German Armor For Indonesia

by Nicholas Fiorenza

Rheinmetall is supplying Indonesia with upgraded Leopard 2 tanks and Marder armored infantry fighting vehicles under a December 2012 contract with the Indonesian Ministry of Defense, the German company announced earlier this week. The contract, which took nearly a year to come into force after legal formalities were completed, is worth €216 million (over $291 million).



Between 2014 and 2016, Rheinmetall will deliver 103 modernized Leopard 2s, 42 upgraded Marder 1A3s, 11 armored recovery and engineering vehicles, training equipment, logistical support, and an initial supply of practice and service ammunition.



With this contract, Indonesia becomes the 18th Leopard 2 user nation.

Rheinmetall photos of Leopard 2A4s and Marder 1A3s on parade in Jakarta on 5 October 2013

Source: http://www.aviationweek.com/

Submarines for Indonesia

Indonesia sites astride one of the world’s most critical submarine chokepoints. A large share of global trade must pass through the critical Straits of Malacca, and the shallow littoral waters around the Indonesian archipelago. That makes for excellent submarine hunting grounds, but Indonesia has only 2 “Cakra Class”/ U209 submarines in its own fleet, relying instead on frigates, corvettes, and fast attack craft.

South Korea’s Daewoo, which has experience building U209s for South Korea, has been contracted for Cakra Class submarine upgrades. Even so, submarine pressure hulls have inflexible limits on their safe lifetime, due to repeated hydraulic squeezing from ascending and descending. The Indonesians have expressed serious interest in buying 3-6 replacement submarines since 2007, with French, German, Russian, South Korean, and even Turkish shipyards in the rumored mix. Other priorities shoved the sub purchase aside, but a growing economy and military interest finally revived it. South Korea was the beneficiary, but further orders may be in store:

• Strategic Plans & Contending Designs [updated]
• Contracts & Key Events

Strategic Plans & Contending Designs

ROKN Sohn Won-Yil

Indonesia’s Defence Strategic Plan 2024 calls for a fleet of 10 submarines. By then, its 2 Cakra Class boats are likely to be on their last safe years, if not completely decommissioned. In 2011, Indonesia bought 3 more. The question is whether and when Indonesia’s growing economy, military priorities, and cadre of trained submarine personnel and support will allow further buys.

Broadly speaking, the Indonesians could consider 3-6 potential diesel-electric powered submarine designs, from 5 different countries reported to date. The biggest technical and political question is whether Indonesia wants an Air-Independent Propulsion (AIP) addition that allows up to 3 weeks of submerged operation, at low speed. AIP makes diesel-electric submarines harder to detect, but would provoke regional concerns from its neighbors. Indonesia may even decide it prefers a conventional design that “shows the flag” on the surface more often, due to its location and need to maintain good relations.

HDW’s latest export product is the U214, with an AIP system. It is more advanced than the U209, and more expensive. Variants and related designs have been ordered by German & Italy (as the U212A), Greece, South Korea, and Turkey.

Indonesia already operated the U209/1300 variant, and one initial option was to simply buy more U209s with fully modern internal systems. That’s a cost effective option with low additional support costs, and that was Indonesia’s choice. Submarine type was not specified, but their tonnage appears to make them Chang Bogo Class stretched and modernized U209/1200s.

Either one of HDW’s sub types could be manufactured by Germany, South Korea, or Turkey. Turkey tried to play the Islamic card, and trying to get extra work for its shipyard. On the other hand, South Korea had an existing relationship with Indonesia’s submarine fleet, and could play the regional & support angles. South Korea won the initial 3-sub tender, but Turkey will be back and bidding if there’s another one.

Andrasta concept

France’s DCNS has 3 relevant offerings. The most prominent is its Scorpene Class, which has been ordered by nearby Malaysia and by India. India is assembling its 6 submarines locally, but that has led to delays, and they would be an unproven shipyard for re-export purposes. The Scorpene can be delivered with or without AIP systems, just like its Agosta 90B predecessor that is being built for Pakistan in both configurations. To date, ordered Scorpenes have been the standard CM-2000 variant.

