The Odyssey: Greece’s U-214 Submarine Order

On Monday Sept 21/09, ThyssenKrupp Marine informed the Greek Minister of Defence that it was canceling “The Archimedes Project” contract for 4 U-214 diesel-electric submarines with Air-Independent Propulsion technology, because the government’s payments had remained underwater for too long. That development was the just the latest chapter in a long and continuing saga. If the issue remains unresolved, or arbitration results in termination payments but no delivery, Greece could find itself without a submarine force.

Accumulated payment arrears were over EUR 520 million (then $767 million), and so ThyssenKrupp and its subsidiary Hellenic Shipyards sought international arbitration, in order to recover some of the payments due under its contract. A resolution was arrived at, but failed execution by Hellenic Shipyards has left Greece’s future submarine fleet in limbo, even as investigations and trials are sending former Greek officials to court and to jail for corruption associated with the purchase.

Greece’s Submarine Programs: Types and Travails

Greece fielded 8 boats before the U214 program: 4 Glavkos class U-209/1100 boats commissioned between 1971-1979 (S110-S113), and 4 Poseidon class U-209/1200 boats (S114, S117, S118, S119) commissioned from 1979-1980.

In 1989, the Neptune I program began to upgrade the 4 Glavkos class boats. They received flank array sonar and significant electronics upgrades, including the ability to fire UGM-84 Harpoon anti-ship missiles.

In 2002, Hellenic shipyards received the Neptune II contract for the “mid life” modernization and repair of 3 Poseidon class boats, which included cutting the hull and installing an 6.5m long Air-Independent Propulsion section, as well as hydrogen storage tanks for the AIP. Flank array sonar, electronics upgrades, an electro-optic mast with satellite communication capability, and Harpoon missile firing capability reportedly round out the upgrade’s major features. In the end, however, only HS Okeanos [S118] will be upgraded.

No ship lasts forever, and that’s especially true of submarines. The Greek government signed a contract in February 2000 for 3 of HDW’s new Type 214 submarines + 1 option. It was the first order for the new class that would inject new boats into the fleet, and that would eventually grew to 6 submarines after a long and bitter history.

Greece’s Submarine Odyssey

Papanikolis (S120), the first-of-class U-214, was laid down in Kiel, Germany in February 2001 and launched in April 2004. In January 2005, HDW’s ThyssenKrupp Marine (TKMS) parent company bought Hellenic Shipyards near Athens, Greece, and invested heavily in modernizing it. Submarine work had already been underway since 2002, and Hellenic Shipyards built the next 3 Greek U-214 submarines: S121 Pipinos, S122 Matrozos, and S123 Katsonis.

Once the Papanikolis’ sea trials began in 2006, however, the Hellenic Navy found a host of issues with the new submarine. Poor performance from the AIP system that supplements its diesel engines for long underwater operations, problems with the ISUS combat system, poor surface seakeeping in high seas, and hydraulic system issues were among the major flaws reported. The Navy refused acceptance, leaving HDW to fix the boat.

HDW set to work on Papanikolis, but the submarine has been docked in Kiel since 2006 waiting for Greek acceptance. HDW says acceptance is now justified, as the defects have been fixed, but the Greek government refuses to accept the boat. It has raised other issues, such as the ad-hoc nature of several required modifications to avoid disassembling the boat, the number of sea trials that have consumed some of the onboard equipment’s operational life – and one rather more traditional reservation, which is not expressed but plays a role. Sailors are famously superstitious, and Papanikolis’ tribulations have given it a reputation as an unlucky boat.

In 2010, a provisional agreement was reached. Greece would accept the U214s, and would shift Project Neptune II from 3 upgraded Poseidon Class boats to 1 upgrade plus 2 new U214 submarines, giving Greece a total of 6 U214s on order.

HDW doesn’t seem to be part of that deal, and as of January 2014, S121 Pipinos, S122 Matrozos, and S123 Katsonis are all reportedly still in sea trials, instead of acting as operational boats. Actually, they’re slowly being refurbished after lying partly-finished at Hellenic Shipyards, which was shuttered for years.

