The Philippine Army (PA) is expected to receive its shipment of Russian-made RPG-7V2 rocket propelled grenade (RPG) launchers in the next few days. These RPGs were delivered to the PA by Russia's defense export agency Rosoboronexport under a contract signed between the Philippines' Department of National Defense (DND) in late 2017. This is despite the both the Philippine and Russian sides having problems on how to proceed with payments due to the US government's Countering America's Adversaries Through Sanctions Act (CAATSA) issues.
MaxDefense received this news last week, but needed to check on the matter since there are issues surrounding the deal. Knowing what's happening allows us to provide better information that just reporting its arrival.
The Philippine Army requested for the delivery of 744 units of Rocket Propelled Grenades under its Rocket Launcher Light (Phase 2) Acquisition Project as part of the Horizon 1 phase of the Revised AFP Modernization Program (RAFPMP).
This is to replace the remaining M67 90mm recoilless rifles (RR) still being used, while improving the overall firepower of infantry units by having them distributed to smaller units that did not have access to RRs before.
The initial batch bought under Phase 1 of the project was acquired through US Foreign Military Sales (US FMS) program, delivering 250 units of ATGL-L rocket propelled grenades made by Bulgaria's Arsenal JSCo. The ATGL-L RPGs started arriving in late 2016 and have all been delivered by 2017, with some of the units used by the Philippine Army.
For the second batch, the Department of National Defense decided to go for a Government-to-Government (G2G) procurement instead of tendering it. MaxDefense reported in the past the several proponents were interested in supplying these RPGs to the Philippine Army, including Arsenal JSCo. of Bulgaria, and several other arms manfuacturers from Europe.
As a G2G project, the DND decided to go with the offer from the Russian government, which promised to supply the required units plus unspecified number and type of RPG ammunition. A report by Russian state media agency TASS confirmed that a contract was signed between the Philippines and Russia by late 2017, with deliveries expected to commence by 2018.
But despite the quick movement from decision making to project awarding to contract signing, the project was stalled on the Opening of Letter of Credit (LOC), which is a requirement to support payment transactions.
The Letter of Credit is a document from a bank or financial institution which guarantees a buyer's payment to the seller will be received on time and for the correct amount. This gives Rosoboronexport guarantee that the DND or the Philippine government will pay for the products it ordered, in this case, the RPGs.
But due to CAATSA issues, no financial institution or bank based in the Philippines, or even from Russia are willing to transact the deal, which also includes guaranteeing for the payments. These banks and financial institutions fear that the US government may impose sanctions on them, which could be disastrous in a business' point of view.
Since the deal cannot move forward until this issue is settled, the project was stuck and the delivery scheduled was delayed. Considering the contract was for Rosoboronexport to deliver the RPGs by 2018, none arrived up until July 2019.
With the delays, there are some groups who are already pushing for the cancellation of the contract with Russia as the Philippine Army ends up receiving nothing. And this was taken seriously by the Russian side.
MaxDefense sources confirmed that Russia pressed-on with the production and delivery of the RPGs despite the Philippines not releasing payments for them. This is to make sure that the project proceeds and the Philippine side would not back out of the deal.
And since the amount is not significant (project cost is said to be Php408 million), it appears that Russia has agreed to settle the payment issues later on as both sides continue to find ways. Sources mentioned that both parties are looking at having payments made in Euros or another currency instead of the US dollar, and this would allow a 3rd party financial institution to assist in the payments.
Source : MaxDefense.
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