish subject, not to the German owner of the technology. This change was not used properly at the time.

Lately, thanks to creation of the PGZ group, and thanks to the fact that the whole potential which may be involved in the modernisation of the Leopard tanks (Poznan and Gliwice above all) is acting within a single subject, negotiations with the German partners have gained more speed. Mainly due to our MoD-related networking we have shown the German Party that we will not sign a contract, which would indicate unsatisfactory level of involvement of the Polish companies within the scope of equipment, with a Polish bidder.

I’m positive here and I hope that we will receive a good offer soon.

Dear Mr. Minister, at what stage the negotiations regarding the acquisition of the JASSM missiles are? When the contract is to be signed, and how quick the missiles will be introduced into the armament – when will they be delivered and when will they be combat capable?

JASSM missiles are owned by only a few countries, and it is these countries that decide whether they will share this class of armament with other countries or not. In case of this weapon system we needed to obtain the authorisation from the highest authorities in the USA. USA does not force any country to obtain their missiles. The situation is just the opposite – the Congress needs to express an opinion whether a consent should be granted for sharing the armament with those countries or not.

We have come to a conclusion that JASSM missiles, taking into account using these together with the F-16 jets, significantly increase our air-defence capabilities, but it is not the only benefit we get. The new missiles also expand our strike and deterrence capabilities, hence this equipment may be considered as a weapon which directly increases our combat capabilities.

When it comes to the price, the situation is hard to understand. The media thoroughly analyse the conditions, which have supposedly governed the contract, and these are assessed as very unfavourable in a situation, when we have not signed any contract yet. We are in the process of negotiation, value stemming from the press release of the US institution issued for the congress is the maximum amount. The negotiated amount is not significantly smaller and I would like to clearly point out that not only do we buy JASSM missiles, but we also procure a modernisation bundle for the F-16 combat systems.

Was it the MoD that asked for 40 missiles, or was such number imposed by the Americans? Earlier there were some rumours about purchasing 200 JASSM missiles.

We procure 40 missiles, and when it comes to creating that potential and combat capabilities of the F-16 it is a satisfactory beginning. We want to be involved in the second phase of the JASSM programme, which would involve development of missiles which are even more advanced, with twice the performance of the basic variant. The US is  introducing these missiles now into their combat equipment and we would like to procure them. Perspective of procuring the JASSM missiles is distributed across a few years, and within the upcoming years we would like to enter the JASSM programme as a full member and procure another batches of the modernized missiles with enhanced performance.

So we procure only 40 JASSM missiles and then we will try to purchase  the JASSM-ER variant? Does the bundle for the F-16 include solely software update? There was some information according to which, along with JASSM missiles radars and GPS systems are also to be modernised, along with the software update in the F-16’s?

I would like to state that we buy the JASSM missiles along with the needed software, which is an element which makes it possible to use the missiles, so JASSM missiles are not the sole element of the deal. Software mod will be not focused solely on JASSM missiles. If we did not buy these cruise missiles we would have to modify the combat systems software in the F-16’s anyway. I’m not going to get into the details about potential modifications.

Are these 40 missiles, considering the term of procurement, realistically reinforcing our defence potential, taking into account the hypothetical threats? We have 48 aircraft and 40 missiles. The experts state that the number is very low.

We cannot consider the JASSM missiles separately from our other missile capabilities we are working on. Please remember that we are in the process of acquiring the second Coastal Missile Squadron, soon we will also procure Homar missile artillery system and air defence systems.

When the Homar programme will be implemented?

I assume that I will know the configuration of the system next year and that we will select the contractor who will deliver the long range rocket artillery systems.

How is the MoD going to realise the Homar programme. Is looking for a foreign partner an option here?

It is hard to judge, since no relevant decisions have been taken so far. I stress the fact that the Homar programme will be realised very quickly – the supplier is to be found next year, and the project itself is included in the adjustment of the modernisation plan related to the Ukrainian crisis. That means that the delivery procedures will be accelerated.

Information has been released, according to which the Armament Inspectorate looks for a supplier of anti-tank ammunition for the Leopard tanks, lack of which was present in the Polish Army (sabot anti-tank rounds). What about the ammunition for T-72 and “Twardy” tanks. These tanks are also used by the Army and there are significant shortages within the scope of the anti tank ammo here as well. The Armament Inspectorate stated that there are no plans to start a tender within that scope, and the arsenals of the Polish Army are a place where, along with the reserves, even 700 Twardy and T-72 tanks are stored.

Decision has been made regarding the main ammo inventories of the key armoured systems and artillery, which have been assessed positively as having relevance for the basic national security interest. This year we have carried out full reviews of our inventories and in the areas where shortages are present we will develop our capabilities. Research and development of our economic subjects and national industry will be financed, so that we gain proper capabilities within the basic inventory

You have said that the UAV procurement process is to be speeded up. The technical dialogue was very wide and covered systems of all classes. Is the tactical UAV tender a priority now?

