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TORONTO/OTTAWA (Reuters) - Canada will sign contracts with shipyards in Nova Scotia and British Columbia under a C$35 billion ($35 billion) shipbuilding program, the largest in the NATO country's history.
The government set up the program to revive Canada's shipbuilding industry while modernizing its Navy and Coast Guard, which are still operating some ships that are a half-century old.
The new vessels will play an important role as Canada asserts its sovereignty claims in the Arctic, a disputed region rich in energy and mineral resources.
Halifax's Irving Shipbuilding Inc and Seaspan Marine's Vancouver Shipyards Co Ltd have won the right to negotiate contracts to build a total of 28 vessels, the federal government said on Wednesday.
Irving will build warships, worth about C$25 billion, while Seaspan will negotiate to build large non-combat ships, worth about C$8 billion.
At a later date, Ottawa will award C$2 billion in contracts for smaller non-combat vessels - a deal that could go to the only bidder that was shut out on Wednesday.
That was a joint venture involving Canada's SNC-Lavalin Group and South Korea's Daewoo Shipbuilding and Marine Engineering. Its exclusion is sure to disappoint the French-speaking province of Quebec, which was counting on a contract to keep its 200-year-old Davie shipyard operating.
While the country's frigates are relatively new, some Coast Guard and the Navy's support ships badly need replacing.
"The current ships are about to just crumble and fall apart. If we're going to go anywhere with our ships, you need those new ships to sort of support them," said Ugurhan Berkok, chair of Defense Management Studies at Queen's University in Kingston, Ontario, and a professor at the Royal Military College of Canada.
That's especially important because of the Conservative government's focus on Arctic sovereignty, Berkok said.
Canada claims a large swath of the Arctic including the Northwest Passage, which could become an important shipping route as climate change melts away the northern ice cap. Several countries, including the United States, contend that the passage is international waters.
The multiple-ship procurement program marks a shift away from a policy of placing piecemeal orders, a move intended to assure predictable, long-term work for Canadian shipyards.
Shipbuilders in the United States have agitated for a similar shift with less success, although the U.S. Navy last year awarded Lockheed Martin Corp and Austal contracts valued at more than $3.5 billion each to build 10 warships.
While Berkok agreed that the large-scale procurement is efficient, he said the government could have paid less if the ship were built outside Canada. That option wasn't even discussed, he said.
"Basically what you're buying is, you're buying an industry," he said.
With thousands of jobs at stake, the federal government took pains to avoid accusations of favoritism. The program is being run by a special quasi-independent secretariat, and the government hired outside consultants to evaluate bids and attest to the fairness of the process.
University of Toronto political science professor Nelson Wiseman said the process would probably not give much comfort to voters near Davie, close to the heart of the Conservative government's support in Quebec.
But he said the controversy will be over by the next election. "I don't think the issue has legs beyond a year," he said.
Reporting by David Ljunggren in Ottawa and Allison Martell in Toronto; additional reporting by Andrea Shalal-Esa in Washington; Editing by Frank McGurty