With the Mistral contract in limbo and French warnings of dismantling the warships entirely, the future of Russia-France relations is growing ever more complicated.

People line up for their turn to visit the Mistral French amphibious assault ship docked on the Neva River in St. Petersburg, Russia, Wednesday, November 25, 2009, a year before the announcement of a contract for the construction of two Mistral-class naval vessels for the Russian Navy. Photo: AP

Last week France issued a proposal to Russia to terminate the contract to supply the Russian Navy with two Mistral-class helicopter carriers, according to daily newspaper Kommersant. The cancellation would involve repaying Russia around $879 million, which it could receive only after the Kremlin gives written consent for the vessels to be sold to any third party without reservation.

Russia, however, is demanding the larger sum of $1.30 billion, since it considers the "outlays and losses" incurred from the breach of contract to be far in excess of the compensatory sum. Neither does the Kremlin intend to give permission for re-export to a third party.

Meanwhile, the French Navy and the country's military experts believe that the Mistrals are not required and should simply be sunk.

"Defense experts propose simply destroying the vessels. Although this solution is clearly not to the liking of the shipbuilders, it would be the least expensive at around $22.4 million," newspaper Le Monde cites expert opinion, while considering other options, including re-export to third countries, which would significantly reduce "the financial losses incurred under the project."

According to Le Monde, “Converting the Russian-spec helicopter carriers would require only a few months.” The work involves "replacing the Russian communication and navigation systems, and the network of electric cables."

The curious story of the Mistral vessels

On December 24, 2010, Russia and France announced a contract for the construction of two Mistral-class amphibious assault ships for the Russian Navy to be built at the French shipyard in Saint-Nazaire. Another two were due to be built under license in Russia.

Each vessel is capable of carrying on board a tank battalion, 450-900 marine troops and 16 multipurpose helicopters, for which reason the Mistral came to be known as a "helicopter carrier."

It was assumed that, on entering service, the ships would be used to patrol Russia’s coast, prevent foreign submarines from entering its territorial waters, and conduct amphibious operations. It was originally planned that the first two Mistrals would form part of the Pacific Fleet, and the next two the Baltic Fleet.

The deal provoked considerable controversy in both Russia and the West. The Baltic countries made clear their alarm over the potential appearance of Russian helicopter carriers in the Baltic Sea, stating that they would be in the line of fire. In Russia itself, many military experts opined that the Mistrals were based on obsolete technology and that such warships should be built at Russian shipyards, employing the country’s latest military developments.

Handover of the first helicopter carrier, the Vladivostok, was slated for November 14, 2014, but did not take place. Earlier that year in September France warned that delivery of the Mistrals could be suspended, and on November 25 French President Francois Hollande officially put the deal on ice, pending a settlement of the situation in Ukraine.

The ships are still in limbo. As noted already, it has been proposed that they be sold to NATO or a third country, or even sunk. Media sources recently mooted a possible sale to China. How likely is such a scenario, and what fate awaits the Mistral-class Vladivostok and its identical twin, the Sevastopol?

The mysterious future of the Mistrals

For France, the Mistrals have become a proverbial "suitcase without a handle," which is hard to carry and equally hard to throw away. Every day the maintenance costs and the cancellation fee that could be payable to Russia continues to rise. What's more, only a direct agreement with Moscow will allow President Hollande to escape with minimal losses. The easiest way out is to obtain permission from the Russian government to sell the Mistrals to a third party.

Although many voices in Russia criticized the purchase of the Mistrals, it should be recognized that the warships were created with the help of Russian shipbuilders, who took into account every requirement of the Russian Navy. The reinforced hull makes them suited to icy conditions, while the internal dockage facilities and elevators were widened specially to accommodate Russia's Ka-52K and K29 helicopters.

The main gun and fire control systems are also Russian. The Centaurus satellite communication system, which replaced the French technology, is also homebuilt. If sold to a third country, a considerable amount of reengineering would be required — at France's expense. However, it is possible that Russia could agree to supply its military know-how to an approved buyer, thereby reducing the outlays for Paris.

