Rough sailing for Navy’s ‘grandest’ modernization project

In Photo: President Duterte walks during arrival honors at the 119th anniversary of the Philippine Navy in Davao City on May 31, 2017.

The frigate-acquisition project, dubbed as the Philippine Navy’s (PN) most ambitious modernization project, is now perilously listing, as it sails and rams through a barrage of issues and controversies even while still in its initial phase.

The barrage of claims, allegations and counterclaims that were unleashed and rained like torpedoes on the Navy project—its biggest to date—have threatened to undermine the whole program, giving the military two choices: Either the establishment will accept an “inferior” naval asset or scuttle the contract.

Crew members of the Philippine Navy’s BRP Tarlac rush to board their vessel during the commissioning ceremony with three other vessels to coincide with the Philippine Navy’s 118th anniversary on June 1, 2016, at South Harbor in Manila. AP/Bullit Marquez

An alternative option, however, exists and this is to rebid the project.

The second-biggest modernization project of the entire Armed Forces of the Philippines (AFP) after the acquisition of a squadron of South Korean FA-50 fighter jets, the frigate program was mapped and charted to give the Navy two brand-new frigates, the first in its modern-day history, courtesy of Hyundai Heavy Industries (HHI), another South Korean firm.

The radar of controversy

The project, worth P18 billion, was smooth sailing, until its bottom was scraped through the unceremonious and controversial relief of former Navy Flag Officer in Command (FOIC) Vice Adm. Ronald Joseph Mercado early this month, unearthing rusty and nasty issues.

Defense Secretary Delfin N. Lorenzana fired Mercado for loss of trust and confidence arising from Mercado’s alleged insubordination, and replaced him with Rear Adm. Robert Empedrad. Both the relief of Mercado and the assumption of Empedrad had the imprimatur of President Duterte.

Lorenzana said Mercado’s insubordination over the project, which is borne by his preference for another contractor to deliver the combat-management systems (CMS) for the frigates, had caused delay in its implementation.

He said part of the contract with HHI gave the South Korean builder the right to choose which contractor would deliver the CMS requirement for the ships that it will be building for the Navy.

Hyundai preferred South Korea’s Hanwha Thales through its “Naval Shield.”

But former Marine Capt. and now Magdalo Party-list Rep. Gary Alejano claimed that the Hanwha Thales joint venture, which developed, had been dissolved even as early as August 2016, or way before the signing of the frigate contract.

“I questioned his intention behind his fixation with one specific company for the combat-management system of the frigate-acquisition project,” said Lorenzana earlier in relieving Mercado.

“[In] our frigate [project], the contract says that the one who will choose the CMS requirement that satisfies our specification is the builder, which is Hyundai,” the defense chief added.

“Now, Admiral Mercado wants to bring in another company, another system that is not included in the contract,” Lorenzana said.

Mercado prefers Thales Tacticos of the Netherlands to deliver the CMS, a position that was supported by the Navy under his leadership and, specifically, by members of the Philippine Navy Frigate Acquisition Project Technical Working Group, the body that has set the parameters, requirement and specifications for the CMS and the entire project.

The body studied the whole aspect of the project for two years.

Lorenzana claimed he issued “directives, two directives, more than two directives,” which Mercado “disregarded as he continued to insist on his system.”

The ‘keel’ of contention

While defense and military officials worked steadily to man the rudder, apparently to steer the issue, and even the whole project out of further heeling, Alejano talked about the nitty-gritty of the contract and the Navy’s CMS requirement.

The CMS is considered as the “brain” of any military ship as it integrates its systems, including its weapons, sensors, communication and navigation, among others.

Alejano made a comparison of the CMS of Thales Tacticos and Hanwha Thales by using data and information provided by no less than the Navy at the project’s infancy.

The former military man-turned-lawmaker  said Thales Tacticos’ program is being used by 23 navies around the world and has been installed in around 172 ships. Its latest model, Baseline 2, was also developed in 2012.

