Last chance to avoid M-777 sticker shock
The Indian defense ministry has a tight window of opportunity to finalize the order for 145 M-777 light weight howitzers before the notification of the price hike by the US Defense Security Cooperation Agency (DSCA) to the US Congress comes into play.
The Indian Defense Minister AK Antony informed Parliament last week that his ministry is in receipt of a Letter of Offer and Acceptance from the US government for the procurement of 145 M-777 light weight howitzers at a ‘tentative cost of US Dollars 694 million’.
In its notification to the US Congress in January 2010, the US DSCA had quoted the price of the order at USD 647 million. Such notifications for Foreign Military Sales (FMS) typically provide leeway for an increase or decrease in price of up to ten percent.
Last month, the DSCA hiked the the figure by 37 percent hike to USD 885 million, in a fresh notification to the US Congress.
According to US government sources, every such notification to the US Congress comes into force only 30 days after, to allow the legislature to consider the proposed sale. In this case, with the second notification having been made on August 02, the price quoted in the first notification was technically valid only till September 01, after which the increased price would come in play.
But StratPost understands that the defense ministry still has till October to take the US government offer at the price of USD 694 million.
As things stand, the lines for the assembly of various components for the howitzer are expected to grind to a halt towards the end of September. Restarting these assembly lines will add even more to the cost of the howitzers for India.
The delays in deciding the order resulting in the price rise will also lead to a requirement on the part of the manufacturer BAE Systems to put together additional offset contracts, commensurate with the new costs, which could also cause further delays.