Saturday, July 15, 2006

New Canadian naval expenditures

A few weeks ago, on June 26th, the Canadian government announced the first of a series of upcoming defence expenditures, the sum total of which will be in the neighbourhood of $15 billion (Canadian dollars). The initial announcement by defence minister Gordon O’Connor was in Halifax, headquarters of Maritime Forces Atlantic, and concerned the need to replace the fleet’s two aging supply vessels, HMCS Protecteur and HMCS Preserver. These ships help to maintain the Canadian navy’s vessels with fuel, food and other supplies while at sea, a logistical element that is paramount to the operation of on-going fleet exercises. They also help supply allied forces from time to time.

HMCS Preserver

The government has decided to replace these supply vessels with three new ships, each of which will be in the range of 28,000 tonnes, with the first to be delivered in 2012. The announced cost of the new buildings is $2.1 billion, a somewhat staggering amount for what will be support vessels, not fighting ships.

The need to replace Protecteur and Preserver goes without saying: they are both almost forty years old, having been launched in 1968 and 1969 respectively, an awfully long time to be plying the waters of our planet. The stresses placed upon any vessel working the high seas is considerable and only increases with the years; corrosion, structural integrity and aging machinery can create a hazardous environment for those who ship out aboard older vessels.

But the cost of the replacements for these two ships does make me wonder: Is $700 million for a single supply vessel not a tad high? On the world market, one can pick up a similar merchant ship for a lot less money – say $50-60 million. That’s off-the-shelf from a builder like Hyundai or Daewoo in South Korea (albeit with a waiting period for delivery of up to five years, owing to the huge backlog created in the commercial shipping industry).

Now there are a variety of reasons why a Korean vessel costs about $50 million and these new Canadian-built ones will be about $700 million. On the one hand, the Canadian shipyards will have to re-tool, hire and train new staff and essentially start from square one (they’re more attuned to refitting and repairing vessels than new construction). As well, military procurements normally require the work to be done at home, whether for national prestige, security requirements or job-creation scenarios. And, of course, there are the peculiar requirements of a naval vessel versus a commercial one, one meant to not only battle the sea but also a belligerent enemy. On the other hand, Korean shipyards are mass-production facilities geared to the requirements of the private sector that pay their workers less than their Canadian counterparts – base economics.

Still, I have to posit that perhaps Canada could have ordered some vessels from a reputable foreign yard, brought them to Canada and refitted them to our naval standards. It might have saved hundreds of million dollars, money that could have been used elsewhere in our cash-strapped armed forces.

Will it be worth it? Well if past experience has shown anything, just keep an eye on the cost overruns and delivery delays.

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