UK seeks £2bn Saudi Type-45 destroyer contract

BAE Systems and VT Group set for 2 bln stg Saudi destroyer deal - report 03.09.07, 3:33 AM ET

LONDON (AFX) - Britain is aiming to win a 2 bln stg order from Saudi Arabia for the world's most advanced naval destroyer, which would be built by BAE Systems PLC and VT Group PLC, The Independent newspaper reported.

The proposed deal comes just three months after the Serious Fraud Office (SFO) was forced to drop an investigation into claims BAE Systems (other-otc: BAESF.PK - news - people ) bribed Saudi officials to secure the Al Yamamah arms-for-oil contract.

The report said the Saudis are understood to be interested in buying two or three Type 45 destroyers to strengthen their defensive capabilities in the region.

According to the newspaper, one possibility would be for Saudi Arabia to take two of the Type 45s being built for the Royal Navy, which has ordered a total of six ships with the option to buy a further two.

The report said the prospect of another huge arms deal with the kingdom, just after the recently agreed 10 bln stg deal to buy Eurofighter Typhoon aircraft, will fuel claims the SFO investigation was dropped as much for commercial reasons as for concerns about the UK's national interest.

The merger of BAE's Govan and Scotstoun yards on the Clyde and VT's Portsmouth yard to create a single UK warship builder is due to be announced in the next month, the report said.

http://news.independent.co.uk/business/news/article2341426.ece

UK seeks £2bn Saudi destroyer contract

By Michael Harrison, Business Editor
Published: 09 March 2007
Britain is seeking to win a £2bn order from Saudi Arabia for the world's most advanced naval destroyer just three months after the Serious Fraud Office was forced to drop an investigation into claims that BAE Systems bribed Saudi officials to secure the Al Yamamah arms-for-oil contract.

The Saudis are understood to be interested in buying two or three Type 45 destroyers to strengthen their defensive capabilities in the region.

One possibility would be for Saudi Arabia to take two of the Type 45s being built for the Royal Navy, which has ordered a total of six ships with the option to buy a further two.

The prospect of another huge arms deal with the kingdom, coming on top of the recently agreed £10bn deal to buy Eurofighter Typhoon aircraft, will fuel claims that the SFO investigation was dropped as much for commercial reasons as for concerns about the UK's national interest.

The Government ordered the SFO to drop the long-running bribery inquiry in December on the grounds that it was jeopardising Saudi co-operation in the fight against terrorism, although the UK intelligence services have since questioned whether there was anything as explicit as a threat from the Saudis to withdraw their assistance.

Should the Saudis go through with the Type 45 order, it would be a huge fillip for BAE and VT Group, the joint constructors of the vessels. The merger of BAE's Govan and Scotstoun yards on the Clyde and VT's Portsmouth yard to create a single UK warship builder is due to be announced in the next month.

The first of the six Type 45s being built for the Navy, HMS Daring, was launched from the Clyde in January and is due to enter service in 2009.

They are fitted with a Sampson radar which can track 4,000 different objects in a 200-mile radius and target an incoming missile the size of a golf ball from 30 miles. They are armed with Aster missiles fired from the PAAMs system, which is supplied by a BAE joint venture company, MBDA.

The new BAE/VT warship company will be worth about £750m and will start with an order book worth in the region of £2bn.

This will more than double when the Government gives the final go-ahead for the new company to build two new aircraft carriers for the Royal Navy costing around £3.9bn.

The aim of the recently promoted Defence minister Paul Drayson is to announce the carrier order and the creation of the new joint venture warship builder at the same time. The company will be managed 50:50, but ownership is expected to be split about 60 per cent to BAE and 40 per cent to VT.

There will be an option for VT to sell its shareholding to BAE at a specified date in the future.

Detailed negotiations are going on at present and although Lord Drayson has said he wants a deal agreed by the end of this month, the likelihood is that it will slip into April, according to industry sources.

Meanwhile, BAE is understood to have decided to bid for the Devonport nuclear submarine refit yard in Plymouth in partnership with the US private equity firm Carlyle.

BAE had been contemplating bidding alone, but the Ministry of Defence is thought to have preferred Carlyle to act as a partner because of the success the US company made of buying into QinetiQ, the defence research company floated last year.

The other bidder for Devonport is Babcock, the engineering and support services group which runs the Rosyth naval yard in Scotland. Devonport is reckoned to be worth about £200m to £250m.

Devonport's current owner, the American contractor KBR, was forced to put the business up for sale by the MoD after its parent company Haliburton decided to demerge KBR.

MoD targets arms deals with Libya

Ministry of Defence staff have met officials from Libya regularly, in what appears to be preparation for major British arms sales to the authoritarian regime.

According to figures from the Defence Export Services Organisation (Deso), a branch of the MoD, there have been 20 meetings between military equipment officials of the UK and Libya since 2004. Deso also opened a full-time office in the Libyan capital Tripoli last year to further promote British arms sales.

Until recently, Libya was regarded by the West as one of the most dangerous regimes on earth. An arms embargo was lifted in 2004 after Libya's renunciation of weapons of mass destruction.

Since then, Deso staff have been energetic in meeting the Libyans. Data obtained under the Freedom of Information Act by the pressure group Campaign Against Arms Trade (CAAT), shows that, in 2004, there was one such meeting in the UK and two in Libya. In 2005, there were three meetings in the UK and five in Libya. In 2006, there were four meetings in the UK and five in Libya.

Ian Prichard, research co-ordinator at CAAT, said the increasing number of meetings followed a pattern seen in other countries, where such activity preceded a large arms contract - such as with South Africa in the late 1990s.

"To see Libya go from a pariah regime to a market for UK arms overnight is worrying for anyone," Mr Prichard said. "They [Deso] only put in an office if they are after a really big deal."

Deso data also showed 10 meetings with Iraq's officials between 2004 and 2006, and none with Israel.

Malcolm Bruce, the Liberal Democrat MP, said: "It is a good thing that we have re-engaged with Libya, but I would draw the line at arms sales. You've got to ask who those arms would be used against."

Mr Bruce,who sits on the parliamentary Quadripartite Committee on strategic export controls, said he would bring the matter up with the Foreign Secretary, Margaret Beckett.

A spokesman for the MoD said: "We feel it is appropriate to demonstrate formal defence co-operation between the two countries. Libya, like other sovereign countries, has legitimate security concerns."

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