By Pierre Tran
Paris – France took a financial hit of €409 million ($440 million) as a result of its 2015 cancellation of the sale of two helicopter carriers to Russia, the national audit office said in its report on French arms exports.
“In total, taking into account the result of negotiations with Russia, cancellation of payments, payments to Naval Group, modifications and the sale of the ships to Egypt, this transaction cost France €409 million,” the independent office said in its report, Support for Export of Military Matériel.
The report was cleared 24 January 2023 for publication.
The then French president, François Hollande, cancelled in August 2015 a controversial sale of the Mistral class warships, under pressure from the U.S., central European and Baltic nations, after Russia seized in 2014 the Crimean peninsula from Ukraine.
The then U.S. president, Barak Obama, said Paris should “press the pause button,” while the U.K. also called for Hollande to ax the arms deal.
How the audit office arrived at that €409 million was unclear, but one view is that amount includes an estimated €340 million-€350 million paid out by Coface, the export credit agency, to the prime contractor, Naval Group, then known as DCNS, and other contractors including STX and CNIM.
STX built the two Mistrals at Saint-Nazaire shipyard, while CNIM supplied two L-CAT landing catamarans for the warship deal with Moscow.
That overall €409 million might also include €56.8 million spent on training Russian crews and adapting the ships to Russian specifications.
The hangers had been built large for a naval version of the Kamov Ka-52 Alligator attack helicopter, and the helicopter deck could be heated, to sail in Arctic waters.
STX, the shipbuilder, received €661 million from Coface, Thales €80 million for supply of electronics, and CNIM €40 million, September 2015 parliamentary reports from the lower house National Assembly and Senate said.
France paid Russia total reimbursement of €949.75 million for cancelling the order for the Mistrals, comprising a core payment of €892.9 million, and a further €56.8 million, the Sept. 15 2015 National Assembly report said.
It is understood the core repayment was based on Russian advance payment for the first ship – Vladivostok – which had been built and was ready for delivery, and partial advance payment on the second vessel – Sevastapol – which had yet to be completed when Hollande called the deal off.
There is a view the costs were covered by insurance claims through Coface, rather than French taxpayers, with export insurance for building the warships, buying them back from Russia, and selling them on to Egypt in 2015.
There is also a view the Mistral sale to Egypt was worth €960 million, although press reports at the time said the Cairo deal was worth €950 million.
Egypt’s purchase of the two Mistrals followed Cairo’s 2015 order for French weapons worth €5.2 billion for 24 Rafale fighter jets, a FREMM multimission frigate, and air-to-air and naval missiles.
The audit office was not available for comment.
Coface consistently made money between 2010-2021, with premiums exceeding claims, the report said, with only 2015 showing a net loss of €82 million due to the claims made on cancellation of the Mistral deal with Russia. The sale to Egypt limited the amount of claim, the report said.
Naval Group, the French shipbuilder, received payment that covered the cost of production, but it had to forego an estimated profit of €100 million on the Russian deal due to the cancellation.
There was much debate in France at the time, with some calling for delivery to Russia, to bolster a perception of France as a reliable trading partner.
The previous French president, Nicolas Sarkozy, had approved the Mistral sale to Russia in 2011, for around €1.2 billion, with options for two more.
That deal with Russian president Vladimir Putin drew criticism, with critics pointing to Russia’s 2008 invasion of Georgia, and concern rising when Russian troops seized Crimea and Moscow-backed separatists took control of the Donbas region, Eastern Ukraine, in 2014.
The incursion into Georgia would have taken 40 minutes rather than 26 hours if Russian forces had sailed the Mistral carrier, a Russian general had said.
The then executive chairman of Naval Group, Hervé Guillou, told parliamentarians in September 2015 that lawyers had said the company faced penalty payments of some €1 billion if the Mistral deal went into a lengthy legal dispute with Russia, on top of repaying almost €1 billion of advance payments.
The then French secretary general for defense and national security, Louis Gautier, negotiated with the then Russian deputy prime minister, Dmitry Rogozin, and they agreed on repayment, avoiding a legal wrangle. Hollande and Putin had agreed there should be a negotiated settlement and gave those senior officials mandate to strike a deal.
Those high-level, confidential talks appeared to spark a Russian free and frank expression of views.
Rogozin had not been “very favourable” to the Mistral deal, Gautier told Sept. 8 2015 parliamentarians, the Sept. 15 parliamentary report said.
The Russian official, in a brusque manner, stated his opposition to cooperation, that Russian yards could have built the helicopter carriers, and that they had not exercised the option for two more Mistrals, which would have been built in Russian yards, the senior French official told the parliamentary committee.
“His point of view was opposition to execution of the contract,” Gautier told parliamentarians.
“Nonetheless, there were representatives of other ministries sitting round the table.”
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