But several factors hinder such a deal. Russia's procurement of the Mistrals was largely a political decision. In exchange for shipbuilding orders (which effectively saved Saint-Nazaire from bankruptcy), the administration of former President Nicolas Sarkozy agreed to sign up for the Nord Stream gas pipeline project.

Meanwhile, Australia (and later Turkey) opted in favor of the Spanish-built helicopter carrier, the Juan Carlos I, capable of carrying, in addition to 12 helicopters, six tactical fighters. Furthermore, Madrid was much more inclined to make concessions and agreed to the condition that the work be carried out in Australia. Accordingly, any country that decides its navy needs a helicopter carrier is more likely to consider Spain as a partner, and Paris will be forced to sell its vessels at a loss.

However, there is a long way to go before the Mistrals are sold. First, the legal status and ownership of the warships needs to be settled. It is for that reason that on the eve of May 16, the date of expiry of the force-majeure clause in the delivery contract, the French side began negotiations with Moscow to terminate it.

An amicable agreement would enable Paris to avoid protracted international arbitration, which, with EU and U.S. political backing, could in fact end favorably for France. But in any event, Paris would have to pay for the upkeep of the vessels at moorage throughout the litigation process, which would take at least a year. Moreover, pending a final legal judgment recognized by all parties, no country would be willing to seriously discuss buying the Mistrals.

Looming litigation over Mistrals

A peaceful termination of the contract would allow France to put the ships on the market quite quickly. Paris and Moscow presently disagree on the size of compensation. France has offered $879 million, payable only after receipt of written permission from the Russian government to sell the vessels to any third party without reservation. Moscow’s estimate of the costs incurred comes in at $1.30 billion, and the Kremlin is not prepared to allow re-export until that sum is received.

Clearly, even if the Hollande administration intends eventually to sell the carriers, it must make significant concessions to Russia, in which regard Moscow can afford to be intransigent on price. The costs incurred, as calculated by the Russian side, quite logically include training of on-board crews, construction of infrastructure for the new vessels in the Russian Far East, and work to adapt the K-52 for use with the carrier, as well as the outlays on dismantling Russian equipment on board the Vladivostok and the Sevastopol and returning it to Russia.

At the same time, Moscow is ready to continue its dialogue with Paris, which under French law may be able to "buy back" its warships. However, it will still have to pay what Russia asks for. Otherwise, Paris will have until May 25 to officially declare force-majeure circumstances, after which the dispute over recoverable costs will conclusively enter the litigation phase.

However, even with permission from Russia to sell the Mistrals, it would still be problematic. Poland, Canada, Egypt and even Ukraine are just some of the countries named as potential buyers of the carriers. On May 10, Chinese newspaper Want China Times suggested that a recent visit to Shanghai by a French naval task force, which included a Mistral-class carrier, might have been part of a strategy to sell the ships to China.

However, the Russian-French conflict over the Mistrals has compromised the credibility of Paris as a reliable partner to such an extent that if even India or China were to decide to procure a new helicopter carrier, they would be more likely to go for Spain’s offering. Moreover, under pressure from its NATO partners, Paris would try to persuade potential customers not to procure Russian equipment, which would be a deal-breaker for the Chinese.

That said, according to some French experts, the probability that the vessels will be sold to a third party is low, while their suggestion to sink them is simply absurd. In the opinion of Philippe Migault, expert in the field of military programs and political scientist at the French Institute of International and Strategic Relations (IRIS), such an act would be an “insult to the engineers and workers at Saint-Nazaire” and inflame environmentalists, not to mention the consequences that would ensue for Russian-French relations.

Therefore, Migault believes that the “best solution to the problem is simply to deliver the Mistrals to Russia.” The risks to France’s military shipbuilding reputation have already been sounded by French MEP Gilles Lebreton of the National Front, who says that, “France has other customers ready to place orders. But when they see how we deal with Russia, they will look elsewhere.”

Since the Kremlin believes that Paris has managed to ruin its reputation as a reliable defense partner, and even when sanctions are lifted, French contractors will hardly be welcomed back by the Russian military-industrial complex. France’s other partners might think in the same way, and the shipbuilders of Saint-Nazaire may soon be looking for a career change.