VZCZCXYZ0000
OO RUEHWEB

DE RUEHWR #0014/01 0071205
ZNY CCCCC ZZH
O 071205Z JAN 09
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7561
INFO RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY
RUEKJCS/OSD WASHDC PRIORITY
RHEHNSC/WHITE HOUSE NATIONAL SECU WASHINGTON DC PRIORITY

C O N F I D E N T I A L WARSAW 000014 
 
SIPDIS 
 
EUR/CE FOR MORRIS, PM/RSAT FOR BAME 
 
E.O. 12958: DECL: 01/05/2019 
TAGS: PGOV PREL PMAT PL
SUBJECT: STATUTORY AND POLITICAL CONSTRAINTS ON POLISH 
DEFENSE ACQUISITION 
 
REF: IIR 6 878 068 09 
 
Classified By: DCM Quanrud for reasons 1.4 (b) and (d). 
 
¶1.  (C) SUMMARY.  Statutory limitations and a general 
political culture that straightjackets large-scale military 
acquisition projects are impeding the GoP,s ability to 
advance its defense modernization program.  The Polish 
Ministry of Defense (MoD) was obligated to return 
approximately USD 350 million allocated for defense 
modernization to the Polish Treasury at the December 31 close 
of FY 2008 (reftel), resulting in the loss of substantial 
funding for clearly articulated national defense priorities. 
The GoP understands its budget laws are too restrictive, and 
is looking at ways to fix them.  The government is reportedly 
working in parliament to develop multi-year budgeting 
authority for all ministries, but new budget laws will likely 
not be in place before 2010 at the earliest.  In the interim, 
Poland will need to enact special legislation on a 
case-by-case basis to execute multi-year acquisitions 
outlined by the joint Polish/U.S. Defense Modernization 
Working Group.  END SUMMARY. 
 
¶2.  (C) Two aspects of Polish budget law restrict GoP defense 
acquisitions.  First, because there is no multi-year 
budgeting in Poland acquisition contracts must be initiated 
and executed in the same fiscal year (which is the same as 
the calendar year).  For example, the GoP was ultimately 
unable to procure three Israeli-built Elbit Hermes 450 
Unmanned Aerial Vehicle (UAV) systems because the purchase 
could not be realized by the end of FY 2008.  Second, Polish 
law does not permit up-front payments before delivery, which 
makes it very hard for defense suppliers, who may need 
initial money to launch large procurement projects.  A USD 
220 million project to acquire ship-board fire control 
systems was suspended because MoD could not disburse interim 
payments to the Dutch contractor.   In the past, the MOD has 
gotten around these problems in different ways.  A specific 
law was passed just for the funding of the F-16 purchase, and 
other major contracts have been executed by using a leading 
defense supplier as a middle man. 
 
¶3.  (C) The GoP understands its budget laws are too 
restrictive, and is looking at ways to fix them.  The fact 
that MOD officials in the past have leaked information about 
the returned monies is an attempt to show how cumbersome the 
current budget laws are.  The government is reportedly 
working in the Sejm to develop multiple year budgeting 
authority for all ministries, not just defense, but new 
budget laws will likely not be in place before 2010 at the 
earliest.  (NOTE:  Multiple year authority is critical for 
major construction projects for which the EU provides a large 
part of the funding.  END NOTE.)  A key stumbling block is 
the Finance Ministry, which prefers the current arrangements 
whereby unspent monies are applied to reducing the budget 
deficit.  When we raised the issue January 6, MFA Deputy 
Security Policy Director Marek Szczygiel expressed 
frustration with the legislative requirements for acquisition 
programs.  While he saw little prospect of serious reform in 
the near future, he suggested that the Sejm would be able to 
enact special legislation -- on a case-by-case basis -- to 
cover financing for complex programs as it had with the 
multi-year F-16 acquisition. 
 
¶4.  (C) Compounding these legislative restrictions are rules 
governing offsets that require on-the-ground legwork for 
non-Polish contractors.  Such requirements are generally 
difficult to satisfy within the single fiscal year timeframe. 
 New legislation requires that an offset agreement be signed 
at the same time as the purchase contract.  Poland's 
political establishment has historically been suspicious of 
any large acquisition and has been reluctant to temper this 
suspicion with intermediate, non-judicial oversight. In 
December 2008, for example, MoD purchased M28B Bryza aircraft 
from PZL-Mielec (owned by Sikorski-United Technologies).  A 
single negative press account following the acquisition was 
sufficient to prompt Polish legislators to call for 
prosecutors to investigate Defense Minister Bogdan Klich. 
This atmosphere of political distrust has had a chilling 
effect on acquisition reform. 
 
¶5.  (C) COMMENT.  The loss of substantial modernization 
funding in FY2008 notwithstanding, Poland continues to 
allocate a minimum of 1.95% of GDP on defense spending, 20% 
of which is earmarked for modernization.  In this respect, it 
remains a model for other NATO allies.  Poland is working to 
develop legislative solutions to address defense procurement 
inefficiencies and, in the interim, implementing (when 
 
feasible) stopgap measures for high priority acquisitions. 
We should discuss Poland's legislative plans in the bilateral 
Finance Working Group and press the Poles to provide 
realistic predictions of how much of their defense budget 
they will be able to spend in CY2009 and beyond.  As Poland 
pursues expensive acquisition programs like the Patriot PAC3 
system, we should continue to encourage efforts to reform the 
defense acquisition process but also be prepared to accept 
special legislation as a fallback option.  In the interim, 
U.S. FMF/IMET and other forms of assistance will prove even 
more crucial.  END COMMENT. 
ASHE