Contracts & Key Events

Oct 7/14: S121 Pipinos, the first U214 submarine assembled at Hellenic Shipyards, is launched and christened. There’s still a lot left before the boat enters service, but it’s a lot better than just sitting in the shipyard and rusting. Regarding its namesake:

“The Greek submarine was named after Andreas Pipinos (1780-1836), a famous seamen from the island of Hydra. During the Greek War of Independence, Pipinos fought by the side of Constantine Kanaris. He took part in the destruction of the Turkish fleet of Kara Ali in 1822 and in the 1824 battle of Gerontas, in which he was seriously injured while burning the Turkish flagship.”

Sources: Greek Reporter, “Launch of First Submarine Built in Greece”.

June 12/14: Sue what? Britain’s Telegraph newspaper reports that this farce has just gone to 11, following a EUR 1.3 billion lawsuit by new Hellenic Shipyards owner Abu Dhabi Mar late in 2013:

“It can now be disclosed that the Greek Government has launched a seven-billion euro compensation claim against ThyssenKrupp Marine Systems and Abu Dhabi Mar – the defence firm and shipyard now responsible for the order.

A 200-page document sent to the ICC International Court of Arbitration states that Greece’s international position was compromised by the failure to supply the submarines and its position in Nato was undermined…. Following years of delay, the Greek Government has recently insisted that the submarines are finally due to start full sea trials imminently, although no date has been set.”

AFP reports offered a different timeline, involving completion of S121 Pipinos by the end of the year, and S122 Matrozos and S123 Katsonis by the end of 2016. The April 9/14 Deutsche Welle report paints a picture of neglect, and it remains to be seen whether providing EUR 75 million and some naval engineers to Hellenic Shipyards is going to result in safe and seaworthy boats. Sources: Agence France Presse, “Greek Navy To Fast-Track Long-Delayed Submarine Order” | The Telegraph, “Greece sues for 7 billion euros over German submarines that have never sailed”.

April 9/14: Rust in Peace. Deutsche Welle does a story about poverty and phantom jobs in Greece. This part was revealing:

“Two years before, I sit in this chair. I feel so strange being here”…. That’s because she is one of a thousand workers at Hellenic Shipyards who haven’t received a paycheck in that time. They’re only employed on paper…. Back at the shipyard, Nikos and Alexandra drive past two partially built submarines that are languishing in drydock.

“They are about 80 percent ready to go,” says Alexandra. “Now, in the two years we haven’t been working, they’re ruining and rusting. Can’t you see?”

The submarines cost Greek taxpayers billions and were caught in the crossfire of a massive bribery scandal. They were designed with German know-how – ThyssenKrupp Marine Systems used to run the shipyard.”

If they’re 80% complete and rusting, one wonders if they can ever serve without being largely rebuilt. Sources: Deutsche Welle, “Greek families struggle to survive economic crisis”.

Jan 20/14: Investigation. Germany’s Der Spiegel adds more details to the recent arrests, with an interesting shot of perspective to chase it down. Here’s their take on HSY chairman Sotiris Emmanouil:

“One of the provisions of the deal was that HDW would take over HSY. SPIEGEL has learned that Greek investigators believe the German submarine consortium, which included Essen-based Ferrostaal and HDW shipyards, gave that money to E. in the form of a bribe payment to ensure he wouldn’t stand in the way of the plan. E. is thought to have received the money via shell companies in the Marshall Islands and Hong Kong as well as through his lawyer. He denies the accusations, saying that the payments were legitimate commission fees.”

Legitimate fees. To himself, personally. Suuuure. This part was also interesting:

“For the first time, Greek justice is reaching really high up,” Aristides Hatzis, a legal professor at the University of Athens, told the New York Times recently. “One reason is that the public desire for catharsis is strong. Another is that the political system is weak and has too much to lose by trying to intervene. It risks being exposed.”

Sources: Der Spiegel, “More Arrests: Greece Makes Progress on Arms Deal Corruption”.

