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.