On the other hand, Hanwha Thales’s CMS, or the “Hanwha Systems,” is only being used by the South Korean Navy, although there is an ongoing contract with the Malaysian Navy for its use for training purposes. Its model, “Baseline 0,” was developed in the 1990s.

Tacticos’s system is compatible with TDL (tactical data link) 16, which is a C4ISTAR (command, control, communications, computers, information/intelligence, surveillance, targeting acquisition and reconnaissance) requirement of the AFP, and is in service support around the world, being the world’s largest systems integrator.

On the other hand, Hanwha’s TDL 16 is still being developed and is targeted to be available by next year, thus, its design is still “not proven.”

It has “no integration experience,” Alejano claimed.

The former Marine captain said Thales Tacticos is a company with 60 years of experience, while Hanwha has 15 up to 20 years in its former partnership with Thales.

Alejano recalled that when a workshop was held in September 2016 for the finalization of the frigate contract and the ships’ building specifications and arrangement, the PNTWG (the Navy’s tactical working group) and the HHI agreed to include in the technical specifications the provision that the CMS “shall be compatible to Tactical Data Link 16.”

“This provision became controversial. Before the contract was signed on October 24, 2016, the PNTWG presented to the FOIC, PN [Philippine Navy], who at that time is Vice Admiral [Caesar] Taccad, and to Secretary Delfin Lorenzana of the DND. The Navy is always saying that their CMS preference is Thales Tacticos,” Alejano said.

Alejano claimed that the contract contains provisions that the Navy leadership and Lorenzana were not apparently aware of, and it was a document called the “maker’s list,” which is attached to the contract.

“The provisions were written in fine print at the bottom of the document, which states that the final selection of the maker is to be the shipbuilder’s sole right, as long as the equipment/system shall fulfill the owner’s requirements in building specifications and other design and build aspects,” Alejano said.

The document, according to him, only bears the signatures of “two Koreans only,” and none on the part of the other party.

“Allowing the shipbuilder to dictate the configuration of a warship is gravely dangerous when it comes to national security and defending one’s sovereignty. The end user must dictate what mission-critical equipment they should choose while getting the best value for money,” Alejano said.

“Why did such a provision manage to get through the contract?” he asked.

Still, when Navy officials learned that the contractor managed to put one over them, they came up with the Navy’s version of the “maker’s list,” wherein it specified that as the end user, the Navy has the right to choose the maker of its operational requirement.

The maker’s list was signed by the PNTWG and hurriedly took it to the Koreans, who were already at the airport at that time on their way back to Korea, but it was dismissed, with HHI officials reportedly claiming that the contract is already a done deal.

“The contract is done, which means the government has already paid the down payment of 15 percent, or P1.5 billion. We are pitiful, we have the money and yet we could do nothing,” Alejano said.

While these issues and controversies swirl, Mercado was in Palawan, being the commander of the Armed Forces Western Command.

Sinister ‘bait and switch’ scheme

Gleaning from the facts, Alejano declared that the HHI employed what he called a “bait and switch” strategy by luring the Navy into the project, only to modify it after it has been sealed.

“The contractor baits the buyer or client by offering superior systems or products, and once he bags the contract, he will find means to go around and eventually choose the lesser or inferior, and, thus, cheaper systems or products to maximize profits,” he said.

In this case, Alejano said, the HHI offered two options for the systems for which the Navy can choose from, and included in the options were top-of-the-line and superior products, which made it qualify for the project.

“The controversy is a case where the contractor won over the Navy. The contractor, Hyundai Heavy Industries, or HHI, which will build the two frigates, prevailed against the wish of the Philippine Navy, which is the end user. Or we can put it this way, the business interest of the contractor won over the national interest of our country,” he said.

An unseen hand, courtesy of Special Assistant to the President Bong Go, was fingered behind the project’s sailing, but Lorenzana—and even Mercado—denied that Go ever intervened in the project.

Go’s association to the controversy prompted Presidential Spokesman Harry L. Roque Jr. to associate the simple case of “contract gone questionable” to a tale of an attempt to destabilize the government.

