Waiting for Gorshkov: Russia now says carrier cost has doubled

After keeping India on tenterhooks for almost a year over the cost and delivery of aircraft carrier Admiral Gorshkov, Russia has stunned India by officially conveying that the deal will cost a whopping $1.2 billion more. This is more than twice the original cost.
 
New Delhi, sources said, is taken aback by this huge escalation as it beat all estimates the government had in mind after Moscow made it clear that the refurbishing costs had been far beyond its expectations. A price escalation was always on the cards, but the estimate hovered at $350 million to $400 million.
The unexpected hike in price has put the government in a tough spot: it has to decide whether it wants to proceed with price negotiation on the basis of what Russia has now quoted. The decision, sources said, will have to be taken at the highest level following consultations in the Cabinet Committee on Security.
India had a sent a technical team to ascertain the cost escalation after the visit by Defence Minister A K Antony last month to Moscow when Russia made it clear that a price hike was unavoidable if the deal had to go through.
The problem is that the original deal reached on January 29, 2004 by the NDA government was for $974 million. The aircraft carrier was to be refurbished according to Indian requirements and delivered on August 8, 2008, a week ahead of Independence Day. That the delivery schedule is now off-target is a well known fact, but what has India worried is whether the Navy will get the carrier by 2010 as INS Virat is already on extended life.
Another issue before the government is that it has already paid up $458 million, nearly half of the original amount, to Russia. All this will have to be weighed against any view to pull out from the deal. At the same time, sources said, to enter into negotiations on the basis of this very high quote from Russia could invite political opposition.
Admiral Gorshkov, which has not sailed much while in active service after it caught fire, needs to be completely refurbished. According to Russian experts working on it at the Sevmash yard, the cost of certification and calibration of new equipment is one of the chief factors behind this escalation.
While India is building its own indigenous aircraft carrier, the progress has been slow and the date of completion has now been pushed to 2015.
India has been feeling the heat from Russia on some defence deals of late. It has succumbed to Russia’s demand for increasing the annual escalation cost of weapon systems from the present 2.55 per cent to 5 per cent. What is confirmed is that both sides have agreed upon a ‘maximum ceiling’ annual escalation of 5 per cent, depending on the type of equipment imported by India.
The minimum annual escalation has been worked out to about 4 per cent. This would translate into a substantial amount given that an estimated $10 billion worth of defence contracts between the countries