[Kabar-indonesia] BBC: Russia may sell arms to Indonesia on credit

[Joyo at aol.com]

also: Czech Business Weekly: Indonesia may drop plans to buy
Aero jets

BBC Monitoring Asia Pacific
November 13, 2006

Russia may sell arms to Indonesia on credit

Source: Gazeta, Moscow, in Russian 27 Oct 06

Excerpt from report by Russian newspaper Gazeta on 27
October

Russia is starting to use Soviet methods of selling arms and
military equipment.

Russia is returning to the practice of Soviet times, when
Moscow sold weapons on credit to friendly regimes. At the
time the credits were practically gifts - not one of the
allied countries intended to repay the money. [passage
omitted] Now the sales of Russian arms will be made
according to the laws of the market.

This week it was learned that Russia may credit Indonesia
1bn dollars for the purchase of Russian arms. In particular,
the Indonesians want to buy six Kilo-class submarines, six
Su-30MK2 fighters, and also Mi-17 and Mi-35 helicopters.

Rosoboronexport is still afraid of making any comments about
the deal.

However, experts assess the changeover to such a practice as
positive and do not expect a repeat of the mistakes of the
USSR. "We simply cannot hand out weapons and money. Today
only the United States can afford to do this. They can sell
weapons to their allies with loans with unlimited payback
periods or can transfer weapons at no cost," believes an
expert of the Strategy and Technology Analysis Centre (AST),
Dmitriy Vasilyev. Moreover, the Americans are actively using
their advantages, transferring military equipment to Turkey,
Pakistan, Poland and other "friendly regimes".

Russia for understandable reasons cannot afford this.
However, we do have precedents for selling weapons on
credit. "In particular, last year there was a contract with
Jordan for the delivery on credit of two Il-76 transport
planes with a total cost of 100m dollars. However 1bn
dollars is an unprecedented amount," believes IG [Investment
Group] Kapital analyst Mikhail Pak.

One should note that Indonesia expressed interest in Russian
arms back in 2004. However, the tsunami that took place at
that time wiped out the plans of the Indonesians. Their
solvency has now been restored, but not fully. Foreign
credit for them is the only solution. Thanks to it, it is
possible to increase the payback period in a natural manner,
which is important for purchases of such size. "In addition,
the Indonesians will be able to list expenditures for the
purchase of arms in their budget, dividing the entire loan
into equal parts over a specific number of years," believes
Mikhail Pak.
Such an approach to arms sales is also advantageous to
Russia. "In addition to our country receiving a percentage
above cost, the money of the banks will go directly and
immediately to Russian companies. And then they will not
have to worry about whether they will be paid or not and can
direct the money directly to the development of production,"
says Pak.

In addition, Russia can set up long-term cooperation in
other spheres with the borrowing countries by means of the
loans. "For example, one can see the possibility of loans
everywhere that our big business has an interest. This could
be access to natural-resource deposits," believes Dmitriy
Vasilyev from the AST Centre.

However, only third world countries can be possible clients
under such a scheme. Dmitriy Vasilyev believes Africa to be
a prospective market. "Also the small countries of Latin
America or Southeast Asia," Mikhail Pak adds to his
colleague. The latter region could be the most promising,
the expert believes. "If Indonesia is armed, then the
countries neighbouring it will be drawn up to its level, and
it is possible that they will buy weapons from us," hopes
Pak.

---------------------------------------------

Czech Business Weekly
November 13, 2006

Indonesia may drop plans to buy Aero jets

By: Petra Breyerová

The Indonesian Air Force is considering dropping its plan to
buy L-159 model jet fighter trainers from Aero Vodochody,
the Czech aircraft maker and armory, the Indonesian news
agency Antara reported Nov. 9.

The Indonesian Air Force move comes in response to a
statement by Aero's new owner, private equity firm Penta
Investments, that it will consider halting the production of
the jets. "We will review our plan [to buy L-159s]. If the
company decides to cease producing the aircraft, we will
cancel the plan," Indonesian Air Force Chief of Staff Herman
Prayitno told Antara.

Prayitno said that the Indonesian Air Force is assessing
plans to replace various types of aircraft still in service,
including F-16 Fighting Falcons and F-5 Tigers. "So far [the
Indonesian Air Force] hasn't decided as to which types of
aircraft, or from which country, we will buy to replace our
[old] aircraft," he said.

Aero produced 72 L-159 jets from 2000 to 2004 and sold them
to the Czech Army. Since then Aero has been struggling to
find markets for the jets abroad. Penta last month expressed
doubts about continuing the production of the jets after its
subsidiary Oakfield bought Aero from the Czech government
for Kc 2.91 billion (€ 103.8 million). "If Aero's management
convinces us that there's demand for the L-159 aircraft, its
production will continue. However, we have serious doubts
that the contracts [for the sale of L-159 jets] now being
negotiated are realistic," Penta Investments co-owner Marek
Dospiva told daily Hospodárské Noviny Oct. 26.
Last week Aero spokesman Vítezslav Kulich said that halting
production of L-159 jets wasn't on the table. "We're working
on four [L-159] aircraft and there's no intention to cease
the production." He declined to comment on the possible deal
with the Indonesian Air Force and also refused to name
potential buyers for the four jets that are now in
production. Kulich said that Aero is looking at four
territories where it would like to sell the L-159 jets.

Kulich declined to identify the territories. Apart from
Indonesia, Venezuela might be an option. As a part of the
purchase of Aero, Penta also gained Aero's Kc 10 billion
state debts and a pending deal worth Kc 11 billion that
includes delivery of about 40 L-159 jets to the oil-rich
nation. But Venezuela is under a U.S. arms embargo and the
Czech Ministry of Foreign Affairs has cast doubts on the
deal (see "Aero sale to Venezuela faces ministry hurdles,"
CBW, Aug. 7, 2006). But despite that, representatives of
Venezuela are rumored to be coming to the country this week
to discuss the potential deal with Aero.

------------------------------------------
Joyo Indonesia News Service
------------------------------------------