In response to growing public interest in the execution of Phase One of the WISLA program and the accompanying offset commitments, Polska Grupa Zbrojeniowa would like to address some particularly important, sometimes inaccurate descriptions of this program presented to the public.
The WISLA program aims at Poland’s Armed Forces achieving mid-range air and missile defense capability, i.e. up to 100 km, with IBCS integrated command and control. It has been the largest project in the history of Poland and its Armed Forces for the procurement of new military equipment – Phases One and Two of the project provide for delivery of 16 missile batteries (fire units) based on Patriot Conf. 3+, organized into 4 air defence battalions.
The offset agreements signed in 2018 by US companies, involving a total of 46 commitments, can contribute to enhanced technical and technological level of the Polish defence industry by providing it with competencies related both to the manufacture of specific parts of the system (e.g. launchers) and current maintenance of the parts of the fire units. A significant part of Phase One offset commitments relate to preparing PGZ to Phase Two in terms of technology. It is mainly about commitments concerning the IBCS System.
Polska Grupa Zbrojeniowa has been designated by the Government as the sole offsetee and the principal Polish partner on the initial stage (Phase One) of the WISLA Program. With capital projects and transfer of competencies, we have been preparing our facilities for the adoption and use of recent technologies. The involvement in the program also creates opportunities for the participation in a global supply chain of leading global suppliers of military equipment.
The WISLA Program has been executed under the new offset law applicable since 2014 (Act of 26 June 2014 on Certain Agreements Concluded in Connection with the Performance of Orders of the Essential Significance for the State Security, published in Journal of Laws 2014, item 932).
It does not provide for compensatory nature of offset commitments, as was the case for the procurement executed under the previous law (including purchase of F-16 aircraft or Coastal Missile Battalion).
It means that now offset is not about investing in any sector of the economy, but is due to serve the purposes of the protection of primary state security interests by building specific production, maintenance and upgrade capabilities for the procured military equipment.
Discriminating between those two models is key for understanding the context of the current negotiations. That is why we are asking all authors of informative texts, analyses and commentaries to exercise due care in this complex, but very important matter.
Accuracy should be also used in presenting to the public any information about US offset commitments. One article referred to “... US offset investment” – there is no such thing. Compliance with the applicable EU regulations does not allow us to execute offset through direct investment. The current offset law and the commitments accepted by US defence companies address capacity building, mainly through procuring intellectual property rights and licenses that enable the Client and Offsetee (in this case PGZ) to undertake capital projects to build such capacity.
Furthermore, the US partners actually invest nothing, because they have all costs covered as offset costs under the offset contract and the supply contract signed as a result (referred to as LOA).
Ten agreements are due to be signed for the execution of Phase One of the WISLA Program:
-- five agreements with the Government of the United States:
*Master Supply Agreement – entered into on 28 March 2018;
* 2 training agreements – entered into in September 2018 during the International Defence Industry Exhibition in Kielce;
* agreement for the supply of cryptographic equipment – entered into in September 2018 during the International Defence Industry Exhibition in Kielce;
* agreement for the supply of parts of the Link 16 data transmission system;
-- five agreements with the domestic industry:
* for the supply of about 70 JELCZ vehicles of several types (the purchase order has been received by Jelcz company, part of the PGZ group, currently the final quotation is being prepared);
* for the supply of Mobile Communications Centers;
* for the development and supply of vehicles for missile transport;
* for the supply of IBCS system cabins;
* for the supply of IBCS system’s C-OPS and E-OPS cabins.
The remaining parts of the system will be supplied by US companies under intergovernmental Foreign Military Sales (FMS) framework. Some of the parts (including PATRIOT launchers) will be ordered by the US parties at PGZ companies included in the WISLA Consortium.
Such supply order is covered by the intergovernmental contract and cannot be considered an offset commitment at all. It implements the US industry’s commitment to allocate 50% of the value of orders under the WISLA program to the Polish defence industry. Currently, the launcher manufacturing agreement is on the final stage of negotiation between the US company responsible for that product and HSW S.A.
Some recent publications and commentaries include phrases (sometimes anonymous ones) about the lack of preparation or absence of technological capacity of the Polish industry necessary for absorbing the offset. These claims are imprecise, not supported by facts and damage the reputation of Poland’s defence industry. Rehearsing them adversely affects the ongoing process of negotiation of the first phase of the WISLA Program.
it is worthwhile to note that both PGZ S.A. and the Group companies are commercial companies, therefore they work and act to achieve business benefits. The negotiations with the US partners apply to multi-billion contracts and solutions to be used throughout the next 30 years. Hurry is not advised here, therefore please keep diligent in your statements and published material, and take care not to provide the public with unbalanced and incomplete image of the ongoing negotiations.
It is in the interest of the State and Polish economy to successfully complete these difficult negotiations. For we strive not only for benefits to the industry, but also for the protection of basic national security interest and for Poland’s armed forces’ capacity to fully utilize the procured equipment.