A month from now, on December13, an application to claim the European Commission's co-financing for the development of military industry will be concluded. In order to be able to participate, Latvia must first decide on the establishment of the relevant State-owned enterprise.
The project, which has already been prepared during the previous government, has still not appeared on the agenda of the present government. There is little time left and great competition for funding.
“First of all, a state-owned enterprise must be set up, so first the government must decide on it. The documents have all been submitted and very carefully evaluated. I know that the State Chancellery and its departments have made this assessment very, very carefully, in detail. And here the time is of the essence – we should act faster because Latvia is in a fairly sharp competitive situation with other European Union countries,” former Defense Minister Inara Mūrniece (National Alliance) told De Facto.
The current Defense Minister Andris Sprūds (Progressives) said he could not simply sign such a serious document – it was necessary to evaluate and understand the business plan and further steps. Sprūds promised the formation of a capital company would be decided on by the government within the next two weeks.
“Before we also move on to our application, it is very important to assess both the very essence and sustainability of the formation of this capital company and to establish a quality application for our partners [..] in this case, it is “Nexter” - French and Italian and “Namo,” which in turn is a Finnish and Norwegian company,” Sprūds said.
Co-financing from the European Union of up to 50% of the total costs may be eligible for the establishment of the production plant. The potential cost of the plant is not yet disclosed, but it is known that it could be a multi-million project and talks on the financial breakdown between partners are still ongoing.
Secretary of State for the Ministry of Defense Jānis Garisons said the principle of the formation of a capital company will be that a holding company is formed, which will be able to build further and develop different businesses with different partners.
“It is created by the Ministry of Defense, 100% owned by the state. And then the plant will be a subsidiary that will be a joint venture with those foreign partners, respectively,” Garisons said.
In parallel to this process, the Defense Industry draft law is being prepared in the Saeima, intended to regulate this industry. The Latvian Federation of Security and Defense Industries is skeptical of the involvement of the state in the production of ammunition.
“We understand very well that at the moment when the warehouses are filled, at the moment when the conflicts will go down, then there is the question of how this company can live next and who takes these business risks – a strategic investor or the Latvian society,” said Elīna Egle-Ločmele, Chair of the Board of the Latvian Federation of Security and Defense Industries.
The Defence Industry Law would lay down security of supply principles for military procurement, create conditions for a strategic partnership that would mean long-term commitment to the state and an obligation for companies to continue operating during wartime as well as provide a framework for state aid in research.
However, the draft law does not contain the regulation of the defense industry mentioned in the title, which is also referred to by the Saeima Law Bureau. What to do - proposals from the Ministry of Defense are expected within a month.
“Yes, I agree that this is a security-of-supply-oriented law, but if we look at such a very broad framework, then it goes beyond the traditional competence of the Ministry of Defense, where then there should also be a clear vision of other ministries - in what way those support tools are used to shape the military industry,” Garisons noted.
One issue that calls for a broader vision is the fact that banks tend to refuse funding for military industry projects that limit development opportunities. Several companies producing in Latvia have encountered this problem.
“A paradoxical situation: Europe and NATO say, yes, work, industry is the keyword. On the other hand, funding from the banking sector, from the private sector, is very difficult to access. Let's say it – painful or even inaccessible at times, because this sector is still taboo for many,” said Agris Dundurs, board Member of “D Dupleks” Ltd.
Uģis Romanovs, Board Member of the armored vehicle manufacturer “Patria Latvia”, also doubts whether the law will help to organize the defense industry as an economic sector.
When asked what would be important for the industry's development, he said: “Just like the Patria 6x6 project, there must be very strict conditions for producers of original equipment, which is mostly a foreign company, to create this module of security of supply in Latvia, which ensures not only that we will not depend so much on foreign partners in a crisis situation and, of course, the downstream effect is a contribution to the economy.”
Despite the large and different interests that could be affected by the future law, the head of the responsible Saeima Defense and Interior Committee Raimonds Bergmanis (United List) is convinced that the most important thing will be put in the bill without hesitation
The Latvian Federation of Security and Defense Industries had proposed mentioning this organization in the law as the only state partner. This proposal has been rejected.