In its bid to win the massive contract to build Canada’s next generation of submarines, South Korea’s Hanwha Ocean is entering into a long-term strategic arrangement with Algoma Steel, which could result in some parts of the submarines being manufactured in Ontario.
The two companies have entered into a binding Memorandum of Understanding (MOU) valued at approximately $345 million, which would see the Korean defence company invest $275 million towards the construction of a new structural steel beam mill in Sault Ste. Marie, Ont.
Algoma is one of more than a dozen Canadian companies Hanwha has partnered with to provide technology to be used in its manufacturing of submarines for the Royal Canadian Navy. In a news release, Hanwha, citing analysis by KPMG, says their partnerships could result in 15,000 jobs Canada.
CTV News has not seen the KPMG analysis.
The federal government wants to procure 12 new diesel-electric powered patrol subs to replace its aging fleet of four Victoria-class submarines, which were built in the ‘90s. It needs at least one new submarine by 2035.
Only one of the four Canadian vessels is operational, and the country’s top naval commander, Vice-Admiral Angus Topshee, has said the nation is currently unable to meet its military duties to patrol the Pacific, Atlantic and Arctic Oceans.
Multiple government and corporate sources have told CTV News that the submarine contract will be valued at more than $100 billion over at least three decades. Hanwha Ocean, as well as Germany’s ThyseenKrupp Marine Systems (TKMS) have been shortlisted for the procurement.
In October, the defence ministers of Germany and of Norway visited Ottawa to meet with government officials to pitch the idea of manufacturing some of the submarines on Canadian soil. The European joint venture is also aiming to partner with other Canadian companies in its bid, and offering to make investments in rare earths, mining and artificial intelligence.
Hanwha’s initial pitch did not include plans for Canadian manufacturing, instead focused on rapid delivery of the submarines and long-term maintenance contracts. Hanwha said it could deliver four KSS-III submarines by 2035 beginning with the first boat in 2032.
It takes about six years to build one submarine.
Monday’s announcement leaves open the door for some parts of the submarine to be made in Canada.
The announcement was made during a visit by a high-profile delegation led by Kang Hoon-sik, the presidential chief of staff for the Republic of Korea. Hoon-sik is the highest-ranking bureaucrat in South Korea. After meeting with Ontario CEOs in Toronto on Monday, the delegation will travel to Ottawa to continue their charm offensive on Tuesday.
According to a news release from Algoma, the terms of the MOU would see Hanwha purchase Algoma products and could include related commitments, such as “submarine construction, development of maintenance, repair and overhaul infrastructure to support the fleet.”
During a visit to South Korea in the fall, Canadian Defence Minister David McGuinty says the company that wins the contract must provide industrial benefits, such as the use of Canadian steel and utilize homegrown technology and expertise.
The winning bidder must also deliver the submarine within timelines, as well as demonstrate that the submarine has interoperability with vessels from other countries.
