Parliament urges defense agency to reconsider German submarine deal

SEOUL, Oct. 4 (Yonhap) -- Seoul should reconsider its contract to buy six
214-type German submarines as their price will likely go down in the coming
years, a parliamentary report suggested Tuesday.
The report said the Defense Acquisition Program Administration, a government
agency that supplies military equipment for the defense industries, would be
paying too much if its provisional contract with the German shipbuilder
Howaldtswerke-Deutsche Werft (HDW) goes through, as discounts are expected when
several other countries in negotiations with the shipyard reach a package deal.
The acquisition agency signed the contract in August to import six of HDW's
latest export model, 214-type 1,800-ton submarines. The contract amount was not
revealed, the report said, but Seoul was expected to pay as much as 2.9 trillion
won (US$2.3 billion), given the unit price of 472.4 billion won.
"There is a possibility that the sales prices will go down in a year or two, so
the contract needs to be reconsidered in terms of cost reduction," the National
Assembly report titled "2009 Budget Analysis" said.
A package deal is being negotiated between HDW and five countries -- Turkey,
Pakistan, Singapore, India and Brazil -- which will likely generate lower sales
prices when reached, it said.
"HDW reached the contract terms with South Korea on condition that six submarine
are sold, but with regard to the prospective massive sale deal, chances are that
sales prices will drop in view of the economics," the report said.
The submarine contract has yet to take effect because South Korean partners have
not been decided. The expected first bidders, Hyundai Heavy Industries and Daewoo
Heavy Industries, did not submit applications in the bidding in October.
According to its conditions, the contract is provisional and ratified only when
South Korean partners are selected. The shipbuilding is scheduled to start by
2013.
The report also criticized the acquisition agency's decision to include the
purchase of raw materials, such as construction designs, underwater sonar
detectors and other building equipment, as part of the submarine deal.
"By 2013, six years from now, the quality of raw materials and technology will
improve and the prices will likely go down, so the package deal for the raw
materials is unreasonable and would be a waste of the budget," it said.
Reconsideration process may delay the Navy's next-generation submarine project or
prompt compensation fees for breaking the deal, but it would be wiser to take
time and try to adjust the contract, the report said.
As part of its next-generation submarine project spanning over two decades, South
Korea's Navy has built three 214-class HDW submarines since 2000 and plans to
build six more by 2018. In the final stage thereafter, 3000-ton submarines will
be pursued.
The parliament will decide whether to give final approval to the German deal when
it assesses the 2009 government budget later this year.
Moon Jong-ryeol, the main author of the report, said the German shipbuilder may
take note that it was able to detect and correct technical defects of the latest
export-only submarine type through Korea's use, which presumably made its
products more desirable for other countries.
"The German shipbuilder has detected defects through the sales to us, and the
sales record involving South Korea is an achievement that can be showed to other
countries," Moon said.
hkim@yna.co.kr
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