The Politics and DV Engineering working group analyses current political developments in the defence sector. It provides independent facts and interpretation from the technological knowledge and experience of engineers.
The Politics and DV Engineering Working Group has the following questions and comments on the Parliamentary Letter on Alternative Financing in response to the Belhaj motion of 30 Oct 2019 (35300 X 10), published by the Secretary of State for Defence on 31 March 2020. The commentary was prepared based on publicly available information and defence technology knowledge and experience.
Alternative - or innovative - financing is another way to pay for investment in large defence equipment. Instead of paying on delivery, the ministry pays during use. Innovative financing also looks much more closely at the economic efficiency of the investment. Of course, without compromising military qualities or availability.
MP Salima Belhaj (D66) tabled a motion in October 2019 to have alternative funding for a large equipment project investigated. This was passed with 110 votes in favour.
Reading the State Secretary's response, it is striking that the letter does not answer the Belhaj motion. Moreover, some of the conclusions seem incorrect.
Major equipment projects
The Belhaj motion requested that the pros and cons of alternative funding for a major equipment project be investigated and that the House be informed about it. This specific request is not addressed.
The letter states that alternative financing is only reasonable for civilian projects. This assertion does not seem tenable to the working group. So is the assertion that the market can never actually finance on more favourable terms than the government. Pension funds and other financial parties have differently targeted interests and opportunities than the government, so alternative financing may well be more favourable to Defence.
The social benefit of alternative financing is not mentioned in the letter. This can be achieved if large Dutch institutional investors invest in large defence equipment. Besides a more efficient form of financing, this could increase support for Defence in society.
Pilot projects
In response to parliamentary questions in March 2015, the Ministry of Defence decided in mid-2016 to carry out pilot projects under the title INNOFIN. To this end, the Defence Administrative Council set up a steering committee. After a quick scan in 2017, the two small pilot projects referred to in the letter were launched in 2018.
Of one of these two projects(biodetector), it never came to any consultation outside Defence, even though it is necessary. This is stated in the letter and also noted by the working group. So the conclusion that "alternative funding has not proved successful" does not seem correct.
For the other project(driving simulator), the working group found that the demand to the market in early 2019 was so unclearly formulated that potential providers (all but one) did not respond. The party that did respond never received a response to that proposal. Again, the conclusion that "alternative funding has not proved successful" seems incorrect.
External report
The external report cited in the letter looks at the past. It does not address the concept of alternative or innovative financing. Indeed, it seeks new solutions for financing large equipment projects using, among other things, financial market instruments, short-cycle replacement and market-based innovation.
_____________________________
The Hague, 30 April 2020
More information on the Politics and Defence Technology Working Group can be found via this link.
Do you have any questions? If so, please contact the working group at E: politiektechniek@kividv.nl
Would you like to receive the working group's comments and advice by email? Sign up via this link.
Disclaimer: The facts and opinions given are based on open sources and on the knowledge and experience of working group members.
As part of the professional association KIVI, the working group is independent of political parties, governments and companies.
This is not an official position of KIVI. The association accepts no liability for anything put forward by the working group or its members.
Photo: Pixabay
