Summary:
1. Offset’s Main Functions, Legal Background
2. Offset Policy Development
3. Main Programmes
4. Success Stories and Problems
5. Future of Offsets
1. OFFSET’S MAIN FUNCTIONS IN
HUNGARY:
1.2. Cost Saving in Defence A tool for efficient Expenditures defence spending
1.1. Defence Expenditures’ A tool for supporting Compensation economic development
1.3. National Defence & A tool for supporting the Security Industry transition of defence industry
Development & development of security Industry
1.1. Defence Expenditures’ Compensation – A tool for supporting economic development
Overall Offset Obligation for 1,1 Billion Euros
Offset to SupportEconomic Policy
Goals
Support knowledge-based economic development
Provide inclusion of subcontractor SMEs in main supply chains and systems
Help job creation and maintenance of employment, human resources development
Enhance regional development
Access to new markets
Develop national defence and dual-use industries
Variety of toolsFDI, technology transfer, know-how, grants, R+D,
marketing assistance, export of new products, training, subcontracting, offset abatement.
Priority sectors and Project Based Fulfilment
•IT•Telecommunications•Nanotechnology•Biotechnology •Electronics•Environmental protection technologies•Renewable energies•Defence Industry•Aerospace/Aircraft Manufacturing
•Realisation of complete projects as new fulfilment possibility
•Projects databases elaborated together with professional associations
•Fulfilment rewarded with multipliers 3-5 to be negotiated case by case
Technology intensive branches and activities
to increase economic competitiveness
Project Based Fulfilment
in Priority Sectors:
1.2. Cost Saving in Defence Expenditures –A tool for efficient defence spending
Creation of Modernized Professional Armed Forces versus Decreasing Defence Spending
Offset to achieveCost Saving/
Cost Avoidance
Variety of tools
• Maintenance and logistic support facilities for the life cycle of the system acquired • Developing/upgrading capacities for the system acquired
• Savings by receiving services free of charge as (direct) offset fulfilment• Obtaining of new technical servicing and upgrading capabilities
1.3. National Defence Industry Development A tool to support defence& security industry
A small national defence industry in transition versus import dependence on defence platforms
Offset to Support Development of
Defence&Security/Dual Use
High-Tech Industry
Variety of tools• Any defence/security/dual use high-tech
industry development/investment accounts
for direct offset fulfilment
• Direct Subcontracting• Acquisition of new technologies• Know-how transfer• New products/services• Marketing support • Participation in International Defence Development/NATO Programmes
LEGAL BACKGROUND
Government Decree No 228/2004.(VII.30.) on the specific rules of acquisition of goods and services for military, public order and surveillance use, related to basic defence and security interests
MAIN OFFSET PRINCIPLES:• 100% obligation, • 1 Bn HUF (4 M Euros) threshold• 30 % obligatory investment ratio• rest of the rules determined by MOET
Offset Regulation
MOET Order No. 21/2006.(IX.24.) on the tasks, competence, procedure and operation of the Offset Committee:
The Ministry of Economy and Transport as responsible governmental body for offset leads the Offset Committee
General Rules for Offset Detailed offset regulation guidelines approved by the Minister of Economy:
• offset policy priorities, • possible ways and fields of fulfilment.
The General Rules for Offset are considered:• as a base for any future RFQ, and consequently • as a base for the Offset Agreement itself
General Rules for Offset Modified
• Last modifications in November 2006:
– Aerospace Sector selected among priorities;
– Direct Offset fulfilment is to include 30 % investment obligation;
– Only Hungarian added value to be counted as export fulfilment;
– Indicative Lists modified.
2.2. OFFSET POLICY DEVELOPMENT
Early 90’s:
Introduction of Offset
Practice
1999-2001: Setting Policy
Priorities & Legal Framework:
From 2004:
NEW OFFSET
POLICY
1995 2000 2005
Indirect Commercial
Offset
Indirect Commercial
Offset & Direct Offset,
whenever possible
Obligatory Direct Offset &
Indirect Commercial Offset,
but Defence&Security in a wider approach
3. MAIN OFFSET AGREEMENTSCompany name Contract year Offset Obligation
Matra Defense 1999, closed 2001 100%, 109 M USD
Gripen International 2001, modif. 2003 110%, 191 Mrd HUF
Kongsberg Defence Comm. 2003 180%, 44 Mrd HUF
Rába Járműipari Kft 2003 170%, so far 19 Mrd HUF
Ikarus-Trade Kft 2003 100%
Raytheon 2005, closed 2006 100%, 20,3 M USD
HM Currus 2005 100%
VIV Rt 2005 100%
Carl Zeiss Optronics 2005 100%, 10,9 M EUR
Rohde & Schwarz GmbH 2005 112%, 9,5 M EUR
Diehl-Raytheon Missile 2006 100%, 10,2 M EUR
Raytheon 2006 100%, 20,5 M USD
Gripen International 2006 +1,85 Mrd HUF
Rheinmetall 2006 100%, 6,1 M EUR
MBDA France 2006 100%, 7,7 M EUR
NATO Project with Offset
Hungary joined NATO
Airborne Early Warning and Control
Organization (NAPMO) as from
22nd December 2005.
• Hungary contributes to the Mid Term Modernization Programme of the AWACS fleet and also the Depot Level Maintenance.
• National MTM contributions compensated 100% by the Programme’s Main Contractor – the Boeing Company through offset.
• Hungarian DLM contributions compensated through offset.
4. SUCCESS STORIES AND PROBLEMS
Agreements Pre-offsets
1995-2001
Offset Agreements
2001-2007
Procurement related imports 0
232 Mrd HUF(1.16 Bn USD)
Offset obligation 0
279 Mrd HUF(1,4 Bn USD)
FulfilmentAs per Dec. 2006
271 Mrd HUF
(1,3 Bn USD)
248 Mrd HUF(1,24 Bn USD)
Results: Long-term embedded investments
mainly with export capacities
Success Stories and Problems
Offset obligation: 780 M Euros,
110 % of the Leasing Value
Investments: 230 M Euros
32 % of the offset obligation
Fulfilment period: Within 14 years Within 7 years
Milestones: 50 % of the obligations to be fulfilled within 8 years
-
Penalty: 5 % -
GRIPEN OFFSET AGREEMENT•Signed 20th December, 2001,•Modified 3rd February, 2003
5. FUTURE OF OFFSETS
Rome Treaty § 296• EC Green Book – Intention to revise and modify the existing rules for defence procurement, effects on offset.
EDA/EDEM Code of ConductAbolishment of Offset Harmonisation Study
Hungary opted out from CoC:• Low level of competitiveness of the national defence industry• Offset is an economic necessity
LESSONS LEARNED:
• Offset depends on a calculable Procurement policy, long and middle term planning of acquisitions, budget stability.
• Offset is an additional source for economic development, any Government priority could be included in offset.
• Each offset programme is different, offset to be handled with a great level of flexibility.
• Offset must rely on real business opportunities.
• Direct offset possibilities should be assessed pursuant to the procurement and the real involvement possibilities of the local defense industry.
Thank you for your kind attention!
Q&A:
Ministry of Economy and TransportState Secretariat for International Economic RelationsOffset& Investment Unit
Phone: +361 374 2841, Fax: +361 269 3478E-mail: [email protected]