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Thread: Defense: Atrocious defence procurements a microcosm of failing state

  1. #1
    Join Date
    Oct 2008

    Defense: Atrocious defence procurements a microcosm of failing state

    Atrocious defence procurements a microcosm of failing state — Kim Quek

    October 26, 2011
    OCT 26 — How would you feel as a taxpayer if someone tells you that our defence ministry pays RM7.55 billion for some armoured vehicles that are actually worth one quarter of the price?

    If you really know what RM7.55 billion (or RM 7,550 million) means, you would most probably be stunned and exclaim: “Is our government that bad? Are they really so daring?”

    The answer is yes. And the drama is unfolding right in our Parliament, and not just as anonymous allegations in some websites.

    Member of parliament Tony Pua asked Defence Minister Zahid Hamidi in Parliament why the ministry was paying the exorbitant price of RM7.8 billion for 257 wheeled armoured vehicles, and Zahid’s answer was that the ministry had no knowledge of the figure as claimed by Tony, saying the finalised contract price was for RM7.55 billion.

    Zahid added that he also knew nothing about the deal that enabled the supplier to procure the same armoured vehicles from Turnkey at less than one quarter of the price to MinDef.

    But Zahid’s denial fell flat, as Tony pointed out that Zahid himself witnessed the signing of the agreement that sealed the deal in Ankara, Turkey in February this year between the Malaysian supplier Deftech and the Turkish defence manufacturer FNSS, a joint venture between BAE Systems Inc of the UK and Nurol Holding of Turkey.

    The deal was reported in a press release dated June 3, 2011 in the BAE System Inc website as a US$559 million (RM1.8 billion) contract awarded to FNSS for the “design, development and manufacture of 257 Deftech AV-8 8x8 wheeled armoured vehicles and Integrated Logistics Support for the Malaysian Armed Forces”.

    The vehicle, though tagged “Deftech”, is actually a “FNSS-designed PARS 8x8 multi-purpose, multi-mission, wheeled armoured vehicle”.

    Atrocious price hike

    This means that the Malaysian government is paying Deftech RM7.55 billion (RM29.4 million each), which it in turn pays FNSS RM1.7 billion for these 257 vehicles (RM6.6 million each).

    If you, as a taxpayer, are incensed by this daylight robbery of RM6 billion from public coffers, wait till you hear of market prices that are even much cheaper than that offered by FNSS.

    Tony Pua in a statement dated March 9, 2011 in his blog reported the following prices for the equivalent armoured vehicles transacted or offered in the market:

    • The Portuguese Army paid RM4.4 million each for the Pandur II 8x8 armoured vehicles (€364 million for 353 units).

    • The latest version of Pirahan III 8x8 armoured wheeled vehicle developed by the Swiss MOWAG GmBH costs RM3.9 million each (US$1.2 million).

    With these prices as reference, it is reasonable to expect that, had MinDef conducted an open tender and sealed the deal at arm’s length, we could have slashed the purchasing price down to no more than RM4.5 million from the present RM30 million each, bringing the total contract sum to RM1.15 billion instead of RM7.55 billion.

    This means that the Barisan Nasional government has hiked the price by six to seven times through its defence procurement policy that totally lacks transparency and accountability. Such an astronomical scale of artificial cost inflation is so mind-boggling that it is probably unheard of even in the most corrupt of countries.

    Outrageous spending spree

    And this armoured vehicle deal is only one case amidst defence ministry’s multi-billion spending spree that saw it splurging on patrol boats and helicopters at equally outrageous prices.

    For instance, it is purchasing six offshore patrol vessels (OPV) from Boustead Naval Shipyard Sdn Bhd at RM1 billion each (total price RM6 billion), which is five times what the Royal New Zealand Navy paid for its OPV, procured at only RM210 each (NZ$90 million) from the world renowned BAE Systems, the second largest global defence company.

    Similarly, Malaysia is buying the Eurocopter EC725 helicopters at RM190 million each (RM2.3 billion for 12 units) while Brazil purchased the same helicopters at only RM82 million each.

    A quick glance at the figures for these three contracts alone — armoured vehicles, patrol vessels and helicopters — would indicate that there could have been a total leakage of RM12 billion arising from these dubious MinDef transactions.

    For this amount, we could have provided low cost housing for a quarter million families, housing more than a million have-nots.

    That Malaysia’s opaque defence procurement is a hive of corruption is well known among international defence executives and documented in a recent exposure from WikiLeaks, which revealed US Embassy cables during 2004–2009 recording conversations with relatives and agents of Malaysia’s top politicians including the then-prime minister Abdullah Ahmad Badawi and his deputy (now prime minister) Najib Razak.

    Besides giving specific instances of corruption, the US cable also alluded to such corruption as a major source of political funds that sustains the local power structure.

    Unacceptable draining of resources

    Looking at the larger picture, the leakages of the three contracts mentioned above is only a small corner of massive leakages that pervade the entire procurement system of the BN government, as starkly reminded by the freshly released annual report by the Auditor General.

    Such annual reports, which unfailingly chronicle widespread corruption and management failure (some to unimaginable extremes) serve as regular reminders that we have been stuck with an entrenched system of governance that extensively and continuously drains our reducing resources.

