"At the moment the German consortium is the better option, it has the better price, it is roughly 100 million euros (115 million dollars) cheaper than that of the French," he told reporters following a weekly cabinet meeting.

The German bid also offered better technical and logistical support, the minister added.

The consortium led by DCN had proposed supplying two submarines for 949.9 million euros, while the consortium led by Howaldtswerke-Deutsche Werft AG (HDW) asked for 845.6 million euros.

Portugal had originally launched a tender for three new submarines in 1998 but in February the country's centre-right government scaled back the order as part of a wider effort to contain a budget deficit that threatens to breach European Union limits.

HDW, whose German Submarine Consortium also includes submarine yard Nordseewerke GmbH and Ferrostaal, and DCN, whose consortium includes Spain's Izar, initially submitted bids for three submarines in 1998.

The two consortiums revised their proposals in 2000 and most recently in June to take into account the reduction in the size of the submarine order.

Portas said the government would now seek comments from the two bidders before making a final decision.

HDW, the world's leading maker of non-nuclear submarines, was bought last year by the US investment fund One Equity Partner.

Portugal's current fleet of submarines is to become obsolete in 2006, but the new submarines are only expected in 2008 at the earliest.

The submarines are to be used to patrol Portugal's coast and help fight drug trafficking, according to the defense ministry.

WAR.WIRE