Identifier
Created
Classification
Origin
05PRAGUE815
2005-05-27 12:04:00
SECRET
Embassy Prague
Cable title:  

TROUBLING SIGNALS IN LARGEST CZECH MILITARY

Tags:  MASS PREL BEXP KCRM EZ 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
S E C R E T SECTION 01 OF 03 PRAGUE 000815 

SIPDIS

E.O. 12958: DECL: 05/19/2015
TAGS: MASS PREL BEXP KCRM EZ
SUBJECT: TROUBLING SIGNALS IN LARGEST CZECH MILITARY
PROCUREMENT


Classified By: Political-Economic Counselor Mike Dodman for reasons 1.4
B+D

S E C R E T SECTION 01 OF 03 PRAGUE 000815

SIPDIS

E.O. 12958: DECL: 05/19/2015
TAGS: MASS PREL BEXP KCRM EZ
SUBJECT: TROUBLING SIGNALS IN LARGEST CZECH MILITARY
PROCUREMENT


Classified By: Political-Economic Counselor Mike Dodman for reasons 1.4
B+D


1. (S) Summary: The current $1 billion Czech Army tender for
armored vehicles -- the military's largest procurement to
date -- is designed to avert past problems with transparency,
with PriceWaterhouseCoopers engaged to run the tender instead
of the MOD's Armaments Directorate. The two main declared
participants in the tender are the Austrian Steyr (owned by
General Dynamics) and the Finnish Patria. A second GD
subsidiary, Mowag of Switzerland, was considering competing
until GD decided to go with only one of its firms. DefMin
Kuehnl has complained that this decision hurts the GOCR's
goal of holding a "non-discriminatory tender." Kuehnl and
other MOD officials have pushed hard for inclusion of Mowag
in the tender; Mowag has close business ties with the
politically influential Czech arms trading firm Omnipol,
which maintains strong influence with the MOD Armaments
Directorate. Of equal concern is a comment from a senior
Czech Army officer that if Mowag does not participate in the
tender, the contract could go to a firm without American
ties. On the other hand, National Security Advisor Kostelka
has recommended that GD stick to its position and do what it
believes makes sense.


2. (S) Post has informed GD of the approaches from GOCR
officials. The decision of which firm to compete, and
whether or not to have both GD subsidiaries in the tender, is
one for the company to make. Our concern is that the process
remain fair and transparent. We intend to use the
Ambassador's upcoming meetings with new PM Paroubek and other
senior officials to reinforce our expectation that this be a
clean tender. End Summary.

--------------
CR's largest tender was designed to be cleaner than the Gripen
--------------


3. (C) The tender for 234 eight-wheeled armored vehicles,
worth 22 billion Czech crowns or approx. $1 billion, is the
largest military procurement in Czech history, exceeding even
the supersonic aircraft tender that was eventually won by the
Swedish Gripen. This tender has been under discussion for

over a year, and was finally approved by the GOCR in April,
with bids due on June 22. In an effort to counter criticism
about the overall lack of transparency in military
procurement, and in particular the supersonic fighter tender,
the Czech MOD has tried to make the current tender a model,
engaging PriceWaterhouseCoopers to prepare the tender
documents and handle the evaluation of bids. Embassy's
assessment is that PWC is doing a good job of preparing a
transparent and open process.


4. (C) The two firm bidders to date are Patria of Finland
(owned by the Finnish Government and EADS),and Steyr
Spezialfahrzeug of Austria, a subsidiary of General Dynamics.
The Swiss Mowag (Motorwagenfabrik AG) was also considering
entering the competition. However, General Dynamics, which
through the General Dynamics European Land Combat Systems
owns both Steyr and Mowag, decided that only Steyr would bid
for this tender, citing the bad experience recently when the
two firms competed against each other (and Patria) in a
similar tender in Portugal. GD also understands that Embassy
advocacy efforts (in cooperation with the Austrian and/or
Swiss embassies) would be hampered if more than one
U.S.-affiliated firm is competing.

