Russians want another $700 mn for Gorshkov

Just as India grudgingly prepared itself to re-negotiate with Russia on its demand to more than double the original cost for aircraft carrier Admiral Gorshkov, Moscow has conveyed another shocker to New Delhi that the deal will cost another $700 million.

This makes the deal worth $2.9 billion, which is almost thrice the original amount agreed upon when the agreement was first reached on January 29, 2004 by the NDA Government for $974 million. While India did expect cost-escalation to the tune of $350-400 million in the course of refurbishing the old ship, Russia stunned India by proposing a $1.2 billion hike in November 2007 that pushed up the cost to $2.2 billion.

It took several rounds of official-level talks and then the visit by Defence Minister A K Antony to Moscow for the UPA government to consider Russia’s request. Finally, the Cabinet Committee on Security gave its approval in December, around the time Russian President Dmitry Medvedev was visiting India, to renegotiate the Gorshkov deal in view of the cost escalation.

India has now been informed that on February 10, Medvedev signed on a final deal amount of $2.9 billion after “thorough analysis” of the refurbishing and trial costs. This was conveyed by a Russian team that’s here for talks on the deal. It’s headed by Deputy Minister in-charge of Federal Service for Military-Technical Cooperation Alexander Fomin and includes Nikolai Kalistratov, Director General of Sevmarsh Shipyard where the Gorshkov is being refurbished.

The revised offer has surprised the Indian delegation stunned as it was expecting to find some “middle ground” to the earlier proposal made by Moscow. India has already paid $500 million as per terms of the initial contract. The Russian delegation has said that regardless of the outcome of this round of negotiations, Sevmarsh wants an immediate payment of $190 million for the work that’s underway.

While this wavering by Russia could set off a diplomatic row, Moscow is firm that it will meet the delivery deadline of 2012. The first of the series of trials, the Russian team has said, would start next year. However, the trials alone have been estimated at $500 million which could increase depending on prevalent Oil costs.

Sources said Russia wants to ensure it bears absolute no cost in the entire deal. Admiral Gorshkov, which has not sailed much while in active service after it caught fire, needs to be completely refurbished. While India is building its own indigenous aircraft carrier, the progress has been slow and the date of completion has now been pushed to 2014-15.

Posted in: India,Russia