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By Bulbul Singh

14 Nov 07. India and Russia have failed to conclude an agreement to sort
out the price escalation stand-off on defence projects between
the two countries as Indian Prime Minister concludes his visit
to Moscow November 13. Last month the Indian defence minister A K
Anthony, in his visit to Moscow, had also talked on the issue of
price escalation demanded by Moscow on several defence contracts
worth millions of dollars.

Though Indian Prime Minister ManMohan Singh and Russian President
Vladimir Putin signed an agreement on joint production for the
fifth generation aircraft for which an MoU was already signed in
2004, there was no word on the stand-off between the two countries on the price escalation issue involving several defence projects including the sale of 40 Sukhoi aircraft to the Indian Air Force, refit of the aircraft carrier Admiral Gorshokov, price increase of the kits for the licensed production of Sukhoi MKI aircraft currently underway at Hindustan Aeronautics Ltd. Facilities in Nasik, sale of Igla-S air defence missiles, and also the signing of the Integrity Pact by Moscow which is mandatory under latest Indian law for defence procurement. Russia has been citing domestic laws to avoid signing the Integrity Pact which is mandatory according to the latest Procurement Procedure of the Indian defence ministry announced in 2006.

Besides, the Intellectual Property Rights agreement has still to
be inked two years after signing of a MoU on the issue. Russia
is insisting on signing the Intellectual Property Rights intended to make sure no technology is transferred to third countries, and royalty payments to Russia for work performed on Russian-built weapons by other countries.

Russia hardened its position on revision of prices for defence contracts with India earlier this year and by May had demanded an increase ranging from 5 per cent to 10 per cent on defence contracts underway and several defence contracts already contracted in the last few years. Moscow cited economic reasons as the reason for the increase in price, but sources in the Indian defence ministry said, Moscow hardened its stand in the wake of the agreement on Indo-U.S. nuclear cooperation agreement.

A team from the Indian Navy had visited Moscow before the Prime Minister ManMohan Singh’s visit to sort out the price escalation issue with Russia on the aircraft carrier, Admiral Gorshokov. However, there has been no positive outcome so far on the issue and other issues relating to price increases said sources in the Indian defence ministry.

The Indian Navy team was briefed to sort out the issue so that some formal agreement could be reached during the Prime Minister’s issue.

Russia has asked for price increases in the refit of the carrier Admiral Gorshokov, which is currently under refit In Russian shipyard. Sources say, the Russian shipyard miscalculated the refit cost of the aircraft carrier, and is now re-working the entire price of the refit under which India will have to pay over $650m. Though the aircraft carrier was given free to Indian Navy, the
refit will cost around $1.2bn.

The Indian Navy wants the issue to be resolved at any cost so that the delivery of the ship is made as early as possible, though the Indian navy confirms that the delivery of the aircraft carrier will not take place as per the scheduled delivery time of mid-2008

The Indian Defence Minister AK Anthony during his September visit to Russia had raised the issues confronting defence ties between the two countries, but there was hope that some agreement would emerge during summit talks between ManMohan Singh and Putin said defence ministry officials. However, there has
been no major breakthrough, admitted the officials.

Some of the defence projects which could be affected include the sale of the SU30 MKI aircraft to the Indian Air Force, supply of Igla-S missiles, delive

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