FBIS4-4506 "dreas063__a94001"
FBIS-EAS-94-063-A Daily Report 7 Apr 1994
ANNEX Indonesia

Military Unhappy About Habibie Navy Purchases

Military Unhappy About Habibie Navy Purchases BK0104093594 Hong Kong FAR EASTERN ECONOMIC REVIEW in English 7 Apr 94 pp 26-28--FOR OFFICIAL USE ONLY BK0104093594 Hong Kong FAR EASTERN ECONOMIC REVIEW English BFN [By John McBeth in Jakarta] [Text] Nearly 18 months after influential Research and Technology Minister B.J. Habibie bought much of the East German navy in a post-Cold War garage sale, the ships have begun arriving at a Surabaya naval base. But Indonesia's Defence Ministry insists it still doesn't know what the final price tag will be for the ships or what happened to the extras that were initially included in the package. Typically, the answers appear to lie at the office door of Habibie, whose involvement in defence procurement goes back to 1980 when he convinced President Suharto that nurturing a set of strategic industries with a high technological component was crucial to accelerating and sustaining Indonesia's industrialisation process. A key part of the plan was to turn the navy and air force into a captive market for the state-owned PT PAL shipyard and aircraft-maker, Industri Pesawat Terbang Nusantara (IPTN). Over the past two or three years, Habibie has gone one step further and secured the final say in the purchase of almost all major armaments. Leaving aside the loss of lucrative commissions that once ended up in armed forces' coffers, the heavy role played by the civilian Habibie in military procurement has rubbed many an Indonesian general, admiral and air marshal the wrong way. Says one analyst: "If you're trying to develop a force structure and you're always being told to buy this or that, then you'll always be having to rationalise what that structure is going to be." The difficult relationship between Habibie and members of the military leadership has taken on new relevance in recent years: Habibie's political influence has been rising at the same time as some of the military's most influential political figures have been effectively sidelined. Habibie was appointed in 1990 to lead the Association of Muslim Intellectuals (ICMI), an Islamic revivalist group. Many senior officers see the ICMI as a potentially dangerous counterweight to their own influence and a vehicle which could be used to support a possible Habibie bid for the presidency when Suharto, his life-long acquaintance and mentor, finally leaves the scene. In the past 12 months, Habibie has acquired valuable political experience by playing an important behind-the-scenes role at the assembly which extended Suharto's term as president and at the five-yearly congress of the ruling party Golkar. While Habibie has upset military leaders numerous times over one issue or another, the purchase of East German warships initially had the support of both then-Defence Minister Benny Murdani and navy chief Adm. Muhammad Arifin. The two men soured on the deal, however, in the final months before it was consummated. Acquired from the Germans for only US$12.7 million -- but carrying an initial refurbishment estimate of US$640 million -- the 16 Parchim-class corvettes, 14 Frosch-class landing ship tanks (LST) and nine Kondor-class minesweepers are trickling into Surabaya under a delivery schedule that will extend into next year. Four of the corvettes, one LST and all of the minesweepers have arrived so far. A senior Defence Ministry source said the cost of the refits "will depend on the components to be put in by Habibie," but he indicated the final figure could be as much as US$200 million below the original estimate. Savings have been made by limiting the work done in Germany's Peenewerft (corvettes) and Neptunwerft (LSTs) shipyards, where labour costs are higher. The source also sought to play down navy unhappiness over the purchase. "The conflict is between the Ministry of Finance and Habibie," he told the REVIEW. "Of course, if the total budget is amortised through our defence budget, then there will be a problem." This stems in part from the actual side of the Defence Department's annual budgetary allocation which, at Rps [rupiahs] 1.1 trillion (US$511 million) works out at only 1.5 percent of GDP -- the lowest in the Asean region. Defence officials say the navy will pay for the ship refurbishment on an installment basis, starting with the 1995-96 budget. They describe Habibie's initial estimates as "planning figures" and say they have been kept in the dark about the status of the additional US$338 million he sought to tack on to the package for the upgrade of navy shipyards a new port at Teluk Ratai on Sumatra's southern tip, and two new tankers. Some military observers point to the fact that the average cost of US$20 million per ship is small compared with prevailing market prices. But others are sceptical about the long-term prognosis for a military already over-burdened with different systems. The critics also note that while the deal may provide PAL and its recently expanded facilities with much needed work, it offers virtually nothing in terms of new technology. The 1,200-tonne corvettes are a major acquisition