The details surrounding Pakistan's submarine purchase from China aren't clear. For one thing, the Financial Times claimed the deal was set at $4-5bn U.S.
I understand a surcharge for financing, but that was quite high. I personally felt it was a naval package, one that could include frigates and/or FAC on top of the submarines. That wasn't the case. The Pakistani Minister of Defence said the acquisition involved S20 submarines, but the Minister of Defence Production declined to offer specifics.
So here's my theory.
The Pakistan Navy is acquiring customized S20s. I can't speak to whether the above would constitute the $500mn+ unit cost, but I think the following could necessitate the higher cost.
First, the "APR" on whatever long-term financing agreement Pakistan was able to get from China. This is not a bad thing, Pakistan's not an economic miracle at the moment, and it doesn't seem to have any guarantors in the Gulf to back its contracts. Thankfully, China was willing to give us the benefit, so I think it is fine that we compensate them for the trust.
Second, the possibility of sourcing third party electronics and sonar, potentially from Turkey, Italy, etc. I expect we'll see a mix of subsystems on this front.
Third, torpedo tube modifications. We want to build out our assured second-strike capability, I expect there's going to be some work to ensure we have tubes that are large enough to carry the Babur LACM.
Fourth, the AIP. I'm not even sure what's happening here. I know the S20 was being marketed without AIP, requiring the customer to buy them seperately. Now, does this mean that Pakistan could buy them separately from China? Or does Pakistan have to buy them from a third party? If Pakistan has to source them from the West, then the cost differential makes a lot of sense.