Australian shipbuilder Austal said the value added tax (VAT) was among the reasons for the higher quotation for the offshore patrol vessels (OPVs) that the company wants to supply to the Philippine government.
Austal Asia Regional Director Dave Shiner told reporters in a briefing on Tuesday that the VAT is a necessary item in the computation of the project cost and is one of the reasons for the higher costing.
Reports indicated that the Department of National Defense (DND) said Austal’s costing for the six offshore patrol vessels (OPVs) was P12 billion more than the P30-billion budget set for the procurement.
“VAT would apply to an onshore bidder (but) this does not apply to an offshore business. So in our view that is not helping or assisting the development of sovereign technical capability. We believe there potentially is an opportunity to see VAT exemptions, but that would require further legislation,” Shiner said.
Shiner also said using a “fixed-price approach” for a program like the procurement of OPVs that could extend to as long as seven years would be “difficult,” especially in a post-Covid economy.
“A fixed component, particularly post-Covid, where you have fluctuation not only in labor and materials escalation, but also in foreign exchange rate variation. And again, there are perhaps other more efficient, efficient ways to deal with that commercial rather than having to price that as a fixed number,” Shiner said.
Despite this, Shiner said Austal is still open to working with other shipbuilders and designers, including South Korean shipbuilder Hyundai Heavy Industries (HHI) which has been chosen by the DND to undertake the project.
Shiner said Austal, having a presence in the country, could still build the six OPVs.
He said having a builder located in the Philippines for a project that is intended for the country would be “advantageous for the government.”
Shiner also said he believed Austal’s OPV technology “is a strong technical solution” that would benefit the government’s project.
“We are aware there are other bidders (and) Austal remains open to talking to other shipbuilders and designers, with their proposals to ensure that other people’s platforms could be actually physically built in the country. So we would be delighted to talk to HHI [Hyundai Heavy Industries] for example, to see whether they had any interest in discussing a (possible arrangement for the project).”
In April, BusinessMirror reported that the DND has turned its attention to two other proponents, the South Korean company Hyundai Heavy Industries (HHI) and Turkish defense contractor ASFAT to build the six OPVs.
HHI is the same company that delivered the two frigates of the Navy and is currently building the two corvettes also for the Navy, while ASFAT is a prospective player in the modernization program of the Armed Forces of the Philippines.
Turkey as a country has been the source of the recently delivered attack helicopters for the Philippine Air Force.
Defense Secretary Delfin Lorenzana said that the cancellation of the project with Austal would unlikely affect the country’s relations with Australia, saying it was not the government that changed the original contract.