The war industry: Unfair competition between state-owned companies and private operators

George Marinescu
English Section / 29 ianuarie

The war industry: Unfair competition between state-owned companies and private operators

Versiunea în limba română

(Interview with Dinu Solojan, CEO Transcarpath Sportours International)

The European Union's support for the Ukrainian armed forces following the conflict illegally triggered by the Russian Federation has led to the depletion of arms and ammunition stocks in every EU member state. The threat coming from the Russian Federation leads to the need to equip the armies of the European states with new combat equipment and techniques, but this requires not only financial effort from the EU and each member state, but also the involvement of all companies working in the defense industry, whether with private or state capital.

Unfortunately, the situation of the defense industry in our country - with few exceptions - is difficult, and the Government also contributed to this at the end of last year, which in the last four months of 2023 reduced the amount allocated by 7.2 billion lei for endowment of the Army, redirecting that money to the reserve fund from which he rectified the budgets of several institutions and public authorities.

The harsh realities of the national defense industry, how it is sabotaged even by those who claim to want to develop it, the deficient legislation, the duplicitous positions of the Ministry of Economy, the dubious businesses in the field, the public procurement situation, the evasion of the offset, represent the themes that I addressed them in the lines below with Dinu Solojan, general manager of Transcarpat Sportours International, a company that has been active for over 20 years in the field of supplying military products.

Reporter: What is the situation of the defense industry in our country?

Dinu Solojan: According to the provisions of Law 232/2016, the national defense industry is composed of all economic operators authorized under this law, regardless of the nature of their capital. However, some of the entities defined in Law 232/2016 either as authorities or as FSNA, such as the Ministry of Economy or MAE - through the Department for Export Control (ANCEX) -, as well as SRI, SIE, MAI (through the General Directorate of Internal Protection) put artificial obstacles in the way of increasing the weight and activity of economic operators with private capital, based on group interests contrary to the law.

Reporter: What are these artificial obstacles that you talk about above? Can you give us some examples?

Dinu Solojan: Although according to Law 232/2016 there are no differences between the rights to carry out military products manufacturing activities between economic operators with state capital and those with private capital, at the level of the MAE-ANCEX there is an interministerial council, an entity without legal personality. , which acts as a parallel, shadow government, which blocks the activity of economic operators with private capital. This entity, which acts against the economic and national security interests of Romania, acts by exceeding the legal limits established by the normative acts of organization and operation of each member institution of the interministerial council and decides, on artificial bases, who is allowed to do what, whose activity should be hindered and who should be supported. Within this entity, the only law enforcement institution that acted legally was the MApN.

Reporter: What are the gaps in the legislation in force regarding this field of activity?

Dinu Solojan: There are no significant legislative gaps, only some inconsistencies between the three relevant laws. However, there is an obvious ill-will of the entities mentioned above, based on interests contrary to the national interest, to block the activity of economic operators with private capital, so that the economic operator with state capital is secretly and anti-competitively supported. The most deficient legislation among the three is that of MAE-ANCEX, which practically does not recognize the existence and rights of private economic operators in the national defense industry, as it was not updated after the appearance and in the spirit of Law 232/2016.

Reporter: How do private companies from this economic sector contribute to the endowment of the Romanian Army and what difficulties do they have in the tender procedures organized by the Ministry of Economy, through Romarm, and by the Ministry of National Defense through Romtehnica?

Dinu Solojan: The private companies in this sector have the biggest contribution to the endowment of the Romanian Army and the other institutions called FSNA - MAI, SRI, SPP, SIE, etc. - in the fields of armaments and ammunition, combat vehicles, communication systems, personal protective equipment. The Ministry of Economy does not organize tenders, neither does Romarm, they do not have the capacity of contracting authorities. Romarm is an economic operator (commercial company) just like the private ones, but with state capital, which attracts an attitude of favoring it by the contracting authorities in these tenders. Romarm is also favored by the strategies and economic contacts initiated by the Ministry of Economy or MApN, practically all of which are illegally directed towards it. The only strategy the Romanian state has is not to let the private component of the national defense industry activate and develop. As something that shows how cartoonish the thinking of the Ministry of Economy is, some time ago we were invited to a meeting at the Government to present our views on the new Strategy for the national defense industry, but under the conditions in which we were not asked available its text on the grounds that it is a classified document.