‘Floating’ assignment

Amid the surging torrents of controversies, Mercado was relieved for his insubordination. It is also the case with the head of the DND’s project-management team.

In the words of Alejano: “The way by which the Navy fights and stands up for its frigate project through the person of its FOIC was misconstrued as insubordination and disrespect. This led to the removal of the head of the Project Management Team, [which is under the DND], who is Commo. Sean Villa. Since the design has to be accepted by the Navy through its TIAC [tactical inspection and acceptance committee], and the head of the Navy, who is the FOIC, continues to insist, he was also removed.”

The ensuing reliefs came as the project comes to a standstill, or—in the words of Lorenzana—a mere delay.

There were letter exchanges between the DND and the Navy about the frigate project, wherein the DND informed and maintained that the HHI will undertake the Navy’s project, but on the other hand, the Navy insisted that Hanwha’s CMS is not compliant and will “put the Navy in a very disadvantageous position.”

A patriot

Mercado’s relief, although it has sent shockwaves to the four corners of the defense and military establishments, was seen by some military officers as the “highest and truest” form of service to the country by one in the uniformed service.

“For standing up to what is right, even at the cost of his military career, for upholding the best interest of not only the Armed Forces of the Philippines but the whole country, he is a patriot, the finest example of leadership,” one junior officer commented.

“I wonder how many Mercados we have in the AFP and even in our country’s present crop of leaders,” the officer, who requested not to be named, added, noting that the “floating” official could just have allowed the project to slip through as the government did since Mercado would be retiring in March this year.

The officer said the relief of Mercado gives the impression that it betrays the “love for soldiers and the love for country” that the Commander in Chief holds and often pronounced, more so that he became President on a strong anticorruption stand.

Mercado will never waiver in his position on the CMS issue, saying the sailors will not “look kindly” to him if he ever changes his stand.

Accepting Hanwha’s CMS, he said, is tantamount to abandoning the men and women of the Navy, who for the longest time have been dreaming of a modern vessel, a frigate that can truly prowl and defend the country’s waters.

For years, the military has endured the tag of being a “laggard,” the least developed armed forces in the region, which is a far cry from its former status as a dominant and potent force in Asia.

Its assets even earned a wide variety of monikers, such as “widow makers” and “flying and sailing coffins,” metaphors that described their condition as rustic, old and nothing but vintage assets.

Before the Aquino administration jumped off its modernization, former Defense Secretary Voltaire Gazmin even described the Philippine Air Force as nothing but “full of air” but with “no force.”

The development of the Armed Forces was basically hindered by the lack of money, misplaced priorities and even by a perceived notion of corruption.

But with money allotted to the frigate project, Mercado said the Navy could not afford to squander the opportunity to modernize by going with the best assets and systems worth every cent.

Alejano said the frigate is very important and sentimental for the Navy because it will be its first ship that is modern, brand new, missile-armed and “on a par with the modern warships of other countries.”

“This can fill in the gap of our external defense capabilities. It is capable of conducting Anti-Air Warfare, Anti-Surface Warfare, Anti-Submarine Warfare and Electronic Warfare operations,” he said.

“It has extended maritime patrol range through an embarked naval helicopter and extended maritime surveillance capability through air and surface search radar, and Sound Navigation and Ranging [Sonar] for sub-surface search, among others. It can sustain 30 days operations at sea, which is what we needed to patrol our exclusive economic zone, especially our West Philippine Sea and the Philippine Rise,” Alejano added.

Mercado said the Navy having its first modern frigate was the fervent, but elusive, dream of previous FOICs, who called him up and congratulated him when they learned that a contract for the acquisition of such ship has been signed.

He said seeing and owning a frigate is a source of national pride.

“When foreign ships visits our country, we board with the President, and as we do, all I could do is look at the missile, while ours remains the same, and it is still manual, while everything today is already fully automatic, from loading, extraction to firing,” Mercado said.

Image credits: Presidential Communications Operations Office via AP, AP/Bullit Marquez


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