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E.O. 12958: DECL: 06/22/2016
TAGS: EIND MARR MCAP PGOV SI
SUBJECT: SLOVENIA: FINNISH PATRIA WINS 300 MILLION USD
DEFENSE CONTRACT

Classified By: COM Thomas B. Robertson for Reasons 1.4 (b,d)


1. (C/NF) SUMMARY: On June 12, the Slovenian Ministry of
Defense (MOD) announced that Finnish defense contractor
Patria Vehicles had won the GOS's 330 million USD (63 billion
tolar) defense contract to supply 136 8x8 armored wheeled
vehicles by 2012. The only other bidder on the tender was
Slovenian defense company Sistemska Tehnika (ST), which is 70
percent owned by Slovenia-based Viator & Vektor (V&V) and 17
percent owned by Austria-based Steyr-Daimler-Puch, which, in
turn, is a wholly-owned subsidiary of the General Dynamics
(GD) corporation. On June 15, COM met with V&V Board
Chairman Zdenko Pavcek and GD European Land Combat Systems
President Michael Malzacher to discuss the case. Both
complained of a lack of transparency and noted that the
decision had been made much sooner than anticipated. Viator
& Vektor has requested an audit of the tender and on June 19
COM sent a letter to Prime Minister Janez Jansa supporting
this request. During a June 21 luncheon with outgoing CHOD
Major General Ladislav Lipic, the subject was discussed and
Lipic's body language suggested that he questioned the merits
of the Patria offer. END SUMMARY.


2. (SBU) On June 12, the MOD announced the results of the
tender and commented on the three major criteria according to
which the decision was made: (1) technical merits, (2)
economic benefits, and (3) commercial benefits. The
technical merits of the vehicles were evaluated by an MOD
committee consisting of 15 members (chaired by Brigadier
Bojan Pograjc, currently enrolled in a Master's Program at
NDU) and by an external review of the University of
Ljubljana's Faculty of Mechanical Engineering. The MOD
journal "Slovenska Vojska" ("Slovenian Armed Forces

") notes
that 643 technical data were evaluated, and quotes committee
member Brigadier Branimir Furlan as saying the Patria AMV's
technical capabilities were "superior" to that of V&V's
"Krpan."


3. (C/NF) In terms of economic benefits, "Slovenska Vojska"
quotes the Ministry of Economy's Peter Stavanja, Chair of the
Interministerial Working Group on Offsets. Stavanja claimed
that whereas Sistemska Tehnika assured the creation of 180
direct new jobs, 92 indirect jobs, and the inclusion of 20
Slovenian companies in the production process, Patria
guaranteed the creation of 320 direct new jobs, 1,920
indirect jobs, and the inclusion of 50 Slovenian companies in
the production process. (COMMENT: The huge discrepancies
between these figures likely result either from vastly
different computational methodologies or simply from
unabashed "padding" of the numbers by Patria. END COMMENT.)
Finally, in terms of the commercial benefit, the article
quotes Defense Minister Karl Erjavec as saying that the
Patria AMV was 10-18 percent less expensive (depending on the
particular configuration of the vehicle) than V&V's Krpan.


4. (SBU) The following is a rough timeline of the tendering
process based on documents provided by Viator & Vektor:
May 4: MOD requests submission of technical data from both
Patria and Sistemska Tehnika
May 15: ST delivers its technical data to the MOD
May 16: MOD extends the deadline for submitting technical
data until May 29
May 25: University of Ljubljana's Mechanical Engineering
Faculty concludes its external technical review
May 29 (9:00): ST delivers an additional 1,454 pages of
technical data to the MOD
May 29 (15:00): MOD Evaluation Committee Issues its final
evaluation in favor of Patria
May 31: University of Ljubljana issues its preliminary report
on the technical results of its evaluation
June 7: University of Ljubljana issues its final report on
the technical results of its evaluation
June 12: MOD publicly announces that Patria is the winner of
the tender