Jan 13/14: Investigation. The U-214 affair has led to 2 more arrests. Yiannis Beltsios is a 63 year-old former associate of the jailed former minister Akis Tsochatzopoulos, who is serving a 20-year sentence over defense-related bribes. The 2nd person was 61 year-old Sotiris Emmanouil, the former chairman of Hellenic Shipyards. What’s going on? The indictment reportedly says that:

“…[Beltsios] with two foreign nationals (a German and an Armenian citizen) and three Greek nationals (Alexandros Avatangelos and Michail Matantos, both of whom have already been charged, and another person), he handed over German bribes totalling [EUR] 63,192,691 and [SFR] 2,960,225… to Tsochatzopoulos and to Sotiris Emmanouil…. Emmanouil was also arrested on Monday morning, after anticorruption investigators, who have heard explosive testimony about the submarine deals from a number of people in recent weeks, issued warrants for the two, who they suspected would attempt to escape justice.”

Reports peg Emmanouil’s bribe at EUR 23 million, while Belisios allegedly picked up EUR 3 million for middleman services. Sources: Enet English, “Getting to the depths of the bribes for submarines scandal” and “Two more arrests in bribes for subs scandal”.

Jan 8/14: Batteries. Greece needs to keep its 3 remaining Glavkos boats and 3 operational Poseidon boats, while it waits for its new submarines to be delivered and become operational. Accordingly, the Greek Ministry of Defence approved the EUR 16.9 million buy of 6 acid-lead submarine battery sets from Sunlight SA.

Jane’s reports that HS Okeanos [S-118] is currently undergoing the Neptune II upgrade at at Hellenic Shipyards in Skaramangas, which includes full refurbishment and hence doesn’t require an additional battery purchase. Note that even the newer U209-1200 Poseidon Class boats are 34-35 years old, while the U209-1100 Glavkos Class boats are 35-42 years old. New batteries or not, the clock is ticking. Sources: IHS Jane’s Defence Weekly, “Greece buys new batteries for Type 209 submarines”.

Dec 19/13: Politics. The leftist Syriza party loses a 120 – 167 vote in Parliament to launch a formal inquiry into the “stalled” deal to finish 3 U-214 submarines at Hellenic Shipyards. The investigation would have focused on Socialist PASOK leader Evangelos Venizelos, who was defense minister in 2010 when the revised submarine agreement was negotiated. SYRIZA leader Alexis Tsipras says that shipyard employees have been unpaid since work stopped in 2012, and says to Venizelos: “Either you were the victim of a major scam… or you were part of it”. As Xinhua notes:

“The contract was an extension of a deal signed by former Defense Minister Akis Tsochatzopoulos who is currently serving jail term for laundering of money allegedly deriving from kickbacks for lucrative defense contracts…. On its part, the [shipbuilding] consortium said financial problems has pushed for the dismissal of most of the approximately 1,000 employees [at Hellenic Shipyards], who have launched industrial actions for months, demanding backpay.

Athens eventually reached a deal with creditors on Tuesday regarding the restructuring of EAS [Hellenic Defence Systems] next year, gaining the “green light” for the disbursement of the one-billion-euro installment. On Wednesday current Defense Minister Dimitris Avramopoulos pledged a similar comprehensive solution to the Skaramangas’ [Hellenic Shipyards] problem soon.”

Since PASOK is currently part of a governing national unity coalition, the government wasn’t going to agree to any investigations. Sources: ANSA Med, “Greece: SYRIZA loses submarine deal probe bid” | China’s Xinhua, “Greek parliament rejects controversial shipyards, submarine agreement inquiry”.

Aug 27/13: Investigation. A tax audit at Rheinmetall-Defence-Electronics has opened a can of worms, and pointers to alleged bribery concerning the Greek submarine sale now have prosecutors searching the offices of Rheinmetall-Defence-Electronics (EUR 9.1 million alleged) and Atlas Elektronik (EUR 8.5 billion). Sources: Defense News, “Germany Probes Alleged Bribery in German-Greek Submarine Deals”.

May 3/11: Investigation. Make that EUR 120 million, and now the figure comes from legal depositions. Ekathimerini:

“At least 120 million euros was paid in bribes by the German firm that struck a deal with the Greek government for the sale of four navy submarines, according to German court documents seen by Kathimerini… Two former executives of Ferrostaal, the Germany firm that was part of the consortium which won the contract, gave depositions in Munich concerning the kickbacks paid to secure the deal, which was worth just over 1.2 billion euros.”

