April 25, 2017 / 12:16 PM / 4 months ago

UPDATE 1-German ministry sees big jump in costs for MKS 180 ship programme

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By Andrea Shalal

BERLIN, April 25 (Reuters) - Germany's defence ministry on Tuesday projected a cost increase of 525 million euros ($570.99 million) in its 4 billion euro programme to build four MKS 180 multi-role warships, and it signalled a further delay in the project.

Germany and its allies in NATO report a sharp increase in Russian naval activities to levels exceeding those seen during the Cold War, prompting concerns for the current distribution of Western naval defences.

Defence ministry State Secretary Markus Gruebel told lawmakers in a letter viewed by Reuters the extra money was needed to ensure the ships' future capabilities and increase protections for the crew and the vessel.

The requirements for the ship were adjusted to account for "recent security developments" shortly before a second request for proposals was released at the end of March, he said. Gruebel gave no details about additional equipment or capabilities.

He said negotiations would begin after the three bidding teams submitted revised offers at the end of September.

Gruebel said the further timetable for the programme, already delayed by about six months last October, would depend on negotiations with industry and when the ministry asked for "best and final offers".

Given the process, defence experts said it was unlikely that a final contract for the ships could be signed before the end of the year, as Gruebel had projected in an October letter to lawmakers.

The ship tender is one of Germany's biggest arms projects, along with a contract for the MEADS missile defence system, to be built by the European defence group MBDA and Lockheed Martin Corp, that has also been delayed.

The new MKS 180 multi-role combat ships are to be delivered from 2023. It was not immediately clear if that plan would stand. The ships are to be capable of attacking targets on land and underwater and providing aerial protection to other vessels.

Defence Minister Ursula von der Leyen decided in February to buy two additional MK 180 ships instead of putting off that decision until 2030 as initially planned, but has not released a revised estimated for the total programme cost.

In the letter to the German parliament's budget committee, Gruebel said better risk-benefit analyses were paying off, with the ministry saving an estimated 300 million euros by dropping requirements that were deemed unnecessary.

But the overall cost of the programme was still expected to rise, given new security challenges, he said.

The three teams bidding to build the new warships are the Bremen-based shipyard Luerssen and Thyssen Krupp Marine Systems , Blohm + Voss and the Dutch group Damen shipyards, and German Naval Yards paired with Britain's BAE Systems, according to security sources.

$1 = 0.9195 euros Reporting by Andrea Shalal and Sabine Siebold; editing by Mark Heinrich

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