for a small navy built around 16 Dutch, United States and British-built frigates, nine fast patrol craft and two attack submarines. Similar to the Russian Petya or Risha-class patrol vessels, the corvettes carry twin, 57-millimetre and 30-millimetre guns, four torpedo tubes, two antisubmarine mortars and two SA-N5 surface-to-air missile launchers. The major problem for Indonesian naval officers is that each corvette has three engines and a propulsion system they have never worked with before -- and for which they have had to buy all available spare parts. The minesweepers, delivered last October, are in poor shape and most probably will serve out their life on coastal patrol duties. The 1,950-tonne LSTs may be the best buy for a navy with an important role in nation-building. During any one year, the navy is required to show the flag at all of the country's 165 ports. Much of that duty falls to the fleet's 30 assorted landing ships, cargo vessels and coastal oilers which are used to supply outlying islands and to move gear for civic action and public works projects. While Arifin, the navy's top officer, initially went along with the deal, the same sentiments were apparently not shared by other senior officers, among them current navy chief Adm. Tonto Kuswanto, the then-commander of the Eastern Fleet. And even proponents of the deal had a change of mind when it became apparent how much would have to be spent on the refurbishments and on Habibie's list of extras. "In the end, they were all told it was a done deal and to shut up and make it work, says one military source. "Navy chiefs look at it askance. They're going to use the ships, but they think they've been `had' by Habibie because they weren't really involved." Said another source: "They don't like what happened and they don't like the expense, but they do need the ships to protect Indonesia's outer extremities." More than any of the three services, the navy seems to have been the most put out by Habibie's schemes. In 1984, for example, PAL was given the job of repairing 18 navy ships. When the shipyard said it would be unable to handle one of the vessels -- an LST requiring a new engine and communications gear -- it gave the Defence Ministry the go-ahead to get the vessel repaired in Singapore instead. Former officers say the LST was halfway through the refit in Singapore when Habibie complained to Suharto that the navy was not utilising PAL. Although it would have cost US$450,000 to break the contract, a furious Murdani, then armed forces chief, ordered the cancellation of the whole project. Suharto subsequently rescinded the order because of the advanced stage of the refit, but Habibie made few friends out of the episode. In the mid-1980s Habibie may have learned a costly lesson about market research when he sought to parlay the purchase of six high-speed hydrofoils into a deal with Boeing to build as many as 100 of the 40-knot craft under licence at PAL. The plan fell through when the navy refused to have anything to do with them because of their high fuel consumption and problems posed by the unusual amount of flotsam in Indonesian waters. Two of the hydrofoils were later bought by a privately owned, passenger-ferry operation, but the other four gathered rust at PAL until late last year when the navy finally agreed to take them on to their books for troop-carrying and search and rescue work. One in fact has recently been seen around the disputed Sipadan and Ligitan islands, located just off the east coast of Borneo island. Navy relations with Habibie reached such a low ebb in 1986 that the fleet air arm embarked on a programme known as "Turbo-express" to re-engine and lengthen its five ageing C47 transport planes rather than replace them with new IPTN-built CN235 turboprops. "That is an indication," says one source, "of the lengths they were prepared to go to avoid being a captive audience for Habibie." As concurrent head of the Agency for Strategic Industries (BPIS), which groups together, PAL, IPTN and eight other concerns, Habibie supervised the early 1980s decision to buy 100,000 Belgian FNC assault rifles which, along with the U.S.-made M16 and the Russian AK47, is one of three standard infantry weapons now spread through vanous units of the 271,000-strong Indonesian armed forces. Under a seven-year, transfer-of-technology arrangement, the first 25,000 rifles were to be made in Belgium and the last 5,000 at PT Pindad, a munitions manufacturing company under the BPIS umbrella. But sources intimately involved with the deal claim that after four years, when army inspectors began looking into the transfer of the assembly line, they discovered far too much had been paid for the initial batch of rifles. In the mid-1980s, Habibie caused further consternation by proposing to establish a factory for British Scorpion light tanks. At the time the plan was mooted, it was already clear there would not be a regional market for the vehicles. Thailand, the Philippines, Malaysia, Brunei and New Zealand had bought Scorpions, or as many as they were going to -- and almost a decade later, manufacturer Avis is still actively trying to sell the tank to the Indonesian army.