March 28/11: Investigation. Greece’s financial crimes squad (SDOE) delivers its report. Make that EUR 100 million in bribes:

“Politicians, civil servants, military officials and middlemen are thought to have been paid off as part of the deal. Sources said that probes into the bank accounts of some Greek shipyard unionists also revealed money that was unaccounted for. Last week, a prosecutor called 37 people to answer questions about bribery allegations…”

Many of the Greek U214 fleet’s custom features were reportedly inserted as a way of padding the bill, and allowing more under-the-table payments to be hidden. The revelations also spark a political controversy, as the current socialist PASOK government was in charge when the deal went down. Ekathimerini.

Feb 27/11: Investigation. An investigation by Greece’s financial crimes squad (SDOE) has concluded that 3 former ministers, and several other public officials, should face prosecution for corruption. The allegations are that U-214 consortium partner Ferrostaal paid EUR 10 – 12 million in bribes to secure the EUR 1.26 billion deal.

The SDOE is due to deliver its findings to the Athens Prosecutor’s Office at the beginning of March 2011. Greek judicial authorities will then make a request to German authorities for details of the financial transactions involved, while asking for the bank accounts of all alleged conspirators to be frozen. Ekathimerini

March 11/10: Negotiations. Media reports quote Greek Defense Minister Evangelos Venizelos, who says that:

“We have reached a solution, which should be signed [March 18] and which protects the interests of the Greek navy as it means it will finally receive modern, functional submarines.”

Reports say that Greece will acknowledge receipt of the Papanikolis, then sell it to a third party. In return, TKMS will drop a compensation claim for breach of contract. Agence France Presse.

March 1/10: Industrial. Greece approves the sale of Hellenic Shipyards from ThyssenKrupp Marine systems to Abu Dhabi MAR. The new joint venture will be led by ADM with 75.1% of the share capital of Skaramanga shipyard (HSY), with ThyssenKrupp Marine Systems retaining 24.9%. The move gives ADM something its October 2009 acquisition of large chunks of TKMS did not include: submarine construction capability.

ThyssenKrupp Marine Systems picked Abu Dhabi MAR in January 2010 as the preferred bidder for a majority stake; no details were disclosed, but TKMS had reportedly said in the past that the shipyards, which depend on Greek navy orders, would be sold at the price of one euro. TKMS reportedly received 5 bids for HSY, but found only Abu Dhabi MAR’s to be acceptable. Khaleej Times | Reuters.

Oct 21/09: Negotiations. Kathimerini reports that Greek Defense Minister Evangelos Venizelos held talks with ThyssenKrupp Marine Systems CEO Hans Christoph Atzpodien, in a bid to resolve the submarine issue. The basic framework of the deal appears to involve TKMS retaining the Papanikolis for resale, and the other 3 U214 submarines being accepted by Greece pending certain defined criteria. It adds:

“Sources said that ThyssenKrupp appears determined to quit its involvement in [Hellenic Shipyards SA] as early as next month, despite government concerns about the job losses that this might cause. There were, however, discussions between the two sides about how some private involvement in the shipyards could continue… An unidentified third country is reported to be interested in buying the [Papanikolis] and the two sides have agreed that selling it would be the best way out… The two men reportedly agreed that if the technical problems are ironed out, Greece will accept delivery of the remaining three submarines.”

July 2/09: Turkey Subs. ThyssenKrupp Marine receives a EUR 2.5 billion contract with Greece’s rival Turkey for 6 U-214 submarines, supplemented with Air-Independent Propulsion technology. They will be built at the military-owned Golcuk Shipyard near Izmit, using pre-built sections and equipment supplied by HDW, as well as Turkish electronics and items. Delivery is expected in 2015. Read DID’s “Turkey Subs” for more.

May 28/09: Negotiations. The Hellenic Navy’s Chief of staff, vice-admiral George Karamalikis, announces the future direction of Greece’s naval procurement. among these items, DefenceNET Greece reports that:

“The HN has decided to accept the 3 T 214 submarines that are being constructed in Greece but the first submarine of the PAPANIKOLIS class, that was build in Germany, is not going to be received by the Navy. Instead, a new submarine will be ordered, in order to fulfill the demand for 4 T 214 submarines.”

Feb 26/09: Neptune II. Greek U-209/1200 submarine HS Okeanos (S118) is re-launched at Hellenic Shipyards in Skaramangas, following a mid-life refit that added Air-Independent Propulsion. It is the first submarine to be re-launched under the Neptune II program. Sources: IHS Jane’s, “Greek submarine force could go under as TKMS cancels two contracts”.

