South Korea waits for Indonesia to sign off on submarine program

In an ambitious bid to develop and build its own military submarines, Indonesia struck a partnership with South Korea’s Hanwha Ocean (formerly known as Daewoo Shipbuilding & Marine Engineering, or DSME) and signed a contract for three submarines back in 2019. However, four years later, Hanwha is still waiting for Indonesia’s Minister of Defense Prabowo Subianto to sign the letter of credit (L/C) which will kickstart the contract.

At the Next Generation Journalist Network on Korea held in Geoje in early June in which Maritime Fairtrade is invited, Hanwha Ocean’s Chief Representative of Naval & Special Ship Marketing in Southeast Asia, John Park, spoke to a group of Indonesian journalists. He explained that Prabowo’s signature is needed before the company can start building the submarines.

“We already finished our own responsibility (related to the project), so we are waiting for the Minister of Defense … and the signing of L/C,” Park said.

This Batch 2 project, signed with Indonesia’s PT PAL in April 2019, consists of building three submarines, and is a follow-up to the “Batch 1 project in which the Indonesian government also ordered three submarines for the Navy. 

In the now-completed Batch 1 project, two submarines were constructed in South Korea while sections for the third warship were partly made in Indonesia.

For the second batch, Park said PT PAL’s “production portion” will be bigger. Hanwha Ocean’s ORE Program Manager Mu Yeol Moon added that in order to ensure PT PAL acquires the necessary capabilities to take up building more parts in the project, the company has also been training Indonesian engineers.

“During the process, we bring in (Indonesian) workers and engineers to DSME (headquarters in South Korea) and train over 200 personnel from PT PAL and the Indonesian Navy, according to their disciplines,” Moon said, adding that the ultimate goal is to have the Indonesian state-owned ship builder be able to build submarines on their own.

Despite the grand plan, the problem at hand persists. Until a L/C is signed, the project is momentarily halted. It becomes even more urgent and pressing given that Indonesia will hold the presidential election next year. Given the everchanging political situation, there are concerns the next administration will scrap the submarine deal.

Responding to this question, Hanwha Ocean emphasized Indonesia’s significance as a partner and therefore, there is no deadline to finish the contract.

“There will be no deadline because Hanwha Ocean considers Indonesia as a very important and good business partner, and we are always ready to support … in terms of cost, maintenance, and technological aspects,” Moon insisted. 

“I don’t know the political environment correctly, but we believe such kind of changes will not greatly affect the business relationship.”

Last year, several news outlets reported that Hanwha Ocean was on the brink of facing a loss of more than US$50 million because of a lack of down payment by the Indonesian government, prior to the company ordering parts for the submarines from Europe.

In an article published by the Korea Economic Daily, a representative of South Korea’s ruling People Power Party, Kang Minkuk, said Hanwha Ocean (or DSME at the time) signed a US$59.4 million (58.5 million euros) contract with Siemens AG to purchase three electric propulsion motors and made a prepayment of six million euros, while Indonesia never made the down payment.

“The submarine deal has de facto been canceled,” Kang reportedly said. “The electric motors ordered may become a lump of scrap metal.”

This damning information has since been dismissed, and Hanwha ensured that everything was on track before the Covid-19 pandemic devastated the world.

“Before Covid-19, relations between Hanwha Ocean and PT PAL as well as the Indonesian government was perfect. But after that, Indonesia faced some financial problems,” Moon recalled.

However, Hanwha also faced problems, he continued. During the pandemic, the shipbuilder had to deal with a handful of inevitable problems—some of them related to procurement. 

For example, to perform repair works on radars, the company needed to bring in service engineers and parts from Europe. According to Moon, it took up to one year to bring small material from Europe upon obtaining the export license.

“The environment is very difficult, but we continue to do our utmost to maintain good relationship,” he concluded.

Photo credit: Diana Mariska. Three submarine models that will be developed in Batch 2.

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