Withholding Five Billion Crowns may Jeopardize the Tender for New IFVs for the ACR

 24. 02. 2021      category: Army of the Czech Republic
Přidat na Seznam.cz

Just like before the end of the year, Lubomír Metnar again threatens to resign if the army does not get back the five billion crowns that remain to be transferred from the government’s budget reserve back to the budget of the Ministry of Defence. The original ten billion, which the Defence should not have lost at all, was to be returned by the beginning of January, then by the end of January, now there remain five billion crowns to be returned according to the Prime Minister’s words “probably in February”. At the same time, the state budget deficit was increased to a full half a trillion. Although five billion will be lost in this sum, there are still questions concerning their return. Can or cannot the Ministry of Defence use them and take them into account when working on this year’s investment projects?

The highest planned investment of the Ministry of Defence this year is the first amount spent on the acquisition of tracked IFVs. 4.21 billion crowns are set aside for it in the relevant chapter of the state budget. That is, an amount that is reminiscent of the five billion crowns that the Defence is still waiting for.

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Picture: The highest planned investment of the Ministry of Defence this year is the first amount spent on the acquisition of tracked IFVs. (illustration photo) | Petr Svoboda / CZ Defense / CC BY-NC-ND

Opposition to the communist proposal to deprive the Defence of a NATO member state of ten billion crowns was widespread, but proved unsuccessful due to the political constellation. How to read this “dancing” around the remaining five billion in the context of the half-trillion state budget deficit? We have been dealing with the tender for IFVs for years. It was announced in the spring of 2019 and has already experienced a number of twists and, above all, postponements. There will be elections in October of this year, and we are in a situation where we are still waiting for a month-long and already twice postponed tests of functional prototypes. So far, the next announced date speaks of the end of March, which means that the tests would be evaluated during May and then would come the decision, the negotiation of the contract and its signing. In the case of a smooth course, this would take place just before the election. In the event that one of the unsuccessful candidates appeals against the decision for some reason, a problem will arise that will not be resolved in time, and the matter will inevitably be left to be solved by the new Minister of Defence of the new government.

It is not that we could not sign important agreements in the Czech Republic only days before the elections. We can actually do it three days after them. As in 2006, when Karel Kühnl signed a contract with the Austrian Steyr for the supply of Pandurs. However, the time and atmosphere are different today. The tender for tracked IFVs has more than doubled in terms of budget, and at the same time we must remember that the signing of the then contract three days after the elections was the result of Patria’s complaint about the competition. It would have taken as little as an intervention of the Office for the Protection of Competition, and the contract would be decided by the new minister.

The question remains whether the current withholding of five billion crowns is not an indication that the government does not really intend to complete the acquisition for a total of 53 billion crowns. Although Minister Metnar assured members of the Defence Committee that any savings would not affect the investments, the objection was logical and immediate: if not the investments, then perhaps operating or even mandatory expenditures? The hypocrisy that the objection was formulated by a Communist MP who contributed to this undesirable situation cannot be overlooked. However, this does not change much about the essence of the problem. If there is the need to save money, it will be quite difficult to cut on operational and mandatory expenses - especially if there is another way to save some money. Namely, a saving of 4.21 billion due to the “objective” impossibility to complete the tender for IFV by the end of the election (because of COVID-19; prototype tests were to be completed in early December, and they are falling at least four months behind).

The need for new tracked IFVs cannot be questioned and the possible absence of five billion crowns could also affect other planned purchases, so we asked the press department of the Ministry of Defence (MoD) the following questions:

1) Can the current withholding of five billion crowns jeopardize the tender for the new IFVs for the ACR?

MoD: In order for the Ministry of Defence to be able to continue modernizing the army according to plan, a budget of CZK 85.4 billion is needed, which was unanimously approved by the government in October 2020. The remaining CZK 5 billion must therefore be returned to the MoD budget. 

So far, the Ministry has had to reach into mandatory (in the amount of CZK 3 billion) and usual expenditures (CZK 2 billion), from which it is clear that it does not consider the option that money will not be returned to the MoD budget, neither the possibility that, for example, the project to acquire IFV should be stopped. Building a heavy brigade is a commitment to NATO, from which we do not want to back down at any cost.

2) At what stage is the tender for a new IFVs for the Czech Armed Forces right now? What are the other specific planned procedures within the tender?

MoD: An inter-ministerial comment procedure is currently underway for this material. After its completion, the material will be submitted to the government for approval. Subsequently, a call for submission of the (final) offers will be sent to all three suppliers.

The payment schedule is currently planned for the years 2021-2028, but partial changes in financing are possible, and they are intensively discussed at the MoD – this is mainly influenced by the amount of funds in the MoD budget for 2021, or rather the development regarding the return of the remaining CZK 5 billion to our budget.

3) What would be the long-term consequences of the absence of 5 billion crowns in the budget of the Ministry of Defence, with regard to Concept of construction of the ACR?  There is the solution for the future of supersonic air force, upgrade of Pandurs, acquisition of new main battle tanks, etc. Any possible changes, or rather postponements in the Concept of construction of the ACR would increase the army’s internal debt by tens of billions of crowns in the future.

MoD: In the event that the rest of the money is not returned to the MoD budget, the funds for mandatory and usual expenditures would have to be transferred back from investments. This would affect the conclusion of some already planned contractual relationships.

Strategic projects are most often mentioned in this context. However, the situation is more complicated and there are hundreds of ongoing projects that need to be funded. 

Many of them can be described as necessary for the operation of the army. We work with the development of the situation on a daily basis and we are trying to figure out how to adjust the conditions in terms of financing according to the situation.

As seen above, we can only hope that the promised amount of 5 billion crowns will be returned to the budget of the Ministry of Defence as soon as possible, as they are counting on this money.

 Author: Jakub Samek