French President François Hollande has said that his government will reimburse Russia if the two countries fail to reach an agreement over the delivery of two Mistral warships commissioned by Russia in 2011.
"If the boats are not delivered, then I don't see how they could be paid for," Hollande told journalists after meeting with Ukrainian President Petro Poroshenko on Wednesday. "Among the various scenarios, there will either be reimbursement or payment."
Delivery of the first helicopter carrier was initially scheduled for last November, but was suspended after Western governments sanctioned Russia for its backing of separatists in eastern Ukraine. France had reportedly come under intensepressurefrom the US and other Western allies to pull out of the deal. In December, the 400 Russian sailors that France had trained to operate the Mistral left the port of Saint-Nazaire without the completed ship, which had been named Vladivostok.
The1.2 billion euro ($1.3 billion) contract, which was negotiated in 2008 and signed in 2011, stipulated the building and delivery of two amphibious assault ships, the training of Russian sailors, and a technology transfer program that grants Russian access to French expertise.
"Delivery of the Mistrals is impossible in the current context," Hollande remarked at Wednesday's press conference.
Last week, Russian President Vladimir Putin warned that he would expect a refund if France did not supply the Mistrals, but that he would not seek "fines or extravagant compensation." The non-delivery of the warships, he noted, would not affect Russia's defense capabilities.
In 2009, Russian Adm. Vladimir Vysotskiy said that if Russia had possessed Mistral warships in 2008, it could have waged its war against Georgia over the breakaway regions South Ossetia and Abkhazia "in 40 minutes, instead of 26 hours."
The second vessel — dubbed the Sebastopol — is contractually due to be delivered to Russia in October 2015. Jean-Pierre Maulny, the deputy director at the French Institute for International and Strategic Research (IRIS), told VICE News that the deal could still go through if Russia adheres to the conditions outlined in the Minsk ceasefire deal with Ukraine's government.
"Europe's sanctions against Russia are scheduled to end in July 2015," Maulny said. "If the delivery goes ahead, it will probably be some time between then and the end of the year. It remains to be seen if France and Russia can wait that long."
Alain Coldefy, a retired admiral in the French navy and a research director at IRIS, told VICE News that he was "pessimistic" about the delivery.
"The Foreign Affairs Ministry was too specific about the conditions required for the delivery of the Mistral," he said. "It's unlikely they will be met."
Hollande's implication that the ships could still be handed over, he added, was made only to maintain the "status quo." If the deal falls through and France has to cough up a hefty refund, Coldefy noted that French taxpayers would pay for it.
The two companies who have the most invested in the Franco-Russian warship deal are French naval contracting giant DCNS — in which the French state holds a 64% stake — and the STX shipyard. According to an article published in the French newspaper La Tribune in March 2014, DCNS has 430 million euros ($465 million) at stake in the sale, while STX's share of the contract is 660 million euros ($715 million).
Credit insurer Coface could step in and underwrite part of the refund, according to a report in Le Monde. The state would cover the rest.
According to Maulny, France's Budget Ministry hopes that the Defense Ministry will pick up the tab. But the timing couldn't be worse for the Defense Ministry, which says it already needs an extra 8 billion euros to fund security operations at home and abroad.
Beefed up security measures in the wake of the January terror attacks in Paris have made a dent in the country's defense budget, said Maulny, and the government would be better off looking for the money elsewhere.
If the deal with Russia is abandoned, France — which has snagged several international arms deals in the last few weeks — could also theoretically find a new buyer for the two warships.
"Many medium-sized countries could be interested, such as the Netherlands, Portugal, or Brazil," Coldefy speculated. "There's nothing to keep the ships from being re-sold."
Hollande and Putin are due to discuss the deal on Friday in Armenia, where world leaders will gather in the capital Erevan to commemorate the 100th anniversary of the Armenian genocide.