We will try hard to involve the Polish industrial potential in work on the projects related to the reconnaissance UAV’s. We consider that the potential present in the mini-UAV projects gives us a chance. Risk of asking the Polish subjects to deliver the UAV’s is acceptable. And it is the Polish subjects who need, in cooperation with foreign partners, construct such UAV systems on the basis of the possessed qualifications.

You mean private or state industry?

The tender will not differentiate between the private and public subjects, the final shape will depend on the formed consortium. In some cases certain subjects already cooperate together.  Nevertheless we are in the process of talks regarding the UCAV’s. I would like to stress the fact that UCAV’s are operated by 2-3 states in the world, hence this capability is very limited. UCAV’s are a sensitive issue, even more sensitive than the JASSM missiles, hence talks within that scope are fairly difficult. It is the countries that are in possession of the UCAV’s that need to establish the rules of technology transfer. Activities aimed at procurement must last a bit more, and there is no option of closure of this process. Recce systems will be procured in a large bundle, while the tactical UAV’s will be acquired through a competitive tender, with a leading role of the Polish subject.

Mr. Minister, is it true that MoD wants to join the LoI group, i.e. it wants to sign a frame agreement regarding the supporting assets for restructuring and functioning of the European defence industry? Did the MoD implement procedures within that scope? Is MoD in possession of analyses that cover the benefits Poland and the Polish arms industry would get if we join this memorandum?

MoD is currently gathering opinions of the governmental organs and from the subjects which contribute to the defence industry potential. Legal and economic analysis of the frame agreement, regarding the legal and economic results having impact on the current operations of the subjects of the industrial potential of the arms industry, as well as on the  interest of the Polish Armed Forces, is being carried out.

LoI group member states are the main partner of the European Commission within the scope of constructing policy of the arms industry in Europe. If we join that group, we would have a realistic influence on shaping of the EU industrial policy, so that the basic interest for the Polish safety would be guaranteed.

Nevertheless we will not join any group, should such joining have a negative impact on our industry. Thus it is so important to carry out the analysis in a correct way.

As we know, President of the Sikorsky Aircraft Corporation has sent a letter in which he questions the assumptions of the proceedings that aim at procurement of the multi-role helicopters. MoD does not agree with the accusations. Aren’t you worried about any potential delays in the proceedings due to the subsequent protests on the side of the bidders, e.g. regarding the formal requirements? When this tender is to be concluded and when the final agreement is to be signed?

Ministry of Defence defines the needs of the Armed Forces. We’ve been involved in an open dialogue with the bidders from the beginning of the analytical-concept phase. We have prolonged the final offer placing deadline and we provide replies to additional, detailed questions. We expect that three offers will be placed until 28^th November, regarding securing the mobility needs of our Army. Conclusion of these proceedings is planned to happen within the first quarter of the next year.

Currently technical dialogues regarding purchases beyond the year 2022 are being carried out – e.g. tanker, logistic support vessel. What is the goal of being involved in such negotiations, when the technical capabilities and offers will be significantly changed within that period?

Implementation of the programme of eliminating the naval threats within the period between 2013-2022/2030, which aims at procuring submarines, coastal defence vessels, patrol vessels means, that we need to start the analyses regarding provision of the logistic security of the ships above.

Technical dialogue which is being carried out by the Armament Inspectorate has been started in order to get knowledge on the latest and the best technologies when it comes to the factors of cost-effectiveness, technical solutions and limitations, which in case of such vessels are not developing as quickly as it is in case of the Navy ships.

Thanks to the technical dialogue, the Ordering Party can confront its own real needs with the options of implementation.

The technical dialogue may be repeated and carried out until the Ordering Party is sure that the description of the subject of the order is most beneficial both from the technological, as well as from the economic point of view.

In February 2014 information emerged, according to which MoD is to acquire 5^th Generation Multi-Role Jet Fighters until 2030. In what way the Ministry is to provide funding to this potentially expensive programme? When this initiative will be included in the technical modernisation plan?  Are any other manned combat jet purchases planned in the future, beside the 5^th Gen. Fighters?

Our F-16 fighters do not meet all the needs within that scope. The MiG-29 fighters are continuously modernised, nevertheless we see that there is a need of replacing these airplanes with a more modern design in the future. The relevant analyses are being carried out but no choice has been made yet. Plan of the technical modernisation is being periodically updated. I’m sure that once relevant decisions are made, they will be reflected in proper entries in the plan of the technical modernisation.

Thank you for the conversation.

Jędrzej Graf, Juliusz Sabak