France and Russia have reached a settlement over the controversial issue of two Mistral warship contracts, under which France will pay less than €1.2 billion ($1.3 billion) to Russia for its cancellation of the deal last year.
The much-hyped contract to build two Mistral helicopter carriers for Russia was signed in 2011 between Russian president Vladimir Putin and the former French president Nicolas Sarkozy. The deal was Moscow's first arms purchase from the west after the disintegration of the Soviet Union.
However, France was forced to call off the contract early last year at the behest of its western partners as part of the sanctions against Russia for its involvement in the crisis in neighbouring Ukraine.
Speaking on the radio RTL, the French defence minister Jean-Yves Le Drian said: "Talks between president Putin and president Francois Hollande have concluded yesterday. There is no further dispute on the matter."
The exact amount of compensation payable to Russia has not been disclosed.
According to Le Drian, the initial price of the two warships had been €1.2 billion, but France will have to pay less than that because the ships were not been finished and the contract was suspended.
"Russia will be reimbursed euro for euro for the financial commitments taken for these ships," he said.
Commenting on the telephonic conversation between Putin and Hollande, Putin's spokesman also confirmed the deal: ''Moscow considers the so-called Mistral issue to be completely settled, thus from our point of view this topic is exhausted," he said.
It is learned that Russia wouldn't demand any penalty for the non-fulfillment of the contract.
Further to the payment, France, which already completed building one of the warships, will have full freedom to do whatever it wants with the ships, according to statements from Paris and Moscow. France will return Russian equipment that had been installed in the ships.
Without giving details, Le Drian said a number of countries had expressed their interest in buying the ships.
Some defence analysts believe it will be extremely difficult for France to sell these vessels at these prices.
Nevertheless president Hollande, while talking to reporters in Egypt yesterday at the inaugural ceremony of the new Suez canal, said: "There will be no difficulty in finding buyers."
The 200-metre versatile warships have been built by French defence group DCNS SA, 64-per cent owned by the government and 35 per cent by aerospace and defence group Thales SA. They are capable of carrying 16 helicopters, 700 soldiers and over 50 armoured vehicles.
The ships named after Russian cities Sevastopol and Vladivostok were being built in Saint-Nazaire, on the French Atlantic coast. About 400 Russian sailors took training in one of the ships last year.