The Department of National Defense (DND) has signed a contract with a South Korean shipbuilding company for the purchase of six offshore patrol vessels (OPVs) for the Philippine Navy.
The P30-billion contract was signed by outgoing DND Secretary Delfin Lorenzana and Hyundai Heavy Industries (HHI) Vice-Chairman and President Sam Hyun Ka at the DND Headquarters in Camp Aguinaldo, Quezon City on Monday, June 27.
An OPV is a small surface ship that is designed for coastal defense such as maritime security, border control, counterterrorism, and disaster relief operations among others. It measures 94.4 meters long, 14.3 meters wide, with a displacement of 2,400 tons, maximum speed of 22 knots, cruising speed of 15 knots, and a range of 5,500 nautical miles.
“The project aims to further enhance the maritime patrol capabilities of the Philippine Navy,” the DND said in a statement.
The contract signing came as a surprise as Lorenzana earlier disclosed that he would let the incoming DND Secretary decide what company will be awarded with the project so as to avoid suspicions that it would be a “midnight deal,” or a project done under the table.
Lorenzana will exit as the DND Secretary on June 30 and he will be replaced by former Armed Forces of the Philippines (AFP) Chief of Staff, retired General Jose Faustino Jr., who will serve as the DND officer-in-charge OIC.
This means that Lorenzana will no longer be able to monitor the developments of the project since Faustino will take over the DND’s operations, including the ongoing modernization program of the AFP.
“If I do not sign this, it will drag on. I do not know the power or the authority of the OIC, [Gen. Jose] Faustino, if he can sign contracts. Mabibinbin ‘yan [It will be shelved]),” Lorenzana told reporters on Tuesday, June 28.
The outgoing Defense chief said that the DND was actually “running out of time” to complete the OPV acquisition of the six OPVs.
The Navy’s OPV acquisition project was prioritized under the second “horizon” of the Revised AFP Modernization Program as approved by President Duterte in May 2018, and with Austal – an Australian shipbuilding company – originally considered to bag the project.
However, Lorenzana revealed that the DND opted to find other proponents after Austal asked for an additional P12 billion for the completion of the ships’ construction.
“They submitted additional requirements late last year and they were asking for P12 billion more for the six OPVs, or they will reduce the number from six to five units for the simple reason that the price of the raw materials has gone up,” Lorenzana explained.
The DND could not provide the additional budget since the Department of Budget and Management (DBM) already released the original funding for the project.
The Navy then proposed to conduct a new canvassing which involved top proponents HHI from South Korea, ASFAT from Turkey, and Naval Group from France, as well as other competitors from Sweden, Israel, and India.
“The winner was HHI because they promised not to raise the price of the contract even if the exchange rate increases. It’s a win for us,” Lorenzana said.
But one of the conditions of HHI was that the project should begin at least 100 days after the notice of award is given to them.
“Naforesee namin, when the time na mapirmahan niya [Faustino] ‘yan after several months, baka iba na ang presyo. Hyundai is saying na kapag nagtagal ng hundred days from the time na the notice of award is given, hindi nila kaya ‘yung presyo. Naghahabol tayo ng presyo (We have foreseen that when the time comes that [Faustino] signed it after several months, the price might be different. Hyundai is saying that if it takes hundred days from the time the notice of award is given, they cannot do it at that price. We are going after an [affordable] price),” Lorenzana stated.
“I think we did it for the greater interest of the government. Instead of prolonging the project, let’s start it now. We have been working on this for quite some time so let’s finish it,” he added.
Part of the contract, it was revealed, is that the HHI will include the transfer of technology to the Navy which refers to the provision of training for human engineering operators and maintenance of equipment; operations training; and a design ownership which grants them “a license to manufacture/build using the OPV’s design for the exclusive use of the Philippine government.”
“Kausap ko sila kahapon, magtatayo sila dito ng service support facilities to help maintain these ships, ‘yung tinatawag nating transfer of technology (I talked to [HHI] yesterday, they will build service support facilities here to help maintain these ships, or what we call transfer of technology),” Lorenzana said.
The South Korean government is also planning to provide “freebies” to the Philippine Navy such as one Pohang-class frigate similar to BRP Conrado Yap (PS-39) and MG-520 light attack helicopters.