Offset programmes did not effectively support our industry
Press Release – March 11, 2013
The Supreme Audit Office (SAO) performed an audit of 10 selected offset programmes implemented by Ministry of Defence and Ministry of the Interior within the period 1999-2011. The offset programmes were aimed to support the Czech industry. These programmes consist in large procurements assigned by the State to foreign contractors who are later obliged to compensate the purchasing country´s costs by means of investments or purchasing the country´s products. Such cost compensations should reach at least the same amount as the public procurement´s value. Offsets were used namely with procurements related to defence issues - for instance, in case of the purchase of Pandur armoured vehicles and the lease of Gripen multirole fighters.
The contractor´s obligations and the value of the obligations are key elements in the programme´s evaluation. For example, these obligations may include the participation of Czech companies in the procurements or some form of support to the export and investments in the Czech Republic. The compensation involved in the 10 audited offset programmes amounted to CZK 57,400 million but the auditors concluded that the amount of compensations could have been higher at least by CZK 1,000 million.
Ministry of Defence and Ministry of Interior observe the compensations involved in individual offset programmes and evaluate how the contractors meet their offset obligations. Both the Ministries proclaimed that compensations in the amount of CZK 43,000 million had already been fulfilled. However, the auditors revealed that the said amount also included performances, which failed to fall into the category of offset compensations. The wrongly recognized performances amounted to CZK 1,100 million.
Since 1998 to 2005, Ministry of Industry and Trade (MIT) was responsible to manage offset programmes. At the same time, the MIT was also responsible for development and implementation of the State industrial and export policies. In 2005, the responsibility for offset programmes was transferred to Ministry of Defence and Ministry of Interior. As a result, the MIT could not influence the focus of offset programmes or use their potential to provide an effective support to the domestic industry. There is no law stipulating the conditions for utilization of offsets - they are only defined in Government decrees and internal regulations of the MIT.
Expenses in the amount of CZK 10,000 million have not been compensated yet - export contracts and cooperation projects for Czech companies should have been generated from the compensations. The SAO recommends both ministries to accept such measures to ensure that offset obligations are effectively utilized to support developments in key areas of the Czech Republic´s industry.
Offset programmes resulted in export contracts, which brought some ten thousands of millions. However, the Government ceased their application in August 2012 citing laws of the EU, in spite the community legislation actually allows the application of direct offset agreements.
For further details about the auditing operation No. 12/08 (in Czech only), see the following link: http://www.nku.cz/assets/media/informace-12-08.pdf (pdf 421 kB).
Communication Department
Supreme Audit Office