One unique option that DCNS could offer its its Andrasta Class pocket submarine. This small 855t design is optimized for littoral, shallow water environments like Indonesia, much like the used German U206 boats that Thailand is reportedly ordering. The Andrasta uses many Scorpene technologies, but trades shorter cruising range and 6 torpedo tubes that can only be loaded in dock, in exchange for more underwater stealth and lower cost. This would be the least regionally provocative choice, and might be the least expensive per boat, while giving Indonesia a potent threat within its home waters. The question is whether its capability set interests the Indonesians. Vietnam, with similar underwater terrain and frugal budgets, chose to buy Russian Kilo Class submarines instead. Indonesia likewise chose a full-size submarine design.

Kilo Class

Russia made a strong play of its own, and has begun supplying Indonesia with a variety of defense equipment in recent years. Most of those buys have been land vehicles and aircraft, but the Indonesian Navy has equipped some of its ships with long-range supersonic P800/SS-N-26 missiles.

Indonesia appreciates Russia’s prices, and lack of interference with how their equipment is used. Russia’s Kilo/ Improved Kilo Class submarines are a good technical choice for Indonesia’s environment, and popular around the world; nearby countries who operate or have ordered these subs include India, Vietnam, and China.

Contracts & Key Events

Preveze Class:
Turkish U209

Feb 20/12: Turkey’s Hurriyet Daily News reports that Indonesia has been consoling Turkey over the loss of the recent submarine tender, which Turkey apparently lost because they didn’t bid in time. Indonesian Chief of Staff Adm. Agus Suhartono apparently discussed a future submarine tender involving the U214 subs that Turkish shipyards are building in partnership with HDW. The country’s official plan does contemplate 5-7 more submarines by 2024. If economics allows, South Korean shipyards are also building U214s with HDW. With other models on the market and ready to compete, any future Indonesian tender will still be interesting.

The report adds that Indonesia and Turkey are exploring a $100M contract to build military radios from Aselsan, a plan to produce “missiles” designed by Roketsan (likely 122mm and300mm rockets, or CIRIT guided 70mm rockets), and a possible order for the BAE/FNSS Pars 8×8 wheeled APCs. Neighboring Malaysia has already bought the Pars.

Feb 6/12: Cakra refits done. Indonesia’s other active submarine, KRI Nanggala, returns from Daewoo Shipbuilding & Marine Engineering in Busan, South Korea, after a 24-month deep refit overhaul. KRI Cakra received a similar overhaul in beginning in 2006, so this completes work on Indonesia’s current fleet of 2.

DSME replaced the upper structure from bow to stern, some parts of the propulsion system, and the submarine’s sonar, radar, weapons system and combat system. The new combat system allows the Cakra Class to fire 4 wire-guided torpedoes simultaneously at 4 different targets, or launch anti-ship missiles including the French Exocet and American Harpoon. The new structure allows safe dives to 257m, and propulsion improvements raise top speed from 21.5 to 25 knots. Jakarta Post.

Dec 22/11: South Korea wins. Reports surface that The Indonesian Defense Ministry and South Korea’s Daewoo Shipbuilding Marine Engineering have signed a $1.07 billion contract for 3 more submarines. Type is not specified, but their tonnage appears to make them Chang Bogo Class stretched U209/1200s. Reports say that 2 of the 3 submarines will be built in South Korea in cooperation with Indonesian state-owned shipbuilder PT PAL, while the 3rd submarine will be built at PT PAL’s facilities in Surabaya.

Deliveries are expected in 2015 and 2016. The question is whether the existing Cakra Class boats will have much safe life left in them after that point, even with recent refits. Barring additional purchases, in line with Indonesia’s 10-submarine goal in its “Defence Strategic Plan 2024,” it’s likely that within a few years of receiving the new boats, Indonesia’s submarine fleet will begin dropping back to 4 and then to 3 submarines. Antara News | Chosun Ilbo | Jakarta Post.

July 23/11: The Turks say one thing about Indonesia’s submarine deal, the Koreans another. Only one can be right. South Korea’s Chosun Ilbo says:

“A [Indonesian] senior government official said Taufik Kiemas, the speaker of the Indonesian People’s Consultative Assembly, told [South Korean] Prime Minister Kim Hwang-sik on Wednesday morning that Daewoo is virtually certain to get the nod for the [US$1.08 billion submarine] project. “There still are some more processes to follow, but the deal will be struck, unless something comes up,” the official said.”

