Romanian government scraps €1.6bn multi-role warship order

Romanian government scraps €1.6bn multi-role warship order
By Iulian Ernst in Bucharest February 24, 2017

Romania’s government will halt procedures for the purchase of four multi-role warships from Damen Schelde Naval Shipbuilding at an estimated cost of €1.6bn, the head of the ruling coalition Liviu Dragnea announced on February 23. 

Romania needs the warships to address the rising risks in the Black Sea area and to meet its commitments as a Nato member, the defence ministry explained last November. However, the planned deal raised public concerns over the selection procedures and the total cost of the contract, initially announced at a much lower value.

The former cabinet led by Prime Minister Dacian Ciolos issued a government decree on the purchases and submitted it to the parliament for endorsement last November, but it was not approved before the general election on December 11.

Dragnea now says the decree should be scraped and the procedures for the acquisition should be re-started, reported on February 23. 

The new Social Democratic Party (PSD) led government will ask for preliminary approval for the deal from lawmakers - the step that Dragnea says Ciolos avoided. He has accused the former prime minister of attempting to bypass the parliament and accelerate procurement procedures ahead of the general election.

Only after lawmakers give their approval will negotiations be initiated with possible suppliers. There is no binding contract at this moment, but the procedures initiated by the former government indicate prior evaluation of alternative suppliers and prospective negotiations with Damen.

The decree itself does not include any financial terms of the deal. On November 3, the explanatory note published by the defence ministry mentioned a total of RON3.6bn (€800mn) to be paid from the state budget during 2017-2020, Romania Libera daily reported. The previous day, the same note mentioned a total of €1.6bn to be paid between 2017 and 2022.

Dragnea implied that the decree breaches the law, and used this as an opportunity to criticise Ciolos’ government of technocrats that was in office from November 2015 to December 2016. While ostensibly politically neutral, the government was broadly seen as a centre-right government of the PSD’s main rival, the National Liberal Party (PNL), and President Klaus Iohannis.

Ciolos has responded to Dragnea’s criticisms, saying that the decree was not intended to replace a public procurement procedure. The procedures can be halted by the government at any time, he stressed. However, he rejected any irregularity in the procedures carried out by his cabinet. 

He also stressed the benefits of the deal, in particular that the warships would be built in Romania, at the Damen Galati shipyard. Other benefits include an offset clause under which the supplier agrees to spend or invest the value of the contract in Romania. The supplier was picked from 13 competitive alternatives that were narrowed down to four at the final stage, Ciolos explained.

Ciolos also pointed out that Romania’s current defence minister, Gabriel Les, served as state secretary in the cabinet of technocrats, so he must be in a position to explain the details of the deal to Dragnea.  

Had the deal gone ahead, the first of the four warships would have been ready in two and a half years, and the remaining three within seven years.

Galati is one of Romania’s oldest shipyards, established in 1893. In 1994, the Netherlands-based Damen Shipyards Group, which was developing its international business, began cooperating with Galati shipyard by subcontracting hulls of cargo vessels to the yard. Damen took over the Romanian shipyard in 1999. Between then and the end of 2016, Damen Shipyards Galati has built over 382 vessels. It employs 2,300 people and its turnover was €122mn in 2016.