While many may argue that defense procurement is a waste of taxpayers’ money, Indonesia is set to reap financial and technological gains with the planned acquisition of 11 Russian-made Sukhoi Su-35 Flanker jet fighters worth some US$1.14 billion.

Russia has pledged to buy Indonesian commodities for half the value of the contract and provide a transfer-of-technology (ToT) worth another 35 percent.

The Flanker deal is the first major arms deal during the presidency of Joko “Jokowi” Widodo to adhere to the 2012 Defense Industry Law, which requires every foreign arms purchase to include a combined deal of 85 percent of countertrade, local content and offset. The local content is set at a minimum of 35 percent.

Defense Minister Ryamizard Ryacudu said on Tuesday that the countertrade deal would boost Indonesian exports to Russia and strengthen the domestic defense industry as Russia would be asked to buy defense components from Indonesia that Russia did not produce.

He expects to sign the contract as early as September, and the first delivery is expected two years later.

“We are also preparing to establish MRO [maintenance, repair and overhaul] facilities in Indonesia as part of the transfer of technology so that we will not have to go to Russia to maintain the jet fighters, which would be very expensive.”

“Another benefit is that neighboring countries such as Malaysia and Vietnam may also come here to maintain their Sukhois.”

Ryamizard was speaking at a joint conference on the acquisition deal with Trade Minister Enggartiasto “Enggar” Lukita at the Defense Ministry.

Indonesia currently operates 16 Sukhoi jet fighters comprising six single-seater Su-27 SKMs and 10 Su-30 MK2s of the 11th Squadron in Makassar.

Indonesia’s first batch of four Sukhois was purchased during Megawati Soekarnoputri’s presidency, which also involved a countertrade deal although without a ToT arrangement.

Indonesia will be the second foreign country to operate Su-35s after China received its first deliveries in January out of 24 jet fighters, for which China paid $2-billion in a deal signed in November 2015.

Technological gains will be acquired through offset packages involving the local defense industry, such as technical capabilities including maintenance capability for radar targeting, synthetic and enhanced display and integrated logistics management systems, and facilities to maintain and repair AL-417-1S and AL-31F engines.

Other packages involve the establishment of a high-technology aviation hose factory, capability audits of 1,000-hour aircraft maintenance and repair, and capability audits of maintenance of critical avionics systems.

Ryamizard said that he had persuaded Russia to reduce the unit price from $150 million to $90 million each to conclude the negotiations, which had been ongoing since 2015.

He said the deal would be done on a government-to-government basis without the involvement of a third party, to eliminate the scope for corruption, and underlined that the deal would not affect Indonesia’s relationship with the United States.

The countertrade system is a tricky business as commodity prices fluctuate depending on the global economy. On the other hand, Indonesia’s top commodity, crude palm oil (CPO), has faced what Indonesia calls a negative campaign in the European market in the past few years.

Enggar said the public should not worry about such concerns, because his ministry would protect Indonesia’s interests in the deal.

The two countries signed the countertrade agreement when Enggar visited Russia on Aug. 10. State-owned trading house PT Perusahaan Perdagangan and Russian state-owned company Rostec Corporation will handle the deal’s implementation.

Enggar said Russia initially only wanted to buy crumb rubber, but Indonesia also offered other commodities, such as CPO, coffee, furniture and even the defense components that Russia did not make.

He added that Indonesia would export the commodities not only to Moscow but to any destination in Asia or Europe as per Russia’s request in the future.

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