Multibillion-dollar South Korean arms deals at risk after Polish election


South Korean defense companies fear a series of multibillion-dollar arms deals to Poland are being put at risk by an expected change of government in Warsaw.

Having agreed binding deals with Korean companies worth a total of $13.7bn for rocket launchers, tanks, self-propelled howitzers and fighter jets, Warsaw is negotiating a second round of contracts to bolster its defenses and replace military hardware sent to neighboring Ukraine.

The Polish government, presently led by the rightwing Law and Justice party (PiS), used a special fund for emergency expenditure to help finance the purchases. But it has been accused by the coalition of opposition parties that won a combined majority in last month’s elections of keeping its overspending off the regular budget books.

Previous changes of government in Poland have led to the cancellation of major defense contracts.

“We’re worried about the deals because of the growing uncertainties in Poland,” a Korean defense procurement official told the Financial Times.

Seoul and Warsaw agreed a non-binding “framework contract” in July 2022 for Poland to import 672 K9 self-propelled howitzers and 288 Chunmoo multi-rocket launchers from Hanwha Aerospace, 1,000 K2 tanks from Hyundai Rotem and 48 fighter jets from Korea Aerospace Industries (KIA).

A binding “executive contract” has since been signed for all of the fighters. But executive contracts have only been signed for delivery of 212 of the 672 howitzers, 218 of the 288 multi-rocket launchers and 180 of the 1,000 tanks.

South Korea’s state-owned Export-Import Bank of Korea (Kexim) estimates the total value of the outstanding deals yet to be finalized at Won30tn ($23bn).

“We are seeing obvious concerns in the Korean defense industry that the government change in Poland could adversely impact the ongoing arms talks,” said Chae Woo-seok, a former executive at South Korea’s state Defense Acquisition Program Administration (Dapa) who heads the Korea Association of Defense Industry Studies.

“We are not worried about our ability to deliver the contracts, but we are worried that from the new Polish government’s perspective, the deals might be too big,” said a representative of one of the Korean companies still negotiating a major contract, speaking on condition of anonymity.

The first round of contracts exhausted Kexim’s legally mandated credit limits for loans and guarantees to a single borrower, meaning the Korean parliament will have to raise the ceiling considerably if the state export credit agency is to participate in future deals.

Reuters reported on Friday that the Korean government was rallying local banks to offer Warsaw a syndicated loan to finance the next round of executive contracts. Hanwha Aerospace confirmed to the FT that it was participating in the discussions.

Even if financing can be arranged, some Korean politicians worry about Poland’s ability to repay.

“The export deals seem too big for Poland’s defense budget,” said Hong Young-pyo, a lawmaker for the opposition Democratic Party and a member of the parliament’s finance and budget committee.

On Tuesday, the Polish government announced an additional £4bn defense deal with British-French-Italian arms maker MBDA.

Writing on Facebook last week, Poland’s prime minister Mateusz Morawiecki accused Polish opposition parties of wanting to find excuses to break their own election spending pledges by spreading “fairy tales about the allegedly poor state of public finances”.

While opposition leader Donald Tusk has committed to bolstering NATO’s eastern flank and helping Ukraine defeat Russia, past changes of government in Warsaw have resulted in policy shifts and defense contract cancellations. In 2016, the newly installed PiS government angered France by scrapping a $3.5bn purchase of Caracal helicopters made by Airbus.

Poland’s defense ministry did not respond to requests for comment. Poland’s new parliament convenes on November 13 but a new government is unlikely to be formed before next month.

The deputy leader of the Poland 2050 party that is part of Tusk’s upcoming coalition, Michał Kobosko, told the FT that the next government would not cancel binding contracts and repeat a dispute like that over the Caracal helicopters but would review any pledges made and scrutinize contracts whose precise terms were kept secret.

“We know what was announced but we do not know what exactly was signed with the suppliers,” he said. “We will not announce that we will be cutting all the contracts that were signed, even if we were also surprised to see Poland buying everything from Americans and Koreans, and not from our European partners.”

Seoul’s defense ministry said it was actively co-operating with companies to secure the outstanding deals. Dapa, KAI, Hyundai Rotem and Hanwha Aerospace declined to comment.

“The overarching question is whether the next Polish government can afford all these contracts, but a dispute with Korea is also music to the ears of [Polish defence firms] who have been losing out to Korean manufacturers,” said a Warsaw-based consultant who asked not to be named.

Analysts said difficulties in the contract talks would cast a shadow over a bilateral relationship that stretches beyond the defense sector. Poland agreed last year to acquire nuclear technology from Korea Hydro & Nuclear Power, as part of the PiS government’s plan to build the country’s first nuclear plants.

The article is in Dutch

Tags: Multibilliondollar South Korean arms deals risk Polish election


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