THE GIFT THAT KEEPS ON TAKING: GORSHKOV TROUBLES

UNCLAS SECTION 01 OF 02 NEW DELHI 000438 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PREL PGOV MOPS MARR RU IN SUBJECT: THE GIFT THAT KEEPS ON TAKING: GORSHKOV TROUBLES PROVIDE OPPORTUNITY TO BURNISH U.S. IMAGE IN DEFENSE SALES ¶1. (SBU) SUMMARY. Russia plans to charge India an additional $700 million dollars for the aircraft carrier Admiral Gorshkov, the most recent chapter in a saga of price hikes and scheduling delays that brings the price of the refurbished Soviet-era carrier to a whopping $2.9 billion, nearly three times the $974 million originally negotiated by the prior Indian government in 2004, and swiftly approaching the market price of a new UK Queen Elizabeth-class carrier. With over ten years of effort and over $500 million invested, pulling out would be politically and financially impossible. The Gorshkov debacle, though just one aspect of a broad and deep Indo-Russian security relationship, has caught the attention of Indian media unlike other defense deals. The contrast of the downward trend in India-Russian defense cooperation with the positive trajectory of the U.S.-India relationship provides an opportunity to erode the prevailing Indian perception of the U.S. as a less reliable partner in defense sales. END SUMMARY. Gorshkov: The Gift That Keeps On Taking - - - ¶2. (U) In January of 2004, after a decade of hard-fought negotiations, Russia and India signed a deal for the sale of the 45,000 ton Soviet-era carrier, the Admiral Gorshkov (launched in 1982 and decommissioned in 1996). As part of a package settled at $974 million, Moscow agreed to sell the ship at no cost to the Indians, on the condition that New Delhi refurbish the ship in a Russian shipyard and purchase a complement of MiG 29-K fighters and Kamov Ka-31 Helix reconnaissance and anti-submarine helicopters, as well as an assortment of weapons systems and training programs for Indian pilots and technical staff. The refurbishing and outfitting process has been mired ever since in delays and price hikes. Media reports suggest that New Delhi had anticipated a cost-escalation of $350-400 million in the course of refurbishing the aged ship, but was nevertheless stunned in November 2007 to hear the Russian call for an additional $1.2 billion. In February 2008, India dispatched a team to the Sevmarsh Shipyard in Russia to inspect the ship and to work out the particulars of the renegotiation. In May 2008, New Delhi advanced Moscow $250 million to move forward on the project. Today, that initial investment has more than doubled. ¶3. (U) On February 10, just as New Delhi had prepared itself for meetings to renegotiate the agreement, Russian Deputy Minister for Military-Technical Cooperation Alexander Fomin, paired with the Director General of the Sevmarsh Shipyard Nikolai Kalistratov, delivered to India the newly revised price of $2.9 billion, nearly three times the initially agreed sum. Moreover, the delegation maintained, regardless of the outcome of the upcoming round of negotiations, Sevmarsh would require an immediate payment of $190 million to continue its operations. Moscow maintains that it will meet the delivery deadline of 2012, predicated on New Delhi's timely payments. India "Over a Barrel" - - - ¶4. (SBU) Retired Vice Admiral and former Director of the Institute of Defense Studies Analysis C. Uday Bhaskar candidly confirmed for Acting PolCouns March 3 the Navy's frustration and displeasure. Few on the Indian side had realized the extent to which the vague clauses regarding future estimates and open-ended price reevaluations could be manipulated by the Russians. With huge sums of money already invested and Russia playing a pivotal role in India's nuclear submarine program, New Delhi has little leverage in the agreement. "The Russians have us over a barrel," he confessed. Bhaskar maintained that the Gorshkov is only one issue within the broader sphere of Indo-Russian military and political relations, and would thus require a political solution. He added, however, that any resolution will have to wait until after the Lok Sabha elections because "the current government will not touch it." Grand Plans, Many Problems - - - NEW DELHI 00000438 002.2 OF 002 ¶5. (SBU) The Gorshkov is not the only problem bedeviling Indo-Russian defense ties. The Russian sale of T-90 tanks was to include complete technology transfer with most of the tanks built in India, but so far none of the tanks have been built in India and technology for certain systems is being withheld. The Indian lease of a Russian nuclear powered submarine was dealt a serious blow when the submarine suffered an accident during sea trials that will result in at least a one year delay and possibly cancellation of the deal. ¶6. (U) India, meanwhile, has continued to develop its carrier development capabilities, laying the keel for its first indigenous aircraft carrier (IAC) at Cochin Shipyard in Kerala on March 2, with an expected completion date of 2014. The 260 meter long IAC, built in collaboration with Italy and Russia, will carry twelve MiG-29Ks, eight Tejas Light Combat Aircraft, and ten helicopters on its 2.5 acre flight deck and hangars. It will be manned by a crew of 160 officers, 1,400 sailors, and will be powered by four LM2500 gas turbines. Eventually, naval sources indicated, Cochin will seek to manufacture nuclear powered carriers. The IAC is slated to replace the aging INS Viraat, and will, together with the Gorshkov (renamed INS Vikramaditya),form the core of the Indian naval fleet. India currently has no operational carriers in service while the Gorshkov renovation delays continue and the INS Viraat undergoes major refit. Comment - - - ¶7. (SBU) The Gorshkov debacle, though just one aspect of a broad and deep Indo-Russian security relationship, has caught the attention of Indian media unlike other defense deals, providing an opportunity to further erode the prevailing Indian perception that Russia is an old friend and the U.S. is a less reliable partner in defense. Recent major platform sales, such as of the C-130J and P-8I, if delivered on time and at cost, will highlight the contrast between the downward trend in India-Russia defense cooperation with the positive trajectory of the U.S.-India relationship. Post suggests we take every opportunity in our public diplomacy to expose this contrast. India has a long memory and changing this perception will require creativity, consistent effort, and patience. Retired admiral and Chairman of the National Maritime Foundation, the Indian Navy's think tank, provided Poloff March 4 a pointed reminder of the old guard perspective and how much work needs to be done to change it: "If India can forgive the U.S. for keeping its relationship with India in the freezer for fifty years, we can forgive the Russians for their temporary madness and find an extra billion dollars for the Gorshkov." WHITE