Interview with undersecretary for armament and modernisation at the Ministry of National Defence, Zenon Kosiniak-Kamysz.

We are half way through

"We are interested in acquiring increasingly newer armament and military equipment for our Armed Forces, manufactured by Polish companies" - says Zenon Kosiniak-Kamysz, undersecretary for armament and modernisation at the Ministry of National Defence.

The defence industry experienced a dramatic period during the transformation. Strikes were on. At the capital, at least once per year, there were public protests. We don`t se that nowadays. Does it seam the industry is doing well?

- The analysis of the economic situation clearly shows that the entities in the Polish defence industry achieve much better results now as compared to the period preceding the implementation of governmental programmes for developing this sector of national economy. This is a result of growing orders from the Ministry of National Defence resulting from increased funds for technical modernisation of the Armed Forces due to:

- the level of 1.95 % GDP for financing the defence needs of the state, according to art. 7 of the act of 25 May 2001 "on reconstruction and technical modernisation and financing of Polish Armed Forces" (Polish Journal of Laws No. 76, item 804, as amended),

- funds from the so-called Armed Forces Technical Modernisation Fund from the revenues on sales of real property and other items (armament, equipment, material and technical items) that are not used by the Ministry of National Defence, made by the Military Property Agency.

- funds from the revenues on privatisation of companies of the industrial defence potential; growing export of armament and military equipment, in particular to countries that traditionally purchased our products and to the Far East; financial restructuring within the debt elimination, according to the act of 7 October 1999 "on support of restructuring of the industrial defence potential and technical modernisation of the Polish Armed Forces (Polish Journal of Laws No. 83, item 932, as amended), and the performed internal restructuring, including reduction of employment supported with pre-retirement benefit system.

The adoption by the government of the "Strategy for consolidation and support of the development of the Polish defence industry in the years 2007-2012", as well as the "Programme for economy mobilisation for the years 2007-2012", consistent achievement of the goals specified in such programmes, and periodical meetings and consultations with entrepreneurs and the social community, together with increasingly more stable plans for technical modernisation of the Armed Forces, are the factors where I would see the sources of our moderate success in the defence industry.

Not yet all companies have stabilised their economic condition. The establishment of the national military concern and further restructuring of the companies forming such a concern, should have a positive impact on increased competitiveness of the businesses and further improvement in the industry.

The implementation of national and international programmes for armament modernisation, gradually adopted by Polish entrepreneurs, shall also be of significance for further stabilisation and modernisation. This is also the aim of enterprises regarding the acquisition of new technologies within offset commitments, as well as increased funds for financial support of research and development in the area of defence and national security, in charge of the Ministry of Science and Higher Education. What is also important is good cooperation with employers and the social community, who understands the time challenge facing their companies.

When the AWS-UW coalition held the government, there was an idea to consolidate the industry. This idea was, however, rejected. The Minister of the State Treasury, Aldona Kamela-Sowińska, said that joining poverty with poverty makes no sense. Was she right?

- The view presented in your question is wrong, as the consolidation of the defence industry is in progress, and the involvement of the Agencja Rozwoju Przemysłu SA as regards some military companies has brought positive effects. It must be remembered that the Agency granted significant financial support to many companies to implement their restructuring programmes. Without such support, many of them would have to be liquidated.

It must be stressed that business must follow the rules of economy. Sentiments will not alleviate the problems of debt, and will not bring funds for financing often very costly restructuring programmes, in particular as regards improving the technological or manufacturing capacity, or the very painful, yet necessary, layoffs.

The "Strategy for structural transformations of the industrial defence potential" from 2002 has led to the consolidation of the defence industry in two groups. One was formed around Bumar, the other at Agencja Rozwoju Przemysłu. The earlier recorded increasingly better results. At the other, gathering aviation and radio-electronic companies, nothing good happened under the management of President Paweł Brzezicki. What is it like today?

- I also have to protest against such an opinion. It must be remembered that the mission of Bumar Sp. z o.o. and Agencja Rozwoju Przemysłu SA towards their subsidiaries differed. I believe therefore that such generalisation is harmful and untrue. Both these groups have recorded both successes and failures.

Nowadays, we deal with new quality in both those companies, as both have undergone thorough personal changes, and as a result the fundamental thing has been achieved - peace and prudence in decision-making, including strategic decisions for development of both the controlling companies, and the controlled subsidiaries.

Let us hope that with the increasing support of the government administration, understanding of the goals in both capital groups, including the social community, we shall carry out all the enterprises envisaged in the "Strategy for consolidation and support of the development of the Polish defence industry in the years 2007-2012". The Ministry of National Defence is thoroughly interested in the condition of the Polish defence industry, as this is national interest, not to use the words "raison d`etat".

‘We are interested in acquiring increasingly newer armament and military equipment for our Armed Forces, manufactured by Polish companies. This is not only sentiment to everything that is Polish, but also a real view of optimising the expenditures on defence and security. In the priority areas of defence, as a state, we should achieve the maximum level of self-support, certainly considering economic and technological situation.

