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Buying the right to snap up arms contracts
Jakarta Post - October 6, 2011
Nor is Soeryo comparable with the notorious post-Soviet era arms dealer, Victor Bout, a Russian who is allegedly supplying illegal arms to war-torn countries. Soeryo's business is completely legal and has been around for almost two decades.
His company, PT Novanindro International, is among seven companies in Indonesia that broker overseas arms supplies to the Indonesian Military (TNI). Soeryo's credentials include an arrangement to supply Russian AK-47 assault rifles to the Taliban regime in Afghanistan.
And now Soeryo is a member of an exclusive club that could serve to link the TNI's top brass with arms dealers in Russia, now Indonesia's largest suppliers of weaponry.
In 2007, Soeryo helped to broker an arms deal between Indonesia and Russia worth US$5 billion. As part of the deal, Indonesia will purchase 16 Sukhoi SU-35 jet fighters, eight Sukhoi SU-30 jet fighters, eight Sukhoi Su-27 jet fighters, two secondhand submarines and several helicopters.
"A broker functions more or less in the same way as a lobbyist," Soeryo said. "Their job is to assure the government that their product is the best on the market." "Only a few players know the tricks of the trade and have access to the kind of business that involves billions of dollars worth of transactions. In this business, if you can secure one deal, you won't need to work for the rest of your life."
But to secure that deal, a broker must go through the painstaking process of approaching decision-makers in the TNI and Defense Ministry and then taking care to ensure that they receive hefty commissions and are entertained.
Arms dealers usually receive firsthand information on military procurement planning, even before the authorities make it public. Soeryo usually offers his products to the planning and budgeting section of the military.
"TNI officers will find it difficult to procure the equipment directly without our help. For example, we can speak fluent foreign languages and have the capability to finance their trips to the vendor factories located overseas," said Soeryo.
"We can also find ways of obtaining export-import credit facilities. This is part of the deal because our state budget is not sufficient to cover the arms procurement," he said.
The facilities then undergo a lengthy red-tape process at the National Development Planning Board (Bappenas) and the Finance Ministry for approval.
If the facilities are approved, the dealer then pays upfront for the ordered weaponry while waiting for the Finance Ministry to disburse the required money to the Defense Ministry.
According to Soeryo, the Defense Ministry and the TNI rarely open up a bidding process for arms procurement because the specification of the required arms usually aligns with the weapon specification of dealers.
The allocated budget for the procurement is usually inflated to cover travel costs associated with huge numbers of top brass visiting the country of the dealers. This includes costs related to commissions and entertainment, said Soeryo.
A longtime arms dealer, who refused to be named, said that while the government's pledge to overhaul the procurement system was transparent and accountable, in reality nothing was being reformed and the situation was even getting worse.
"The business turns uglier because now we have to feed more officers and officials along the way to secure the contracts," said the dealer.
Former Air Force chief of staff Chief Air Marshal Chappy Hakim said the role of the brokers was so entrenched that it would be extremely difficult to phase out.
According to Chappy in his recent book Indonesian Defense, brokers and recalcitrant officers even played a role in maintenance projects, including in procuring spare parts for Hercules cargo aircraft.
The spare parts, he said, were supposed to be supplied directly by the US authorities with the Indonesian Defense Ministry functioning as the broker. But some private groups had somehow intervened in the process and turned the procurement into a profitable business.
Legislators from the House of Representatives' Commission I, which oversees defense, intelligence, and foreign affairs, believed dealers had been involved from the very beginning of the budgeting process at the House. The dealers are involved with almost all divisions and parties responsible for the deliberation of annual defense budget proposal.