Next-Generation Submarine Project Exceeding 3 Trillion Won
Second Round of Overseas Orders Following Domestic Success
Concerns Over Technology Leakage and Self-Harm
HD Hyundai Heavy Industries (Hyundai Heavy) and Hanwha Ocean are fiercely competing in the Eastern European defense market, while the Polish government is showing moves to leverage this competition to maximize its own benefits. It is reported that the Polish government proposed cooperative production with local companies during offset trade negotiations with the two firms. Some express concerns that the rivalry between the two companies could harm national interests, such as through technology leakage.
The Superintendent of the Polish Naval Academy visited Hanwha Ocean Geoje Plant (left) on the 23rd of last month and HD Hyundai Heavy Industries Ulsan Headquarters on the 24th. [Image source=Yonhap News]
The Polish Navy is currently undertaking the next-generation submarine project, the "Orka Project," with a project scale of 3.35 trillion KRW. Hyundai Heavy and Hanwha Ocean have submitted letters of intent to participate as domestic companies. This marks another bidding battle between Hyundai Heavy and Hanwha, who have repeatedly clashed over projects such as the Korean Destroyer eXperimental (KDDX) program.
Hyundai Heavy and Hanwha Ocean are reportedly conducting ship export negotiations with the Polish government. Hyundai Heavy is aiming to export destroyers, while Hanwha Ocean is targeting submarines. During offset trade negotiations, the Polish government is said to have requested forming consortia with local companies for cooperative production, technology transfer, and establishing factories within Poland. Offset trade refers to the practice where the arms-importing country receives reciprocal benefits such as technology transfer or exports of domestic components from the exporting country.
While offset trade can involve technology transfer or cooperative production with importing country firms, some worry that yielding to Poland’s demands excessively could lead to leakage of core technologies. The Polish government is strategically leveraging the intense competition between Hyundai Heavy and Hanwha in the defense industry to secure the most favorable conditions for itself. Especially for ships, which take nearly ten years to build, long-term cooperative production with local companies could result in technology leaking to the Eastern European region.
With the year-end approaching, the government’s goal to achieve defense export sales of $20 billion (approximately 27.592 trillion KRW) this year also fuels the bidding war between the two companies. To meet the shortfall in export targets, they must focus on ship projects worth trillions of won. Industry insiders expect that if domestic companies succeed in winning the Canadian submarine project worth 60 trillion KRW and the Polish submarine project, the target amount can be achieved. Hyundai Heavy and Hanwha Ocean will also compete in the Canadian project. Although consortium cooperation with Japan’s Mitsubishi Heavy Industries was considered, both companies ultimately submitted separate bids.
The government now faces increased responsibility to coordinate between Hyundai Heavy and Hanwha. It is analyzed that the Defense Acquisition Program Administration (DAPA) is taking the helm. A lawyer from a major law firm, speaking anonymously, said, “There is a risk that painstakingly developed defense technologies could end up in Eastern Europe. DAPA must carefully coordinate to ensure Hyundai Heavy and Hanwha do not accept unreasonable conditions.”
On the 25th, during his visit to Korea, Polish President Andrzej Duda visited Hanwha Aerospace and Hyundai Rotem factories in Changwon, Gyeongnam. Hanwha Group Vice Chairman Kim Dong-kwan introduced President Duda to the "Jangbogo-III Batch-II submarine" on the same day. The day before, on the 24th, Thomas Szubrycht, Superintendent of the Polish Naval Academy, visited HD Hyundai Heavy Industries’ Ulsan headquarters and toured the 3,000-ton submarine "Shin Chae-ho."
Lim Hyun-kyung, Legal News Reporter
※This article is based on content supplied by Law Times.
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