Monday, February 07, 2011

RM6 billion for 6 Offshore Patrol Vessels - Deal?

Defence Minister Datuk Seri Zahid Hamidi announced the order for 6 units of offshore patrol vessels (OPVs) for the amount of RM6 billion from Boustead Naval Shipyard Sdn Bhd two days ago.

While it is understood that the price is yet to be “finalised”, it brings to questions the practice by the Ministry of Defence (MoD) to award contracts well before the terms of the contract, including the price, have been finalised. Last year, MoD awarded another RM8 billion contract to purchase 257 8x8 Armoured-Wheeled Vehicles (AWVs) from a DRB-Hicom subsidiary when the latter has not even built a prototype vehicle for testing. These contracts were also awarded with no competitive bids which raise the likelihood of massive leakages in the process.

What is the point of making major announcements on such awards, including the value of the contracts when the Government will subsequently explain that “everything is still subject to finalisation of specifications and negotiations on price”? In that case, isn’t it better to finalise the specifications, conclude the price before the relevant announcements?

A cursory check on the prices of OPVs revealed a wide range in prices per ship. The Royal New Zealand Navy (RNZN) took delivery of its 85-metres 1,500 tonnes OPVs from world-renown global defence and security company, BAE Systems last year at the cost of NZ$90 million each or approximately RM210 million. The OPVs were built for maritime counter-terrorism, surveillance and reconnaissance, surface contact detection, apprehension and escort of vessels as well as maritime search And rescue (SAR).

The Irish Roisin class will cost US$34 million (RM103m), the Greek Super Vita US$108 million (RM329m), the German Type 130 US$188 million (RM572m) and the Israeli Saar V US$260 million (RM791m) each. The MoD’s price tag of RM1 billion per OPV is between 26% and 870% above the cost of the various international-class OPVs listed above.

Even at the very top of the range, ships were to be built by Lockheed Martin and General Dynamics, two of the best and biggest military companies in the world were to build the US “Littoral Combat Ships (LCS)” at a budget of less than US$300 million (RM913m) in 2004. These ships are sized at 115 metres and 3,000 tonnes and fully equipped for full-scale anti-mine warfare, anti-submarine warfare as well as surface warfare. The ships will even have helicopter hangers built on its deck and equipped with the most sophisticated combat data weapons system.

The obvious question then, is whether the Government is procuring the construction of OPVs nearer the Irish Roisin class or closer to the US LCS? And if we are indeed making an order for the best-in-class LCS type ships capable of fighting a full scale surface and submarine warfare, does Boustead even have the skills and technology to make these ships?

Finally, it should be noted that even the most advanced defence countries in the world such as the United States procure military construction and defence equipment via competitive bids, open to world class international companies from Canada, Australia and Europe to achieve the best value for its money. In addition, the defence budget and expenditure is not only monitored by the Congressional Committee on Defence, it is also the approving authority for specific budgets for weapons related development including the LCS.

The MoD must practise increased transparency and professionalism in its award of contracts to ensure that the interest of the rakyat are fully protected and money taxed from the people are not wasted on over-priced projects. Otherwise, the call by the BN government for the people to absorb subsidy cuts on basic goods and services to rein in the widening budget deficit only smacks of hypocrisy.
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