The Department of National Defense (DND) and South Korean shipbuilder Hyundai Heavy Industries (HHI) on Monday signed the PHP30 billion offshore patrol vessel (OPV) contract which seeks to provide six OPVs to the Philippine Navy (PN).
Defense spokesperson Arsenio Andolong, in a statement late Monday, said Secretary Delfin Lorenzana and HHI vice chairperson and president Sam Hyun Ka signed the deal at the DND building in Camp Aguinaldo, Quezon City.
“The event was witnessed by South Korean Ambassador to the Philippines Kim In-cheol; General Andres Centino, Chief-of-Staff, Armed Forces of the Philippines; Rear Admiral Caesar Bernard N. Valencia, Acting Flag-Officer-In-Command, PN; and other DND, AFP, and HHI officials,” he added.
Andolong said the OPV project aims to further enhance the maritime patrol capabilities of the PN and includes technology transfer, particularly human engineering operators and maintenance training of equipment, operations training, technical publications, and manuals.
“In addition to this is a design ownership, granting the PN license to manufacture/build using the OPV’s design for the exclusive use of the Philippine government,” he added.
The OPV project was prioritized under the Second Horizon of the Revised AFP Modernization Program, as approved by President Rodrigo Roa Duterte in May 2018.
The two sides also signed a lifetime service support contract for the sustainment of the two Jose Rizal guided-missile frigates now in service in the PN, Andolong said.
These planned OPVs measure 94.4 meters long, 14.3 meters wide, and gave 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 initial funding for the PN’s OPV project amounting to PHP3 billion was released by the Department of Budget (DBM) last June 16 under Special Allotment Release Order (SARO)-BMD-D-22-0004970.
Earlier, Lorenzana said the South Korean shipbuilder has been selected by the PN’s technical working group (TWG) for the project.
The OPVs are expected to replace the World War II surface assets decommissioned by the PN.
No price escalation amid PHP-USD exchange rate
In his farewell breakfast meeting with reporters Tuesday, Lorenzana said HHI agreed to maintain the cost of the OPV project at current rates even if the Philippine peso (PHP) weakens against the US dollar (USD).
“Ang nanalo rito ay (HHI), kasi as is yun same price, original price ng budget ceiling natin, okay lang sa Korea (referring to HHI), and they will make six of those (OPVs) and bale pa dun sa kontrata nila ay hindi sila mag-e-escalate na kapag tumaas yun exchange rate (the winner is here is HHI because they agreed to build six of the OPVs at our original budget ceiling and they also agreed not to escalate the costs even if there is an increase in the peso-dollar exchange rate),” he added.
Per negotiations, Lorenzana said the exchange rate was at PHP52 at the time.
“Naka-peg na sa PHP52, so di na aakyat, actually lumamang na tayo kasi the peso-dollar rate has already jumped to PHP55 (It is already pegged at PHP52, so it will not climb up, we actually gained with that as the peso-dollar exchange rate has already jumped to PHP55),” he added.
Lorenzana added that if he will let the OPV contract drag on until he steps down on June 30, he is not sure whether his successor Jose Faustino Jr., who was named officer-in-charge, is authorized or has the power to sign such contracts.
By the time his successor is allowed to sign it, Lorenzana said it is likely that the project’s cost will be higher.
“Hyundai is saying na kapag nagtagal pa ng 100 days, before the time of the Notice of Award is given, ay hindi na nila kaya yun presyo. Naghahabol tayo ng presyo (Hyundai is saying that if 100 days will pass before the Notice of Award will be given, they could no not longer afford to construct the OPVs at those price. We are chasing for a lower price here),” Lorenzana said.
For these reasons, the outgoing DND chief said he decided to sign the contract as the project has been ongoing since 2018 and that signing is beneficial for the “greater interest of the government.”
Lorenzana added that the South Korean government will transfer one of its “Pohang”-class anti-submarine corvettes, which is similar to the PN’s BRP Conrado Yap (PS-39) which was donated to the Philippines earlier, following the signing of the OPV project as a “freebie”.
He also added that Seoul is also thinking of transferring some of their MG-520 light attack helicopters to Manila as another “freebie”.
These aircraft are similar to the ones now being operated by the Philippine Air Force.
“I don’t how many but pinag-usapan din namin (we also talked about that),” Lorenzana said.
He also added that HHI is ideal for the project as it has built the two Jose Rizal-class frigates, the BRP Jose Rizal (FF-150) and BRP Antonio Luna (FF-151), aside from constructing two missile corvettes.
“Pare-pareho ang systems niyang, of course, the spare parts are similar, it’s easier to maintain. At the same time, kasama sa pinirmahan kahapon, magtatayo sila ng service support facility nila to help maintain these ships. Yan ang tinatawag natin transfer of technology (Their systems are the same, of course, the spare parts are similar, it’s easier to maintain, at the same time, included in our contract signing yesterday was the agreement stipulating that they will be constructing a service support facility here to help maintain these ships. That is what we call the transfer of technology),” Lorenzana said.
The HHI is also the builder of the Pohang-class corvettes, one of which is now in service with the Navy.