If either Turkey or South Korea land this deal, however, one thing is certain: the submarines in question will be from Germany’s HDW. Both the Turkish and Korean shipyards have experience building U209 vessels, and both have also signed deals to build new U214s, with Korea’s KSS-II program slightly ahead of Turkey’s.

June 30/11: A Turkish Ministry of Defense official tells Today’s Zaman that a deal with Indonesia for 2 U209 submarines is “very close.” If the expected deal between the two states is signed, Turkey’s Savunma Teknolojileri Muhendislik ve Ticaret A.S. (STM) would partner with HDW to build them in the Golcuk shipyard.

Dec 9/09: The Jakarta Post reports that Indonesia’s submarine buy is at least 4 years away from a contract, given the government’s needs and priorities. Navy Chief of Staff Vice Adm. Agus Suhartono is quoted:

“We will choose a country that can provide us with a product at a competitive price and offers better transfer of technology options,” he said. “The tender process will be open using a credit export financing scheme.” Each submarine is estimated to cost around Rp 3.5 trillion (US$371.85 million).”

July 7/09: The Korea Times is more direct, in “Indonesian Redtape Torpedoes Sub Sale Bid”:

“Three more companies from Russia, Germany and France competed for the deal. But sources said the Indonesian Navy demanded unacceptable terms so Daewoo and the German and French firms dropped out. Only the Russian firm remained, forcing Indonesia to instigate a second round of bidding…. Russia is considered its major competitor, since it is backed by well-established political ties with Indonesia and an offer of a $1-billion loan. In another negative sign, the incumbent Indonesian defense minister is said to be pro-Russian.

In the end, the second bid is likely to be a duel between Korea and Russia, according to informed officials, with the other two bidding countries skeptical about Jakarta’s request on price cuts… Daewoo is planning to enter the second round of bidding for the subs, hoping to take advantage of ties cultivated since the establishment of its Indonesian unit in 1976.”

Feb 9/09: Yusron Ihza, Indonesia’s deputy speaker of the House of Representatives’ Commission I on political, security and foreign affairs, confirms the country’s interest in 3 Improved Kilo Class submarines, but offers no details concerning funding. Antara News quotes him:

“There’s always been a plan to purchase submarines and I’ve surveyed a few submarine workshops in Moscow, Russia. This submarine will display our naval strength and allow us to be ready for any armed conflicts…. It’s not necessary to own many submarines since they are expensive, just three state of the art units will suffice to safeguard the integrity of our waters,” Ihza said…. My colleagues and I at the House have fought for an increase in defense spending, yet unfortunately this isn’t possible now….”

Indeed, only 1/3 of the proposed defense budget was approved. Jakarta Post.

Note: Article from www.defenseindustrydaily.com

Indonesia's Fuel Subsidy Problem

February 6, 2012 | 1207 GMT

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Summary

ROSLAN RAHMAN/AFP/Getty Images

Indonesian motorists line up at a fuel station in Padang, Sumatra

Indonesia intends to reshape its economy from one primarily based on low value-added sectors, such as raw material exports, to a more modern economy as a processor and refiner of its natural resources with higher domestic consumption not reliant on government subsidies. Attracting foreign direct investment (FDI) is one of the primary means for funding this transition. In order to reassure investors and thus attract more FDI, Indonesia will have to rein in its budget deficit, a deficit caused in large part by spending on fuel subsidies. However, reducing subsidies will prove problematic for the country -- in the past, moves to cut fuel subsidies resulted in social instability, which can scare off the very investment Indonesia is hoping to attract by reducing its budget deficit.

Analysis

Indonesian Deputy Energy Minister Widjajono Partowidagdo said in an interview with Reuters on Jan. 31 that Jakarta was considering raising the price of subsidized fuel by as much as 44 percent in 2012. Partowidagdo added that the issue would be discussed by the parliament, which, along with the country's president, must approve any price change before it goes into effect.

