Wednesday, March 09, 2011

Defence Ministry on a Shopping Spree

After the recent award of a RM6 billion contract to Boustead Naval Shipyard to build 6 offshore patrol vessels in early February, it was announced by DRB-Hicom Bhd on Bursa Malaysia yesterday that it has secured a RM7.55 billion contract from the Ministry of Defence to supply 257 units of 8x8 Armoured-Wheeled Vehicles (AWC) or Armoured Personnel Carriers (APCs).

The award which was made on 23 February is for Deftech Sdn Bhd, a wholly-owned subsidiary of DRB-Hicom Bhd to “design, develop, manufacture, commission, supply and delivery” of the vehicles over a 7-year period at an average price of RM29.4 million for each unit.

I had first raised this issue in April last year, when the letter of intent was first given to Deftech Sdn Bhd for a proposed RM8 billion purchase. I had then given several comparisons on the cost of APCs which have been acquired by other countries recently which are at substantially lower costs.

The Portugese Army bought 353 Pandur II 8x8 armoured vehicles for the amount of EUR364 million (RM1.56 billion) or only RM4.4 million each. The latest version of Piranha III 8x8 armoured-wheeled vehicle developed by the Swiss MOWAG GmBH cost only US$1.2 million, or RM3.9 million.

And in 2009, the U.S. Army has awarded a USD$2.2 billion contract to General Dynamics Land Systems-Canada, one of the best military vehicle and equipment manufacturer in the world, for 724 Light Armored Vehicles (LAV) or equivalent of US$3.04 million or only RM9.9 million each, meant for Saudi Arabia!

Further research has revealed that DRB-Hicom will be acquiring the AWC technology from Turkish company – FNSS Defence Systems Inc which manufactures the Pars 8x8 AWV models. With this deal, Malaysia will be its first foreign customer for this vehicle. What is perhaps of greater alarm is the fact that FNSS has announced that they have sold 257 units of Pars 8x8 AWVs to Malaysia for approximately US$600 million or RM1.83 billion or only RM7.1 million per unit.

As reported by Defense Update (http://defense-update.com), a well-regarded online defense magazine, “the cost of the new vehicle seems excessively high - about US$9.8 million per unit. Malaysian defence officials explained that these figures represent the total life cycle cost of the program, including which usually includes design, development, logistical support and sustainment as well as non-recurring engineering costs and investments associated with the set-up of local production facilities in Malaysia to develop its armoured vehicle manufacturing. Yet, even when considering a 250% mark-up to cover such the price tag on the new Malaysian vehicle seem odd.”

The Minister of Defence must explain the glaring gap between the cost of the AWC vehicles and the price to be paid by the Malaysian Government, especially since the award to Deftech was made without any open tenders, just like the RM6 billion award to Boustead Naval Shipyard.

The trends towards mega-military acquisitions without the accompanying transparency and accountability as demanded by the Prime Minister’s own Government Transformation Programme makes a mockery of the call for “reform”. The escalating defence spending is also a direct affront to the Government’s attempt to reign in the ballooning budget deficit, which has resulted in various attempts to curb spending by cutting subsidies for the man-on the street.
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