Murphy's Law: The Billion Dollar Blueprint Mystery

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December 14, 2007: There is a nasty situation is developing between India and Russia, and apparently it's all because of some lost blueprints. It goes like this. Russia and India have a $1.5 billion deal, which sold an unfinished Russian aircraft carrier, the Admiral Gorshkov, to India, and included a Russian shipyard performing $700 million worth of repairs, modifications and upgrades. Another $800 is to be spent on aircraft, weapons and equipment. Russia now wants a lot more money, while India insists on getting what the original contract called for. While the carrier is in Russia, India, which has already paid the Russians half a billion dollars, insist that they now own the ship. Russia has been scrambling to explain their sudden demands for more money, and has now admitted that the cause of the problem is, well, no one can find the blueprints for the Admiral Gorshkov, which entered service in 1987. The ship was built in Ukraine, which became an independent nation in 1991. After independence, the blueprints for the Admiral Gorshkov went missing, but no one noticed.

The Admiral Gorshkov was inactivated in 1996 (too expensive to operate on a post Cold War budget). The Indian deal was made in 2004, and the carrier was to be ready by 2008. But a year ago reports began coming out of Russia that the shipyard doing the work, Sevmash, had seriously miscalculated the cost of the project. The revised costs were now more like $1.1 billion for the $700 million refurb. The situation has since gotten worse, with Sevmash now saying that it will cost over $2 billion to refurbish the carrier. The Indians are not happy, and expects the Russian government (which owns many of the entities involved in the project) to make good on the original deal. The problem is this. The shipyard estimated the costs of doing the refurbs, not having the blueprints handy. When shipyard engineers took a close look at the Admiral Gorshkov, they realized that their estimates were much in error.

Given that India currently has $10 billion worth of Russian military items on order, and has been Russia's biggest, and most profitable customer for military equipment for decades, the Gorshkov is looking to be an error of gigantic proportions. The boss of Sevmash, when the Gorshkov deal was negotiated, has been fired and is under criminal investigation, on suspicion of financial mismanagement (separate from mistakes made in estimating contract costs for the Admiral Gorshkov work). To make matters worse, the additional work required on the Gorshkov has caused Sevmash to turn down lucrative commercial projects (like offshore oil platforms.)

The Indian government has told the Indian Navy that no more money will be forthcoming, and that Russia must comply with the original contract. The Russians, however, complain that the Indians demanded, after the contract was signed, substantial changes that were not in the contract. These changes greatly increased the cost of the work. The Indians accuse the Russians of not planning the refurb carefully. Now we have an admission that there are no blueprints, and it will cost millions to recreate the plans. Without blueprints, you can't really do a lot of work on a major warship.

 


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