Indonesia already has the largest economy in Southeast Asia, growing at a clip of 6 percent in 2011 based largely on low value-added activity like raw materials exports, subsidized consumption and government-led investment. It hopes to transition to a more modern economy as a processor and refiner of its natural resources with a robust domestic consumer base, which will require additional foreign direct investment (FDI). In order to establish an attractive investment climate, Indonesia must do two things: First, it must cut its budget deficit, which has been generated in large part by government spending on fuel subsidies; and second, it must demonstrate the ability to maintain social stability. However, in the past cutting fuel subsidies has resulted in political and social upheaval. With Indonesian consumers accustomed to paying only half the market rate for fuel, the proposed price increase -- in effect a subsidy cut -- could jeopardize stability and threaten Jakarta's economic ambitions.

Indonesia's Energy Picture

Possessing energy reserves estimated at 4.2 billion barrels of oil and 3.1 trillion cubic meters of natural gas, Indonesia was a net energy exporter for much of the 20th century. But because of booming demand caused by the growth of a large middle class, Indonesia in 2004 became a net energy importer -- both for crude and refined oil products. Indonesia left OPEC in 2008 because of its net-importer status and disagreements on OPEC quotas, and today it is the largest gasoline importer in Southeast Asia.

Since 1967, shortly after former President Suharto took power, the Indonesian government has subsidized fuel as a way to ease the burden on consumers and facilitate economic growth. Over time, these subsidies became the single-largest government expenditure, totaling 38 percent of the state budget in 2011. In a way, this issue has been compounded by the country's recent economic successes -- as more people move into the middle class, the number dependent on (and accustomed to) low fuel prices increases.

Efforts to curb the subsidies have been politically treacherous. When fuel subsidies were cut after the 1998 Asian financial crisis at the urging of the International Monetary Fund, the resulting social upheaval contributed to Suharto's ouster. More recently, when current President Susilo Bambang Yudhoyono attempted to increase the price of subsidized fuel by 30 percent in 2008, the initiative caused massive public protests and riots.

Investment as Key for Modernization

While Indonesia's economic outlook is by no means bleak -- in January Moody's and Standard and Poor's rating agencies raised the country's credit rating to investment-grade for the first time since the Asian financial crisis -- its projected growth for 2012 has already been revised from 6 percent to 5.7 percent due to concerns of slowing export demand and high oil prices. These concerns also affect Jakarta's intention to cut the budget deficit, which is projected to be 1.5 percent of gross domestic product in 2012. Sustaining the relatively low deficit is critical for attracting foreign direct investment (FDI), and, given the considerable spending put toward fuel subsidies, reducing those subsidies will have to be part of any reduction in the overall budget shortfall.

Even if the parliament and president approve the price hike for subsidized fuel, Jakarta will still need to address the rising costs of imported crude. Production at the country's main oil fields has been decreasing for years, and with consumption growing by approximately 4 percent each year, Indonesia has had little choice but to pay the market rate for its additional energy needs. Paying the higher price for imported oil in addition to the money the country spends subsidizing fuel significantly increases the overall costs to the government and makes cutting the deficit more difficult.

One of the ways the government may tackle this issue is by reducing exports and keeping more domestic oil production for use at home. This would keep more capital circulating through the domestic economy instead of sending it abroad, but the country would need to increase downstream investments to boost its domestic refining capacity. As long as so much of the country's budget is earmarked for subsidies, it is unclear where the capital needed to improve this infrastructure would come from. (It is also possible the government brought up the prospect of reducing exports to prod the countries that receive Indonesian oil, such as South Korea, China and Japan, into investing in Indonesia's domestic production and processing capacity.)

The domestic energy industry is only one of many sectors in need of investment in Indonesia, including infrastructure and education, but as long as a significant part of the government's budget is devoted to fuel subsidies, the government will be unable to afford expenditures on more productive activities without foreign investment. Such foreign investment may not be forthcoming in the amount Indonesia needs to modernize its economy without cuts to the budget deficit and thus to fuel subsidies. And cutting fuel subsidies would likely lead to the social instability that could make the country a less attractive destination for FDI.

Given this paradox, Jakarta is in a difficult position and has no obvious solutions at hand. Though reserving more of the country's oil production for domestic use could help mitigate the problem in the near term, it does not address the issue of subsidies substantially cutting into government revenues, and with the country's reserves in decline, this will not be a long-term solution.

note: This article from www.stratfor.com. HERE are the links: http://www.stratfor.com/analysis/indonesias-fuel-subsidy-problem