August 5, 2015 / 6:29 PM / 2 years ago

France to reimburse Russia in deal over undelivered warships

The two Mistral-class helicopter carriers Sevastopol (Bottom) and Vladivostok are seen at the STX Les Chantiers de l'Atlantique shipyard site in Saint-Nazaire, western France, May 25, 2015.Stephane Mahe

PARIS/MOSCOW (Reuters) - France is to reimburse Russia all advance payments made for the Mistral helicopter carrier warship contract suspended by the French government last year, Moscow and Paris announced in coordinated statements on Wednesday.

French President Francois Hollande went back on the contract, dating from 2011, after coming under pressure from his Western allies over Russia's role in the Ukraine crisis.

In exchange for the reimbursements, France will have full freedom to do whatever it wants with the two undelivered vessels, which contain some Russian technology, said statements from Hollande's office and Russian President Vladimir Putin.

Neither side revealed the actual amount repayed, although a statement from the Kremlin said "France has already transferred these funds".

A Russian source close to the talks told Reuters in May that Russia was demanding 1.163 billion euros ($1.27 billion).

Both statements said the talks had been conducted "in a friendly and open atmosphere" and that the matter was now closed.

Now France has to decide what to do with the ships.

Their builder, state-backed DCNS, said last month it was spending at least 1 million euros ($1.1 million) a month to hold on to them.

DCNS is 35-percent owned by defense group Thales and 64 percent by the French state.

Canada and Singapore have been mooted as potential buyers, as has Egypt which has just bought French fighter jets and naval frigates.

The long-discussed French sale was Moscow's first major Western arms purchase in the two decades since the fall of the Soviet Union. Nicolas Sarkozy, who was French President when the order was struck, had hailed the signing of the contract as evidence the Cold War was over.

Paris initially resisted cancelling the despatch of the first Mistral, hitting back by accusing its detractors of hypocrisy over their own links with Russia.

But when accusations surfaced last August that Russia was sending thousands of troops into southeast Ukraine to support pro-Moscow separatist rebels, Hollande changed tack. The delivery has been on hold ever since.

Reporting by Andrew Callus in Paris and Jack Stubbs in Moscow; Editing by Ralph Boulton

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