5. (C/NF) On June 15, COM met with V&V Board Chairman Zdenko

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Pavcek and GD Europe President Michael Malzacher. Both
Pavcek and Malzacher expressed their disappointment with the
result of the tender and complained about the lack of
transparency in the process. Malzacher said he had been
expecting a decision in the "October-November timeframe."
Malzacher also noted that GD/Steyr had recently beaten Patria
in deals in Portugal, Belgium, and the Czech Republic, and
opined that it was "difficult to believe" that Patria could
have offered a 10-18 percent price advantage over V&V's
product. Furthermore, with respect to the economic impact of
the two offers, Malzacher claimed it was inconceivable that
Patria's production of 136 vehicles would create 320 new
direct jobs and 1,920 indirect jobs, as Patria claimed it
would. Complaining that the "whole thing is
non-transparent," Malzacher insinuated that Patria was
competing unfairly. COM noted that he had advocated on
behalf of GD with both the Prime Minister and the Minister of
Defense and promised to address a letter to the Prime
Minister urging maximum transparency.


6. (SBU) On Friday June 16, DefMin Erjavec traveled to
Ravne-na-Koroskem, where Sistemska Tehnika and Viator &
Vektor have their headquarters, for a town-hall meeting with
municipal councilors. Emotions flared during the meeting, as
the former Mayor of Ravne Ivana Klancnik called the deal
"national treason." Erjavec stuck by his claim that Patria
had offered a more competitive bid. Other MOD committee
members backed the Minister up, including Deputy Minister
Franci Znidarsic, Dr. Miha Matek, Brigadier Furlan, and Peter
Stavanja from MOE. On Monday July 19, V&V workers staged a
protest in front of the MOD, attracting considerable media
coverage.


7. (C/NF) On June 21, COM hosted a lunch in honor of outgoing
CHOD MG Ladislav Lipic (who retired on June 1), together with
Brigadier Alojz Jehart, Colonel Dragan Bavcar, and Lieutenant
Colonel Vjekoslav Jurcan from the General Staff. Though COM
had intended to raise the issue of the 8x8 tender, Lipic
surprised us by raising the issue first, asking COM for his
opinion on the matter. After COM expressed concern that the
process had not been as transparent as it could have been and
noted that the job-creation numbers did not seem to add up,
Lipic smiled and noted that he was "a logistics officer." He
then diplomatically refused to say anything further, and
noted that Colonel Bavcar had been one of the members of the
MOD's professional evaluation committee. Bavcar assured COM
that everything had been "done by the book." He also noted
that the MOD committee had had no role in the evaluation of
the commercial or economic benefits since this was "outside
its competency."


8. (SBU) On June 21, Patria and its Slovenian representative,
Rotis, announced that Slovenian home appliance maker Gorenje
would form a joint venture to produce the AMV in Slovenia.
The Slovenian Press Agency quoted Patria CEO Jorma Wiitakorpi
as saying "We have agreed that Slovenian companies will take
a majority stake in this project...This will obviously be a
product made in Slovenia for Slovenian buyers." Though
Gorenje and Patria have been trying to woo Sistemska Tehnika
to take part in the production of the AMV in Slovenia, ST
President Joze Studencik categorically denied that his
company would help in the production of the competing vehicle
and cited legally-binding competition clauses that made such
cooperation impossible. While Gorenje will take the lead in
assembling the Patria, it is unclear when Patria's Slovenian
production line will be ready, and some media have reported
that the first 64 vehicles (47 percent of the order) will be
built in Finland.


9. (C/NF) COMMENT: On June 22, the Commander of the Training
and Doctrine Command, Brigadier Jozef Zunkovic (strictly
protect), told ODC Chief that the decision had been
"political" and that the Patria was "not the vehicle we (i.e.
the military) wanted." While the words "suspicion of
corruption" have appeared in the press, there is no smoking
gun thus far that would challenge Colonel Bavcar's assertion

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that the tender had been conducted "by the book." The
crucial question hinges on the methodology used to compare
the two offers' economic and commercial benefits. Absent an
explanation of why one offer's commercial/economic benefits
were so far and away superior to the other's, questions of
impropriety are likely to continue to dog this deal, and by
implication, the MOD. The Slovenian parliamentary Defense
Committee (led by opposition MP Anton Anderlic) will meet on
June 27 to discuss the tender. Post will continue to monitor
this issue and advocate for maximum transparency in the
process.
ROBERTSON