"MApN appeals to Romtehnica for «slamming» or defrauding some public procurements"

Reporter: What is the situation at MApN?

Dinu Solojan: MApN organizes, as a general rule, its procedures for awarding public procurement contracts alone, through the Department for Armaments. He resorts to Romtehnica's "intermediation" when there is information that the products subject to the contract can only be offered by foreign economic operators or when the procedures must be fraudulent or "slammed". Public procurement legislation is also relatively in order, the incident being GEO 114/2011.

The major problems are encountered because at the level of some of the contracting authorities listed, the evaluation commissions do not respect the requirements of the award documentation, and the evaluations are carried out either superficially or favourably. In many cases, evaluation commissions do not act independently, acting on the order of economic operators to be qualified or declared winners.

Reporter: What other problems intervene in the procedures for public procurement of military equipment and technology?

Dinu Solojan: Other major problems are related to the exercise of appeals. These have become, through the Government's effort to amend Law 101/2016 in series after the 2020 pandemic to cover the frauds from the public money since then, particularly onerous and almost illusory in terms of truth and justice. At the level of the National Complaints Resolution Council (CNSC), certain resolution panels have been "radicalized" in the sense that they systematically try to protect some obvious frauds. At the largest Court of Appeal in the country, there are only four public procurement panels, which determines a certain superficiality in judging complaints against CNSC decisions.

At the Bucharest Court, where judicial appeals or actions regarding illegally concluded contracts are judged, there is a tendency to pass responsibility to the Court of Appeal, and the decisions contain some of the strangest reasons.

The biggest syncopation is that both at the CNSC and at the Courts of Appeal the full boards are made up of 3 members, but at the Courts they are made up of one member and the public perception is that he does not have the courage to assume a certain decision by which it would be recognized that a procedure or contract was carried out or was awarded illegally.

In any case, the number of appeals exercised has not decreased, even in spite of these adverse circumstances, which shows that frauds have increased in number.

However, even if the endowment of these armed entities of Romania is mostly carried out by economic operators with private capital, it must be understood that they do not do so based on their capacity as members of the national defense industry, the operations and activities carried out being completely different. In order to execute a public procurement contract in the defense and security sector according to GEO 114/2011, the economic operator turned supplier mainly carries out intra-community import/transfer operations and the sale of military products.

The national defense industry has as its object the making of military products on the territory of the country, which in layman's terms is called manufacturing/production. This realization of military products by economic operators with private capital is prevented by the listed entities, led by the Ministry of Economy.

"Beretta pistols purchase fraud was orchestrated by the government in May 2020"

Reporter: Many accusations from companies have also referred to the offset clause in recent years. Why is it not respected, what are the most common practices to circumvent its compliance, who is guilty of circumventing the transfer of technology?

Dinu Solojan: The offset clause is circumvented because it is used illegally, as a political tool to favor certain foreign economic operators over Romanian ones. Not only MApN is the champion of encouraging the circumvention of this obligation. After the fraud scandal with the Beretta pistols purchased during the pandemic by the IGPR, the circumvention tool was used to discriminate economic operators with private capital against Romarm. The fraud of the purchase of Beretta pistols was orchestrated by the government in May 2020 so that the offset was also paid from the public money of the Romanians, not by the Italian company. The fact that Beretta won this contract rigged down to its smallest details, thus demonstrating that it is willing to accept to participate in such frauds, led the current economy minister and the one who preceded him to insist that the public money of Romanians to be spent fraudulently.

Reporter: You're talking about tinkering with this contract. What did his scheming consist of?

Dinu Solojan: Romarm's offer was non-compliant, the assumption of the offset was strictly a facade, as it was known that Romarm would not fulfill this obligation, so the initial contract was signed under unfavorable conditions for IGPR, but being thought of as a contract that was supposed to go, at any cost, at Romarm, these shortcomings of its offer have been overcome.

