China Shipbuilding Industry International Trade Co., Ltd. (CSOC) will negotiate a contract dispute with the Thai Navy over the S26T submarine on June 9, according to social media reports. The focus of the dispute in the contract is that the Thai Navy insists that the S26T submarine use German MTU396 diesel engines, while Germany does not agree to the military purchase and refuses to export engines, and the Thai Navy does not want to use mainland replica engines.
The S26T submarine purchase began in 2015 with the signing of a contract between China and Thailand to build three S26T conventional submarines for the Thai Navy for a total value of about US$1 billion. In 2017, the two parties finalized a contract for the construction of the first boat, with delivery scheduled for 2024. I didn't expect that the submarine was built more than half, and now this file is popping up.
As an export model of the 039A type, the power system of the S26T is composed of MTU diesel engines and domestic "Stirling" engines authorized by Germany. Germany has a long history of military exchanges with the mainland, and we have been using MTU technology. In this arms purchase case, the Germans did not have an opinion about us, nor did they have a conflict with Thailand, but did not agree with us to use MTU's technology for export products. This can also be understood, Germany itself is a major exporter of submarines, South Korea and Singapore have imported submarine technology from Germany for localized production, our export of S26T submarines will have a certain impact on German submarine exports.
For us, as strategic military equipment, submarines are of great significance if they can be exported smoothly. To this end, we showed great sincerity and proposed to replace the MTU16V396 diesel engine with the Deutz-Mannheim TBD620V12 diesel engine, or replace it with a domestic imitation diesel engine, or provide two second-hand 039 diesel engines for transitional training.
However, the above plans have not been accepted by the Thai side, not that our plan is not feasible, the fundamental reason is that the Thai government has no money. Thailand planned to buy three S26Ts, but actually cut one ship at the beginning, and only allocated funds for the construction of one boat when construction began. Coupled with the impact of the epidemic since 2020, Thailand's economy has been hit hard, forcing the government to cut military spending from 2021.
For the Thai Navy, of course, if you want to buy advanced conventional submarines, the problem is that the money is only enough to buy one, and spending more than 300 million US dollars to buy only one submarine can only be used for patrol at most, and it cannot form combat effectiveness. It's better to take the opportunity to find a reason not to pay the bill, just pay liquidated damages. But things have come to this point, Thailand unilaterally broke the contract is not so easy, the purchase of ship products is paid according to the start of construction, slipway, launching outfitting and other construction nodes, that is to say, Thailand has paid part of the cost in the early stage. In the end, the upfront payment is equivalent to throwing it into the water, and we will modify this brand new submarine and sell it to other customers when we have the opportunity.
The next negotiations will eventually come up with a plan that everyone can accept, and we have lessons to learn. First, as early as when we negotiated this export contract with Thailand, we should have considered that MTU diesel engine exports may encounter obstacles, and we should communicate with Germany to solve it as soon as possible. Now it seems that we thought simply, but we did not expect that Germany's attitude was so resolute, that is, it did not agree to the MTU diesel engine export license. Second, it is still a cliché topic, for the engine and other core technologies to be localized as soon as possible, we must strive to improve the domestic technical level to avoid being controlled by others at critical moments.