--------------
Czech complaints
--------------


5. (C) Czech Defense Minister Kuehnl first complained to
Ambassador on March 25 that he was concerned by reports that
Mowag would not take part in the tender. Citing the MOD's
strong desire that this be a fully competitive process,
Kuehnl said the failure of Mowag to participate in the tender
would weaken the competition. He repeated the complaint in
subsequent discussions with the Ambassador, and DATT and
others have heard the same from others. In a May 16 letter
to the Ambassador (received May 19; faxed to EUR/NCE) Kuehnl
recalls the well known USG position that Czech military
acquisitions should be fully transparent and complains that
GD's decision to compete only one subsidiary "is at variance
with our aim to hold a non-discriminatory tender." Kuehnl
goes on to request the Ambassador's support in having "the
highest possible number of potential bidders," noting the
MOD's desire to chose from "the truly best products
available, which Mowag's portfolio definitely represents."
Embassy has shared the letter with GD and the Austrian
embassy, with whom we have been coordinating on this tender
for some time. Ambassador responded to Kuehnl on May 23,
noting that the USG does not direct the commercial decisions
of private firms, and restating our expectation that this be
a transparent tender.


6. (S) During a private discussion with Ambassador on May 20
on the margins of a meeting on other topics, Chief of the
Czech General Staff Pavel Stefka said that he believes it
would be a "problem for the GOCR" if the U.S.-connected
company does not win the tender. "We don't want the same
result as the supersonic tender" said Stefka. He added that
it is the Czech military's consensus that Mowag produces a
better vehicle than Steyr.

--------------
Omnipol connections, BAe, and other behind-the-scenes activity
--------------


7. (S) Allegations of corruption and favoritism in the
controversial supersonic fighter tender centered around the
Czech arms trading firm Omnipol, which maintains very close
ties with the MOD Armaments Division and Deputy Defense
Minister Kopriva, who is an appointee of the junior coalition
partner, the Christian Democrats. Omnipol is known to have
had close links with Mowag, raising suspicion -- which we are
not able to confirm or deny -- that they may be behind
efforts to make sure that Mowag is included in the tender.


8. (S) We understand that British Aerospace is also
aggressively supporting the bid by its Finnish subsidiary.
One potential new development is a bid under consideration by
United Defense -- a U.S. firm owned by BAe North America. If
it entered the competition, this would put a stop to embassy
advocacy for either of the GD subsidiaries, if the UDI bed
were judged to be realistic.


9. (S) There have been allegations that Czech firms that
would provide maintenance and support for the new vehicle
fleet are the real behind-the-scenes players, trying to
influence the process one way or another. These firms also
maintain close MOD contacts, and include state-owned
entities. One Member of Parliament who closely follows
military procurements supported this with his assessment to
us the tender was, in fact, proceeding with the hoped-for
transparency in the sense that the actual suppliers were so
far behaving appropriately.


10. (S) PM Paroubek's National Security Advisor (and former
Defense Minister) Miroslav Kostelka, in a meeting with DCM on
May 26, suggested that Deputy DefMin Kopriva is a protagonist
for Omnipol, much as he was during the supersonic tender. He
faulted DefMin Kuehnl for not exercising more control over
Kopriva, but gave assurances about PWC oversight and GD's
right to compete as it decides without damage to Steyr, which
he recognized has a good product. (See septel.)

--------------
Next steps
--------------


11. (U) Embassy has kept GD informed of our discussions with
the Czechs. We have told the firm, as we have told the GOCR,
that it is GD's decision which subsidiary or subsidiaries to
compete. We will calibrate our advocacy on behalf of U.S.
suppliers based on the decisions of the firms. (Note: from
our discussions with GD staff, we understand they remain
reluctant to compete both subsidiaries in this tender, and
that they recently turned down a request in another country
to switch suppliers.)


12. (C) Our primary concern at this point is with the
process. We will continue to make clear at all levels of the
GOCR that we expect to see transparency in all stages of the
acquisition. Ambassador will stress this in his introductory
call on new Prime Minister Paroubek, scheduled for June 9,
and in other appropriate meetings. DCM will follow-up with
Kostelka and with Deputy DefMins Belcik and Kopriva; DATT and
others will reinforce as appropriate.
CABANISS