From Warsaw Business Journal
by Kamil Tchorek Sean Lavelle ,
After months of bitter criticism from both the media and the
government for its failure to meet its offset obligations, Lockheed
Martin (LM) strikes back, claiming it has fallen victim to a
mixture of prejudice and misunderstanding.
"Criticism of the program is often based on misunderstanding rather
than fact," Philip Georgariou, LMs director for offset, told the
Business Journal in an exclusive interview. "If the facts were
known, we wouldnt be getting the criticism."
The $6 billion (zł.22 billion) Offset Program was designed to
stimulate a decade of American investment into this country in
return for Polands choice of purchasing 48 LM F-16 fighters. And
ever since the deal was announced, it has come in for criticism in
a spate of media attacks.
Some projects have failed to materialize at an early stage, such as
the Grupa Lotos refinery technology license project, while others
have successfully resulted in attracting foreign direct investment
(FDI), such as General Motors, (GM) relocation of production
facilities from Germany to Gliwice in southern Poland. Still
though, LM has managed to meet only 22.6 percent of its obligations
for 2003.
Understandably, the American side is keen to shift the focus of the
public debate on the program away from the dollar value of the
projects underway.
"The value of the Offset Program is not measured in dollars, it is
measured in business relationships," says a recent LM statement to
the press. And in a recent interview for the Business Journals
Country Focus USA supplement (June 2
, the U.S. Embassys commercial counselor, Edgar Fulton,
claimed to have computed that 1,000 sets of business relationships
have been developed as a result of the offset deal.
But the media allegations are hard to ignore, with one of the
strongest being that "there is no American offset, and the
circumstances of wasting multi-billion dollar opportunities for the
economy by Polish decision makers is the biggest scam in the short
history [of post-communist Poland]." Such sentiment is often
accompanied by claims that many projects would have been
implemented anyway, regardless of the Offset Program, with U.S.
engineering firm Pratt & Whitneys investment in the countrys
air industry being one frequently cited example.
And in a slightly less aggressive tone, Michał Kleiber, minister
for science and IT, who is in charge of the Polish side of the
Offset Program, said the government was disappointed with "the slow
pace of launching many projects."
This is particularly true of IT projects that many say should be
replaced with other investments, now on the so-called substitute
list. Three such projects in particular created a lot of excitement
at the time the list of investment projects was released a year ago
and even served to bridge the gap between the two largest domestic
IT firms, Prokom and ComputerLand.
These two IT competitors have a long history of rivalry that has on
occasion turned somewhat acrimonious. But last year, they agreed to
bury the hatchet and jointly establish Tetra, a special purpose
company designated to serve one of the offset projects with regards
to developing a telecommunications system for the police and the
armed forces. Yet, despite recent media reports that Tetra was
finally getting off the ground, the issue was not, as expected, on
the agenda of last weeks government meeting, which effectively
means it is not being launched at all.
And, in addition to the delays in the implementation of Tetra and
the related medical registration system (RUM) and emergency
services communications system (C2), allegations have been made
that taxpayers will eventually have to foot the bill for the offset
and for these three technology projects in particular. But
Georgariou puts this allegation down to a misunderstanding.
"It is absolutely incorrect to say that the Polish government is
being asked to pay for the development of Tetra/C2/RUM," he says.
"They are being asked to commit to purchasing the services of those
systems once they are developed. It has been said that Tetra has no
Polish partners, but the reverse is true it has only Polish
partners."
The American contingent is also keen to stress that responsibility
for many of the delays should actually be laid at the Polish door.
Former U.S. Ambassador to Poland Christopher Hill cites the example
of the deal to sell the M-28 Skytruck aircraft, made by the Polish
Air Company (PZL) in Mielec, in the southeast of the country, in
the USA.
Hill claims that LM spent significant amounts of money on creating
the conditions for the aircraft to acquire the relevant American
certificates in this country. But when LMs team of engineers
arrived in Mielec to conduct the appropriate tests, they found that
the Polish side was not ready for the procedure to start. And
Georgarious reaction to the governments criticism echoes Hills
remarks.
"There was a group of projects that I would like to have gotten
done in 2003 but did not for a variety of reasons, all of which
were out of LMs control," he says. "Projects can fail because of
many factors. The business climate changes, companies go bankrupt,
the law changes and taxes go up." These last words being a dig at
the governments foot-dragging on legislation that would lift VAT
on offset projects, which according to the American side is a major
cause for delays. And he cites more examples of failure on the
Polish side.
LM was intending to pay for technology licences at the Lotos
refinery, but Lotos "has not reached an agreement about which
technologies they were going to use," Georgariou says, the massive
changes in world oil markets over the last two years being given as
the key reason why the refinery was taking time to define its
strategy.
In total, LM has dropped 12 projects, which if they had been
carried through to completion would have had a combined value of
$148 million (zł.534 million). However, Georgariou maintains that
LM has offered nine replacement projects worth $2 billion (zł.7.2
million) if completed.
When projects do fail, there is a mechanism in place to reverse the
setback. LM can choose a replacement project and request the
removal of a failed project from their project listing, but they
must apply for the approval of all new projects before they are
implemented.
Conspicuously, one of LMs most high-profile successes was the
movement of GM-owned Opel production from Poland to Germany. It
seems a remarkable coincidence that GM chose to invest in this
countrys Offset Program (and was prepared to undergo a row with
German unions in doing so) just when LM experienced its most savage
public beating anywhere in the world. However, LM sees such
questions on this subject as something for GM, its worldwide
industrial partner, to answer.
Another criticism heard in the press in recent months has been that
LM dictates what projects it is going to undertake. LM officials
argue that in the Offset Act there is no clause that is meant to
guarantee investment by LM, nor can LM guarantee investment by
anyone at all.
The fact is that the arrangement is more complicated: LM puts
forward a list of recommendations, from which the Polish government
has the final say. LM asserts that when it submitted its proposal
for an Offset Program, there was a list of more than one hundred
projects on it.
"Those recommendations were based on a wish list that was given us
in the terms of reference for the multi-role combat aircraft
tender," says Georgariou, adding, "The government of Poland picked
44 of those that they wanted to do. Any time we wish to replace one
on the list, they get to say which one we replace them with."
LM claims that the complexity of the Offset Program is inherently
easy to misinterpret, since in the public eye a failure looks
like a failure, and not a rigorous selection process. And,
indeed, unfair criticism of the offset is often used by many as a
means of attacking the government by proxy. But while LMs
arguments sound plausible enough and may one day even be accepted
by the countrys media, the fact is that this is hardly likely to
happen as long as the implementation of the firms offset
obligations remains below a quarter of the agreed value.