Appendix A: Contracts Under Water – Greece’s Default (2009)

Greece is trying to cancel its 4-boat contract, but that could be expensive, in several ways. The other 3 submarines are reportedly complete now, or very close to it. Pipinos was launched in April 2007, Matrozos followed in 2008, and Katsonis was launched at the end of 2008. Not one of them has been accepted for service. Sources currently report payments to TKMS of almost EUR 2 billion, but also accumulated payment arrears of EUR 524 million ($770 million): EUR 300 million claimed by Hellenic Shipyards SA, and EUR 224 million owed to HDW.

Greece is facing very large budget deficits, expected to grow to 6% of total GDP in 2009. By dragging the problem out, the government can delay payments and possibly create enough pressure to renegotiate the price.

In January 2009, Greek Defence Minister Evangelos Meimarakis lent credence to this view when he said that he would try to renegotiate the submarine contract. In May 2009, there were rumors of a deal that would have Greece accept the other 3 submarines once Pipinos passes acceptance trials, while HDW would be left with Papanikolis and could resell it elsewhere.

TKMS’ filing and notification indicate that these options have all failed. “The Greek state has long ceased to honour its contractual obligations,” said TKMS’ release announcing its cancellation of the contract for default. Commerzbank AG analyst Dirk Nettling is even more succinct: the Greek government “can’t pay, won’t pay, or has other priorities.” As a result, a TKMS spokeswoman told Jane’s that “…continuation of the contract is no longer economically justifiable.”

The cancellation is also set to affect the Neptune II project to upgrade and refurbish Greece’s existing U-209 boats by adding Air Independent Propulsion systems. While S118 has been accepted and re-launched, Jane’s reports that this contract has also been canceled.

This leaves the Hellenic Navy with something of a problem. Submarines have a limited safe lifespan, in part because of the regular squeezing and release of water pressure on their hulls. The youngest Type 209s are already pushing 30 years, which is a long time. Very few submarines can safely last beyond 40 years in service, a milestone that even refurbished Neptune II project boats would reach in 2020.

Given a required lead time of several years from orders to fielding, and the issues that a sustained contract cancellation would raise with potential builders, Greece may find itself with a limited window of just a few years to work out a new submarine strategy and place an order. The alternative would be a submarine force that could face significant operational limitations – and perhaps even no submarine force at all.

A problem its rival Turkey would not have, since Turkey is set to begin inducting 6 of its own U-214 submarines, beginning in 2015.

Additional Readings & Background

Re: “Archimedes Project.” As most of our readers know, the ancient Greek scientist Archimedes is best known for Archimedes’ Principle: a body immersed in a fluid is subject to an upward force (buoyancy) equal in magnitude to the weight of fluid it displaces. He also invented the lever, the compound pulley and Archimedes’ screw, and was reportedly involved in inventing weapons used during the war between Rome and his city of Syracuse. Archimedes was killed in that war, despite orders from the Roman general that he should not be harmed.

* Hellenic Shipyards – Official Site. No longer has permanent URLs for specific pages, and not much content anyway.

* TKMS – HDW Type 214

* Naval Technology – U212 / U214 Submarines, Germany

* GlobalSecurity – Type 209

News & Views

* DID – German Shipbuilding Restructured: UAE’s Firm Buys Blohm+Voss. That deal fell through, but TKMS also sold Hellenic Shipyards.

* European Public Affairs (May 19/14) – Greek Defense Corruption.

* Deutsche Welle (April 9/14) – Greek families struggle to survive economic crisis. The profiled family depended on Hellenic Shipyards, where nobody actually works now and 2 submarines are slowly rusting.

* Die Zeit (Jan 11/12) – Greece still splashes out billions on defence. Despite massive EU bailouts.

* Der Spiegel (June 2011) – Codename Gebetskreis [in German]. Translates as “prayer circle.” The article details Ferrostal’s role distributing bribes on behalf of HDW to a number of clients, including Greece.

* Defencenet.gr (May 27/09) – Navy “No” to Papanikoli, “yes” to the other three 214s [in Greek, rough translation]

* Bosphorous Naval News (March 4/09) – Greek Naval News