Daewoo Shipbuilding loses $53 mn from Indonesia deal

South Korea’s major shipyard Daewoo Shipbuilding & Marine Engineering Co. (DSME) lost $53 million from a deal to build submarines for Indonesia, a lawmaker said on Thursday.

DSME inked a contract on April 19, 2019 worth 1.3 trillion won ($985.6 million) with the Indonesian government to manufacture three submarines, according to Kang Minkuk, a representative of South Korea’s ruling People Power Party. DSME earlier exported submarines to the Southeast Asian country.

The shipbuilder on July 26, 2019, signed another deal with Siemens AG to buy three electric propulsion motors for the submarines at 58.5 million euros ($59.4 million). DSME made a prepayment of 6 million euros to Siemens for the components one month after the contract.

ORDERED PARTS WITHOUT RECEIVING DOWN PAYMENT

After signing the deal, Indonesia never made the down payment for the submarines. Thus DSME reflected a contingent loss provision of 52.5 million euros, the cost for the propulsion motors excluding the prepayment, to the company’s 2021 earnings.

Shipbuilders usually receive 10-20% of the submarine price after signing a contract as a down payment to be spent on raw materials and parts. But DSME inked a purchase contract with Siemens even before getting money from Indonesia.

“The submarine deal has de facto been canceled,” Kang said. “The electric motors ordered may become a lump of scrap metal.”

A DSME official said the company had expected the Indonesian government to abide by the contract.

The shipyard plans to sell the submarines to other countries such as South Korea and the Philippines to recover the loss, the official added.

Write to Ik-Hwan Kim at lovepen@hankyung.com
Jongwoo Cheon edited this article.