About 45 days after the signing of the contract, CNSC ordered the re-evaluation of Romarm's offer. At the same time, however, it turned out that Romarm could not deliver the first 5,000 pistols within the assumed 59-day deadline. To protect him from penalties, the IGPR decided to terminate the original contract. According to the law, the conclusion of the contract means the completion of the award procedure, and the termination of a contract means its termination. A few days later, IGPR signs another contract with Romarm, awarded without a procedure for awarding this second contract. This fraud was so serious that the director of the Financial Directorate of IGPR refused to sign the contract. In addition, contrary to the law, the contract was not executed during the state of emergency, being artificially extended by 6 months. It is absolutely curious that at the level of the Court of Accounts these aspects of flagrant violation of the law were covered up. Very shortly after the execution of the illegally awarded contract, my suspicion that forged documents were used to obtain this contract was also confirmed.

Of course, a major fault also lies with the Office of Compensation for Special Equipment Acquisitions (OCATS), which formulated views that violate the law regarding the extension of the period of fulfillment of the offset obligation by Romarm, although it was a maximum of 2 years from upon completion of the supply contract. The attempt to extend it to 10 years is illegal, and OCATS is responding to orders from certain circles of interests contrary to Romania's interests.

OCATS also showed a suspicious passivity regarding a contract fraudulently awarded by the SRI to a Romanian company that offers products manufactured in Austria. SRI, in 2020, under that director who declared himself a victim of parallel state abuses, exempted this company from the offset obligation, seriously violating the law, the company did not fulfill its obligation to contact OCATS to sign the agreement of compensation and its execution, and OCATS, although notified of this situation, refused to take the measures required by law.

Reporter: Can you tell us what SRI was going to purchase from that company?

Dinu Solojan: Armament.

"State companies are in unfair competition with economic operators with private capital in the defense industry"

Reporter: Are the unsuccessful collaborations with Rheinmetall and Naval Group the biggest failures of the Romanian State in the defense industry?

Dinu Solojan: I don't have concrete data about the type of corvettes. All I know about Rheinmetall and the 8x8 transporters is that the Germans were sabotaged by the board of directors of the joint venture they had formed with the Romarm branch from Moreni.

Reporter: What did the sabotage of the German partners consist of?

Dinu Solojan: I do not have the consent to develop this case.

Reporter: How can private operators in this field be supported?

Dinu Solojan: Private operators will not be supported in this area. The SRI officially said, in written materials, that it cannot control them, so it treats them as potential terrorists.

Reporter: What written materials are you referring to?

Dinu Solojan: Official positions of the SRI submitted to the court. Private operators cannot provide undue benefits to the parallel state, so they cannot satisfy group interests that sabotage the national interest.

Reporter: Is the lack of competition with state companies - most of them in financial difficulty - an impediment to the development of private companies in the defense industry?

Dinu Solojan: This is a wrong perception. There is no lack of competition with state company subsidiaries. On the contrary, it is constantly favored in the market. The fact that these subsidiaries have debts to the budget is covered up or disregarded in the public procurement procedures, where the evaluation commissions do not dare to disqualify them.

The state company is in unfair competition with economic operators with private capital because the state institutions favor it.

Reporter: Recently, European Commissioner Thierry Breton proposed a fund of 100 billion euros for the revival of the European defense industry. But this allocation is not the only program financed by the European Union in recent years for the defense industry of the member states. Are defense industry cooperation programs financed from the Community budget accessible or not?

Dinu Solojan: Yes, they are accessible in theory. Our analysis revealed, however, a lack of utility in accessing such an opportunity.

Reporter: How important is cooperation with Western partners for the production of military equipment for private companies?

Dinu Solojan: It is the only one that matters, but the completion of collaborations is blocked by the mechanisms of the parallel state.

Reporter: How much of the domestic production is exported and what percentage of this production reaches the Romanian armed forces?

Dinu Solojan: I can't answer this question, I don't have any data.

Reporter: What can be done to solve the problem of the lack of labor and, in particular, of qualified labor, that is, of specialized personnel?

Dinu Solojan: Let the private economic operators, the only engine of the defense industry, activate and develop, hire and qualify their personnel.

Reporter: When do you expect our country to be able to produce modern military equipment from scratch?

Dinu Solojan: If we were not blocked in our activity in this field, what we had started in 2019 would have been accomplished now.

Reporter: Thank you.