Procurement: September 4, 2004


France will use private funding to build 17 frigates for the French Navy, with the first frigate to enter into service in 2009. The unconventional funding mechanism will have to be fully organized by October, when the contract for the first batch of frigates will be announced. A consortium of banks will be expected to put up $6.1 billion, with one bank acting as a manager for the deal. Bids have been submitted by several French firms and the Royal Bank of Scotland. 

The funding will allow the French government to keep a large chunk of money for the frigates off the books of the national budget, since repayment of the loan will be spread out over a period of up to twenty years. It has been organized as a deferred payment system to ensure France will retain ownership of the frigates once the debt is paid off. The French government will fully guarantee the loan. The French defense ministry is expected to order at least 4 frigates but may try to order as many as 8 in order to squeeze out a better price on the ships.

The European Union isnt too thrilled with the scheme, as it is one of several creative accounting efforts being attempted by member countries, for expensive military projects. France has already been criticized for allowing its budget deficit to climb above 3 percent of its gross national product; EU members are supposed to stay below 3 percent as part of their agreement to be a part of the organization, so moving the project off the books gives France a little more funding flexibility Doug Mohney


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