Thursday, August 25, 2016

Bloated half billion dollar RNZN tanker another Brownlee blow out

Half a billion dollars for an oil tanker? Isn't that rather a lot? In 2011 the replacement cost was suggested to be $250 million. Five years later with massive overcapacity of tankers in the world and the Navy has written itself a cheque for just under twice that much.

The old Endeavour which was the 'most efficient ship in the Navy' was basically a refurbished oil tanker. Oil tankers are a dime a dozen at the moment with 1990 massive 160,000 tonne (DWT) Suezmax sized vessels going for as little as US$50m (NZ$68m). A second hand 34,000T tanker can be yours for a paltry $10 million.

The Navy might complain that putting up with old tubs hasn't been that successful for them. They want a 'proper' naval vessel. But the Royal Australian Navy (who are not exactly known for being economical) is currently buying two naval replenishment ships of the Cantabria class from Navantia in Spain for only $175m less. The order for A$640 million (NZ$334m each) ships are to be delivered around 2020. If we'd bought one of those we'd have a saving of $160 million dollars.

According to Navy Today the $493 million new vessel (which for the sake of brevity I'll term "ENT") will have the following spec:

Crew 64 + 11 flight crew
Accommodation: 98
Hospital: 2
Length: 166m
Beam 24.5
Mass: 24,000T
Weapons: 2 mini Typhoon Remote weapon stations and potentially a bow Phalanx
Containers: 12TEU (incl 4 'dangerous goods i.e ammunition)
Diesel (F76) fuel: 8,000T
Avgas (F44) fuel: 1,500T
Water: 250T
Ice class: Polar Class 6 Lloyds Winterisation to -25 degrees
Hangars: 1-2 NH90 medium helicopters
Secondary craft: 2 RHIBS
Ship-to-ship crane 25T
Roll-on Roll Off lane meters: 0
Range: unstated
Speed: 20 knots max
Endurance: not stated

By contrast the Australian vessels will

Crew 122
Length: 170m
Beam 23m
Mass: 19,500T
Weapons: ?
Diesel (F76) fuel: 8,900T
Avgas (JP5) fuel: 1,500T
Water: 215T
Hangars: 2 NH90 medium helicopters
Secondary craft: 2 RHIBS
Ship-to-ship crane
Speed: 20 knots max
Range: 6000nm

Nor is the Polar class 6 status a reason for the cost overrun. Navy Today states that the extra cost of this was $64 million and 1,600 tonnes of extra steel. That still leaves $100 million over and above the RAN vessel's unit cost. That's not a small amount of money. In fact $160m is the same as cutting the third personal income tax band by one percentage point. That's a lot of sick people treated or poor people housed.

At a significant fraction of the cost of an Anzac frigate the new oiler is probably on it's way to becoming the least efficient vessel in the Navy despite the fancy bow design and the relatively small complement. A $100 million worth of fuel and pay is a helluva long payback time especially while the government's internal costs of capital are far higher than commercial prices.

Those costs of capital are very important. They mean that the operating cost of the vessel also increases. That's the point of capital charges. If you can do something more efficiently with less capital there is an incentive to do it. It looks like the Navy doesn't care. It has a tapline straight to taxpayers wallets.

The HMNZS Canterbury cost New Zealand $130 million. Yes, it was over two decades ago and she needed a lot of work once delivered but that was done under warranty. But a tanker costing $493 million is more than three times the cost of Canterbury - and as I say there are a lot of spare tankers floating around these days that could have been converted.

In my view the Navy has missed a huge opportunity. If as proposed by the Defencecosts we had bought two Damen Schelde Logistic Support Vessel Supporter 19000 we wouldn't be looking for another littoral ship. We'd have two littoral ships that were also tankers and anti piracy vessels as well. As with the Australian example the ships would be cheaper because they are a standard design.

Why is this ship so expensive? The answer is simple. It's a fancy one-off. It's a custom-built ship unlike any other in the world. Why has the Navy ordered it? Simple again. The Navy is totally out of control. Nobody is telling them 'no'. Nobody is challenging their inordinate sense of entitlement to Kiwis hard earned tax dollars. The Navy thinks it can gold plate its ship designs and nobody will do anything about it.

And so far the silence from opposition parties has been deafening.