Canadian negotiators have proposed to break up the purchase of Type 212CD submarines from Germany into two batches with a guaranteed upfront buy of eight boats and a proposal to acquire another four in the future, CBC News has learned.
The proposal was made during a series of meetings that took place last week in Ottawa between federal officials — led by the Defence Investment Agency — and representatives of German submarine-maker TKMS and Norwegian defence giant Kongsberg.
Three confidential sources tell CBC News that the Canadian side has been talking for several weeks — since a round of meetings in Europe in September — about breaking up the order.
German government officials have been studying what impact a reduced order might have on the $86 billion in economic investment in Canada that was promised last summer.
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At the same time, TKMS is talking with its 400 suppliers about how a potentially smaller order would affect them.
When Prime Minister Mark Carney announced last July that his government had chosen the TKMS proposal over rival Hanwha Ocean of South Korea, he made clear that Canada was committed to buying “up to 12 submarines.”
The confidential sources say, since the delivery of the boats won’t start until the mid-2030s — and will likely carry on for more than a dozen years afterward — the sense among federal officials is that they want to preserve the flexibility of future governments to make decisions.
The sources also say there’s a debate about whether crewed submarines will eventually be replaced by more effective or cheaper drone technology.
The purchase of 12 new submarines to replace the navy’s aging Victoria-Class boats is estimated to cost between $20 billion and $24 billion. The full cycle cost — from operations, maintenance and repairs — is expected to run over $100 billion over two decades.
One of the confidential sources said the Canadian side has also indicated that cost is a consideration.
The navy has set the requirement at 12 boats based on the anticipation it will be asked to patrol the country’s three-ocean coastline and participate in allied missions overseas, notably in the Indo-Pacific.
A spokesperson for Stephen Fuhr, the secretary of state for defence procurement, said the federal government reiterated that the prime minister’s pledge was for “up to 12 modern submarines that will help to protect Canadians by replacing the aging Victoria-Class fleet.”
Sofiya Sapeha said the Defence Investment Agency is continuing negotiations with the preferred supplier “and is working to secure a contract that ensures maximum benefits for Canadians across the country.”
Sapeha added: “Because the procurement process is currently active, we are unable to comment on the content and status of the negotiations.”
8 subs still ‘a very large number’
Carney set a deadline of achieving a contract by no later than the end of 2027.
One source with knowledge of the proposal said the federal government has been consistent in its language in the run-up to the decision — and throughout negotiations — that it was interested in “up to 12” boats and that an upfront commitment of eight was still “a very large number” of submarines.
A spokesperson for TKMS said negotiations with the Canadian government remain on track, but declined to get into specifics.
“The Canadian Patrol Submarine Project aims to acquire 12 submarines that will help to protect Canadians by replacing the aging Victoria-Class fleet,” said Andrew Bernardo.
“TKMS is working diligently with the government of Canada to finalize an agreement. As partners, we remain fully engaged in the process. With negotiations ongoing, it would be premature to comment on their details or potential outcomes.”
Bernardo added that “negotiations continue productively, and we are focused on advancing the long-term strategic partnership in a manner that maximizes opportunities for Canadian industry.”
Last week, the head of the German Parliament’s defence committee, Thomas Röwekamp, was also in Ottawa.
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He was not part of the negotiations, but said he was aware of the proposal. He said he was confident that Canada, Germany and Norway, which is also a partner in the deal, would hammer out their differences.
“We are working on that and it is a government-to-government relationship in which we discussed so many details of this deal,” Röwekamp said.
“This is not only a deal between a German company and the Canadian government. It is also a part of strategic partnership as well.”
Röwekamp said the deal is also important for NATO.
“We hope they will order 12, and we are doing a lot to make the deal real,” Röwekamp said, pointing to the decision by both Germany and Norway to give up production slots in order for Canada to receive four boats by 2036. “So yes, we are very interested in having the deal in total.”
Since Canadian shipyards don’t currently have the capacity to build submarines, the federal government sought proposals from both bidders for economic benefits.
The Germans said they were prepared to partner with Alberta to construct a large-scale carbon capture facility utilizing proprietary TKMS industrial technology. There was also a plan to invest directly in the modernization and expansion of the Port of Churchill in Manitoba in order to export liquefied natural gas (LNG) and critical minerals.
The German pitch also called for the building of a factory to manufacture heavy torpedoes and to conduct joint development and testing of hypersonic missiles, among other things.
The submarine purchase would also require the construction of dedicated maintenance facilities on both coasts.
Defence analyst Dave Perry said that breaking up the order from TKMS could come with “downsides.”
He said the scale of promised economic benefits could be reduced unless “you commit at the beginning to buying the whole enchilada.”
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Canada could lose sway with suppliers if it reduces sub commitment: defence analyst
Defence analyst Dave Perry tells CBC News that reducing or ‘batching’ the number of submarines Canada procures from German shipbuilder TKMS could come with ‘downsides,’ losing out on economy of scale benefits ‘if you commit at the beginning to buying the whole enchilada.’
Perry also noted that breaking up the order is not unheard of and pointed to the federal government’s plans to buy 15 new destroyers for the navy. In that program, the federal government committed to an initial purchase of three warships from Irving Shipbuilding Inc. in Halifax.
“I think the other thing that we’ve done in the past with other shipbuilding procurement is use a batching strategy as basically a risk mitigation initiative,” said Perry, the president of the Canadian Global Affairs Institute.
“You don’t commit fully, you commit to a smaller buy, you then revisit the decision and that kind of controls the financial obligation on the part of the government.”