Wouldn`t it be better to concentrate the entire defence industry in one group? At the world markets, only the grand have anything to say.

- I fully agree. Please, refer, therefore, to the arrangements in the "Strategy for consolidation and support of the development of the Polish defence industry in the years 2007-2012". It assumes consolidation of the listed companies at the national defence concern. Establishment of a uniform system in all areas of the concern`s operations shall allow the capital group and its affiliates to actively - and I also hope successfully - compete in Europe and worldwide. The condition for this is access to state-of-the-art technologies.

This shall ensure new products and wider markets, allow the cooperation in large, international armament programmes, starting from the research phase or development and deployment, and consequently shall ensure the share in contracts. The concern also means easier access to funds acquired not only from the state budget, but also from financial institutions. The concern means reduction of operating expenses in the areas common to all companies, such as marketing or procurement.

It is, therefore, true that the large one can do more. I shall also say - can do it quicker and better. The strategy I mentioned is the guideline to be supported with the laws and rational organisational structure. These are tasks for government administration and Bumar`s management. The Trilateral Team for Socio-Economic Terms of Restructuring of the Industrial Defence Potential Companies is one of the forums where ideas are exchanged, and enterprises to carry out are agreed in the context of improving the competitiveness of the domestic potential of the defence industry.

The driving force of the defence industry is the public procurement. Last year, the Minister of National Defence, Aleksander Szczygło, did not manage to use all the funds designed for this purpose. The Ministry still had over 1 B PLN. What happened to this money?

- First, I shall refer you to the website of the Ministry of National Defence: www.wp.mil.pl. In the tab "Corrections", there is information dated 14 September 2007, as a comment to the article in Rzeczpospolita in the "Ekonomia & Rynek" [Economy & Market] Addition of 13 September 2007" entitled "MON does not reach for weapons".

Second, as regards the information in the correction, the "life" has verified the value of so-called permanent sums from the amount of 150 M PLN to 242 M PLN, as Wojskowe Zakłady Mechaniczne SA had to verify the forecasted shortages in deliveries for military transporters KTO Rosomak, planned in September 2007 as 10 items, to the level of 25 items. Nevertheless, these deliveries were made by the end of the first quarter of 2008.

Out of the total unrealised amount of 122 M PLN - not 1 B PLN - of the entire budget of the Ministry of National Defence, only 89.6 M PLN were formed by unused funds from technical modernisation area, of which 79 M PLN is the unused amount of targeted reserve for VAT on F-16 deliveries, due to low USD exchange rate. It must be mentioned that in the area of the responsibilities of the division I am in charge, only about 400 000 PLN were not used from the Ministry`s budget for 2007. Detailed information on the execution of the Ministry`s budget can be obtained from "Information on the budget execution of the Ministry of National Defence for 2007".

Equally, of high importance to the defence industry are foreign orders, and this should be the task of our embassies. How does the Ministry cooperate with the Polish diplomacy?

- Indeed, foreign orders, understood as contracts for Polish companies, including military repair and manufacture companies (WPRP), are important in the situation of strong competition - or even struggle for the customer - on the international military market, as they allow to earn the sums negotiated during the tenders, often in attractive currencies.

I will also draw attention to other aspects of foreign orders, namely the entry of the Polish manufacturer on an attractive market should not be a one-off event. It is a challenge to maintain one`s position on such market. Therefore, promotional actions supported by the Ministry, are aimed at preparation of a long-term strategy for presence at the acquired market.

As regards the other part of your question, I would like to notice that I am in touch with Minister Komorowski in whose division there is the Department for Military Foreign Affairs and the Military Attaché Office, and in close cooperation, on the basis of the information obtained from our foreign diplomatic posts, we analyse and pass on the offers and contacts to the Ministry of Foreign Affairs, Ministry of Economy and directly to entities in the defence industry. Moreover, each official foreign visit of our Prime Minister, Minister of Defence and other officials of the state administration is also prepared in the aspect of placing or acquiring an offer for the Polish defence industry.

The diplomatic package always includes broad information and advertising materials on our companies. Here, I may also add that personally I meet representatives of both Polish and foreign companies from the defence industry sector every week.

To stress the effectiveness of our joint actions of the Ministry of Defence, Ministry of Economy and Ministry of Foreign Affairs, I can inform you that we have assisted in conclusion of several profitable foreign contracts, including a contract on tank deliveries to Malaysia or military equipment to Iraq - which contracts were won by Polish companies, against competition from much larger countries. Our coordinated actions and the support by all international contacts bring results in the form of growing interest in the products of the Polish defence industry.

Poland has billions of Euros to spend on innovation. Will this money be used by military research institutes? It is well known that some solutions prepared by the army are applied in civil economy.

- For correct functioning of the R&D resources for the defence industry, it is necessary to increase the funds for R&D and concentrating the funds on the tasks in priority areas of the military technique. The key issue is to define the priority areas and research programmes.

