Indonesia, Russia Still Negotiating Su-35 Deal

Indonesia is still negotiating a deal to buy 9 Su-35 fighter jets with Russia and has not abandoned it under pressure from the United States.

However, negotiations have remained struck over the last two years over issues such as price calculation for barter goods and the two countries not being able to negotiate a currency swap deal to replace the US dollar to fund the cash part of the deal.

Several industry sources told defenseword.net that a 2018 agreement regarding the Su-35 sale between Jakarta and Moscow concerned the mechanism of funding the sale (barter plus cash) and was not an agreement regarding delivery. The agreement also included a 35% offsets to be separately negotiated between PT Perusahaan Perdagangan and Russia’s Rostec.

The two sides conducted negotiations for the whole of 2019 regarding what will be included in the barter trade. Indonesia planned to purchase the 11 Sukhoi Su-35 fighter jets in exchange for Russia buying goods such as rubber, crude palm oil, coffee, tea, furniture and spices worth approximately 50% of the purchase price. The agreement was signed by former Indonesian Defense Minister Ryamizard Ryacudu in February 2018 and the Russian government.

The agreement was to be followed up with a “purchasing agreement” specifying the payment and delivery terms. The purchasing agreement is yet to signed, Russian ambassador to Indonesia, Lyudmila Georgievna Vorobieva said in a December 18 2018 comments to Indonesian news agency ANTARA news.

“The commodities part of the deal is worth US$570 million (out of the total $1.14 Billion) and here is the biggest challenge as prices of Indonesian cash crops identified under the barter- rubber, palm oil, coffee, furniture and spices- keep fluctuating,” a senior industry source told defenseword.net. “The challenge is further compounded as the commodities are to be supplied over a period of a few years. While Russia wants the commodities to be priced at their lowest mean prices, Jakarta wants them to be tagged at a much higher price,” the source added.

Indonesian Defence Minister Ryamizard Ryacudu had said in a June 2, 2019 statement to TASS while on a visit to Moscow - Indonesian defence ministry has signed documents concerning the purchase of 11 Su-35 fighter jets while the trade and finance ministries are still in the process of approval. The need for approval from multiple ministries arises as "there will be different forms of payment," Ryacadu had said.

In addition to arriving at an equitable price for Indonesian commodities, Russia wants to negotiate payment terms in national currencies to beat US sanctions on Russian defence  companies. “Jakarta  has not started this as yet  due to concern over  its impact on Indonesia -US trade with which it enjoys a $ 12 billion trade surplus,” the industry source said.

Russia already has negotiated a trade-in-national-currencies pact with China and India. Payment for Russian military imports into India is made though a Rupee-Ruble exchange mechanism while with China it is Yuan-Ruble which is proving beneficial to all countries.

The US has so far not invoked  CATSAA Act against any buyer of Russian arms (including India and Turkey). The US approved sale of a missile defence  system to India after it signed  up to buy the Russian S-400 air defence system (ADS). The official reason given by the Pantagon for canceling the F-35 deal with Turkey is that the S-400 ADS is “incompatible” with NATO systems. US officials have repeatedly emphasized that traditional buyers of Russian equipment would not be penalized.