Monday, December 28, 2009

The rise of the Indonesian strategic Arms industry

A few weeks ago, Indonesia’s minister of defense officiated the launching of the new Landing Platform Dock (LPD) built by PT PAL for the Indonesian Navy. It marked a new beginning for PT PAL, the largest Indonesian shipyard located in Surabaya, East Java, after having been successful in developing various non-military ships, such as 50,000 ton cargo vessels, large oil and chemical tankers and passenger ships.

In the area of military combat ships, PT PAL has successfully developed various smaller craft such as Fast Patrol Boats in different sizes.

The development of the Landing Platform Dock has been done in conjunction with similar production in Dae Sun Shipyard, Busan, South Korea, which developed two out of four LPDs for the Indonesian Ministry of Defense through the export credit extended by the Korean financial institution. The export finance was later on extended to PT PAL to develop the remaining two LPDs. PT PAL, under the technical assistance from Dae Sun, has succeeded in building the first ship, and in the process of building the second ship.

The development by PT PAL was done with several refinements in its design. The LPD built by the Korean could accommodate three helicopters in its deck, while the LPD built by PT PAL is able to accommodate five helicopters. In addition, the refinement in its shaft enabled the ships to improve the speed from 15 knots to 15.4 knots. The achievement is going to be followed by the development of Sigma Class Corvettes and also Guided Missiles Ships currently on the drawing board. Currently, the maintenance and overhaul of the Sigma Class Corvettes are also being done by PT PAL.
The two types of ships are within the capacity of PT PAL to develop.

Another ambition, which is currently enabled by the success in developing the 50,000 tons of cargo ships, is in the form of the building of Helicopter Carriers. In a later stage, PT PAL is also developing submarine building capability. The rise in the Indonesian shipyard industry is also followed by the rapid development of the Indonesian aerospace industry. Long time in neglect, the Indonesian aerospace company PT Dirgantara Indonesia (PTDI), a metamorphosis of PT. IPTN, has shown its resilience and in fact has shown significant revival.

Recently, the Korean military signed a contract ordering four CN 235-110 MPAs, turboprop aircrafts for the military patrol. The Korean military have acquired rhese aircraft before, so they have experience using the aircraft. In fact, this purchase was done after a tight tender process which involved American, Spanish and Israeli aircraft manufacturers. In addition, the Indonesian Ministry of Defense has just issued an order of three similar planes for the Indonesian Navy. These planes, as part of a planned bigger squadron, will replace the Nomad patrol aircrafts that have been planned for its retirement. PTDI also produces helicopters, including the Superpumas.

The Indonesian aerospace industry, during its hibernation period, continued its contracts with EADS in developing the wings and other parts of Airbus 380 and other types of Airbus planes. Recently, the company received an award for achieving a high-level quality requirement in supplying the components to Airbus. With such an achievement, PTDI has prepared the ground for further challenges.

Before the monetary crisis in 1998, PTDI, then named IPTN, was in the process of developing its homegrown airplanes called N250. There is a real possibility that such a plane will be revived in anticipation for the upcoming surge in short-haul flights. Further down the road the development of passenger jets are also on the drawing board. The Brazilian aircraft industry, Embraer, has been successful in developing and marketing its ERJ (Embraer Regional Jets) to the competitive markets of the US and Europe. Such an opportunity is certainly available for the kind of aircrafts developed by PTDI. Fifty- passenger aircraft are similar to the size of the famous ERJs.

Meanwhile, the Indonesian defense industry (PT PINDAD) has also succeeded in developing APCs (Armored Personnel Carrier) for the Indonesian Army. The Indonesian Ministry of Defense placed order of 154 Combat APCs that will be used by various Army Units throughout Indonesia. The APCs are similar to the French built Renault APC that has been purchased by the Indonesian Army for the peacekeeping mission in Lebanon.

It can be expected that the new capability in developing such vehicles enables the company to develop more complicated light tanks. Neighboring Malaysia has also placed an order for 40 APCs from PT PINDAD. Such order is a testimony of the quality of the product.

PT PINDAD also supplies high quality automatic rifles, pistols, grenade launchers and munitions to the Indonesian Armed Forces. The weaponry has now become the standard issue for the military and police forces in Indonesia along with the better known AK47 and M16. Recently some of its products have also been exported, including to the United States.

The rise of the three companies has emboldened the Government to balance the sourcing of Indonesia’s defense suppliers. Having been the target of a prolonged embargo by the United States, it is believed that self-sufficiency in the defense supplies becomes a necessity in the growing complexity of geopolitics. At the same time, the development of such industries will enable them to attract the skilled human resources that nowadays are scattered across the world.

What is the way forward? These strategic industries very much depend on the orders by the foreign shipping and airline companies as well as orders from within the country. In the past, as what happened with the development of the Landing Platform Docks, these companies also depend on the external finance from the Export Finance Agencies like in Korea.

The rise of the Indonesian banking system also enables banks to help extend finance for the purchase of such equipment as long as the Government is responsible for the repayments of the loans. This is basically what has happened now with all the Export Credits, because the Government is fully responsible to repay the debts to these Export Finance Agencies. With the increasing capacity of the Indonesian Government Finance, it could be expected that 10 years from now the Indonesian budget are in much greater capacity than what we have now.

Therefore, the current government can leverage that capacity by placing orders for the military equipment that can be repaid gradually over time. In addition, the government can encourage Indonesian State Owned Companies to place orders in these industries. Pertamina, the Indonesian Oil Company, has at one time purchased a 30,000 DWT oil tanker. The ship, named the Fastron, was delivered by PT PAL in 2005. Such strategic purchasing could be repeated again in the coming years. By Cyrillus Harinowo Hadiwerdoyo, Jakarta

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