It must be mentioned that the institutes get involved in many R&D programmes not only in the defence area, but also in the area of state security, or adopt the solutions of military technique for civil applications - and this is to be considered as the contribution of military institutes in the development of national economy. It must be remembered that their priority is to carry out the tasks for the benefit of the state defence.

Therefore, adopting the operational needs of the Armed Forces and the technologies to be acquired for the national defence industry as the base, the Ministry of Science and Higher Education - in cooperation with the Ministry of National Defence and the Ministry of Economy - has prepared the "Programme of research and development for the benefit of Polish defence industry." This programme in the period of 3-5 years, will consume the funds in the amount of approx. 2.5 B PLN from the budget of the Ministry of Science and Higher Education.

International cooperation is also an important instrument for improving the level of R&D works at the Polish scientific and R&D institutions, increasing the competitiveness of Polish science and economy. Special role in international cooperation is played by the integration with the European Union in the area of technical R&D, initiated long before Poland`s accession.

R&D units should engage in initiatives aimed at development of the cooperation within the community. These should be accompanied with the development of bilateral relations with the countries of key importance to Poland for the purpose of strengthening the national R&D potential. The forms of international cooperation consisting in joint research and development should be promoted. The leading organisation in this respect is the EDA - European Defense Agency).

Participation in international programmes, in particular EU research programmes, including technologies of the so-called double purpose, and the use of EU instruments allow Polish R&D units to access state-of-the-art technologies and enables the participation in avant-garde research projects.

In the rankings for innovation and competitiveness, Poland scores far places in the scale of the European Union and worldwide. The improvement of this situation requires the cooperation of all partners, which in the innovation processes include: research and R&D institutions, businesses, public administration and NGOs.

Did offset contracts, for example on procurement of the F-16, help to modernise the Polish defence industry?

- The answer to this question can be provided in detail by the Ministry of Economy, as the Ministry of National Defence, according to the law, does not conclude offset contracts. However, I wish to stress that Radmor SA received the technology (know-how) transfer for modernisation of the VHF PR4G radiostation, ZM Dezamet SA launches the production of state-of-the-art 40 mm ammunition, ZM Mesko SA received know-how transfer in the area of excercise 70 mm head RA82.

Moreover, ZM Mesko SA received technology transfer related to manufacture of state-of-the-art 12.7 mm ammunition of SG-T type with foreign orders (Saab and Nammo). Furthermore, the decision is finalised as regards entrusting Wojskowe Zakłady Lotnicze no. 2 in Bydgoszcz with the servicing of the F-16.

The Military Property Agency is to undergo serious changes. What are they for? Will this cause more money for armament?

- At the start, I must make a correction. The Agency is not to be transformed, but liquidated, which is conformant to the government`s priorities. Our objective is that the system of meeting the needs of the Polish Armed Forces, which has operated for 14 years and has not proved effective, be transformed by way of effective implementation at the Ministry of a state-of-the-art system for acquisition of armament and military equipment to such an extent that on the one hand the short deadline for Poland`s obligation in the area of explosives and ammunition utilisation be kept, and on the other, the liquidation of the Agency will allow to transform the presently operating structures in the Ministry so that they are coherent with their corresponding structures in the NATO and European Union countries.

Against the stereotypes functioning in the public opinion, except for the income on sales of military property - mainly the sales of unnecessary for the army attractive real estates that are already almost none - paid into the so-called Armed Forces Modernisation Fund at the level of approximately 200 M PLN per year, and the subventions for maintenance and security of the real property provided by the Ministry of National Defence, the Agency did not generate significant revenues or budgetary expenses for the state.

The main burden of procurement of state-of-the-art armament and military technology, the budgetary worth of which amounts to about 3.3 B PLN, is taken over by the Ministry of National Defence through its specialised unit, namely the Department for the Army Procurement, employing 85 persons, and in the future by the Armament Agency. It must be pointed that the targeted changes in the system of managing public procurement in the army will not lead to significant savings, but will allow to rationally spend the funds provided from the state budget.

Can we say today that the defence industry has finally got stable conditions for development?

- The answer is not so simple and clear. If it were so, we would not need the "Strategy for consolidation and support of the development of the Polish defence industry in the years 2007-2012". It can be said we are half way through. A lot has already been done within the previous restructuring programme in this sector, but we are facing the phase of creating a state-of-the-art military concern.

Even a brief overview of our defence industry allows to say that there are organisational, legal, and financial foundations for stabilisation of the business for the defence industry companies. And one more important thing - we know what to do and when so that the companies may not only operate today, but so that they can develop, and consequently offer our Armed Forces increasingly more modern armament and military equipment.

What is also significant is their increased involvement in international programmes supervised or coordinated by the European Defence Agency, and thus subcontracting in contracts for foreign markets. Therefore there is a conclusion - yes, we have achieved a certain level of stabilisation, yet restructuring is a continuous process to face the challenges of the future.

Interview by: Czesław Rychlewski

Source: Fakty - magazyn gospodarczy