    But if we were to realise that what the Auditor-General reports is only the tip of the iceberg, as he can only cover a small fraction of the sprawling government bodies every year, don’t we have reason to be concerned, very concerned?

    And do we see any remedy through institutional reforms under the present political leadership?

    From the deteriorating credibility of our institutions and federal leadership, isn’t it apparent that the needed remedy cannot be instituted through political solutions?

    Only through a change of political leadership can we bring sweeping reforms to the country.

    * This is the personal opinion of the writer or publication, and does not necessarily represent the views of The Malaysian Insider.

  2. #2
    Join Date
    Oct 2008
    After NFC, navy vessels scandal next

    Mohd Ariff Sabri Aziz | December 23, 2011
    How did the cost of six offshore patrol vessels increase by RM3 billion each and why were there no payment vouchers?

    Over the last 10 years, we lost over RM1 trillion through illicit transfer.

    To say that the Barisan Nasional government hides a monumental submerged portion of financial excesses and rip offs is an understatement.

    In this context the current National Feedlot Corporation fiasco involving RM250 million is just a tip of the iceberg.

    We are, in fact, readying ourselves now for the exposure of the next big financial scandal…and the next!

    Immediately the next possible source of financial legerdemain, with all the necessary ingredients of manipulations and underhand moves, is certainly the cost of six offshore patrol vessels from Boustead Naval Shipyard Sdn Bhd at RM1 billion each.

    The cost has now increased by an unexplainable RM3 billion. How does Boustead get into the vessel building business?

    Now, the history of the Malaysian Navy’s purchase of weaponry is a dismal one.

    So, let’s get into a little history lesson.

    Contract cost ballooned

    The original contractor chosen to build Malaysia’s first generation naval vessels was PSC-Naval Dockyard. It was controlled by Amin Shah Omar Shah and his brothers.

    (Amin Shah, 53, was reportedly a high-profile tycoon known for his close ties to former Finance Minister Daim Zainuddin. This was during the era of former prime minister Tun Dr Mahathir Mohamad.

    (Under the 1990s privatization programme advocated by Mahathir, Amin Shah was among the few bumiputera entrepreneurs who were able to secure government concessions and contracts. And one of these key contracts was the Naval Dockyard in Lumut.

    (In 1995, the government privatised the Naval Dockyard to the then PSC Industries Bhd (PSCI), for RM300 million. Amin Shah had a substantial stake in this and the dockyard was renamed PSC-Naval Dockyard Sdn Bhd.

    (In 1998, PSC-Naval Dockyard was awarded a mammoth RM24 billion contract to build 27 offshore patrol vessels for the Royal Malaysian Navy.)

    By mid 2006, only two of the 27 offshore vessels (worth RM24 million) were delivered. But both failed to pass the pre-delivery trials.

    There were 298 recorded complaints about the two boats, which were also found to have 100 and 383 uncompleted items aboard them respectively.

    The original RM5.35 billion contract ballooned to RM6.75 billion by January 2007.

    No payment vouchers or documents

    The auditor also reported that the Defence Ministry had paid out RM4.26 billion to PSC up to December 2006 although only RM2.87 billion of work had been done, an overpayment of RM1.39 billion, or 48 percent.

    In addition, Malaysia’s cabinet waived late penalties of RM214 million.

    According to the Auditor General, 14 “progress payments” amounting to RM943 million were paid out to PSC from Dec 1999, but there were no payment vouchers or relevant documents dealing with the payments.

    How did the government explain such blatant abuses of financial discipline?

    On what authority was the ministry authorized to pay money for jobs not yet completely done or not even done yet?

    The Auditor General attributed the failure to serious “financial mismanagement” and “technical incompetence” stemming from the fact that PSC had never built anything but trawlers or police boats before being given the contract.

    These terms must be the world’s biggest oversimplification.

    “Financial mismanagement” is plain corruption and “technical incompetence” is mental deficiency.

    The writer is a former Umno state assemblyman and a FMT columnist.

    RM11m wasteful defence ‘consultancy’ fees

    Syed Jaymal Zahiid | December 23, 2011
    Zaid Ibrahim believes defence consultants are being used to channel corruption money gained from possible kickbacks.

    PETALING JAYA: Former law minister Zaid Ibrahim today demanded an explanation on the government’s need to hire consultants for defence procurement, particularly for the recent purchase of six patrol vessels (SGPVs).

    Zaid, the Kita president, said as much as RM11.3 million were paid to several defence consultancy firms on the purchase in a transaction shrouded in secrecy at the expense of taxpayers money.

    Documents provided by Zaid showed Boustead Naval Shipyard, former government defence contractor now privatised, had paid fees to European-based firms for “technical evaluation” fees through a Singapore account.

    The former minister believed the employment of “agents” to purchase defence was not of military necessity but “necessary to channel corruption money” gained from possible kickbacks.

    “Why is there a need to hire agents? We could easily save (millions) if we let the users (military) themselves decide on what to get,” he told reporters here.

    The Najib administration had recently come under fire for the escalating cost of the SPGVs – from RM6 billion to RM9 billion – in a contract claimed to be rife with discrepancies, denting Prime Minister Najib Tun Razak’s pledges to ensure accountability in government procurement methods.

    The SPGVs are designed and built by controversial French defence contractors DCNS which is the subject of immense scrutiny.

    Bureaucracy is money

    DCNS had also supplied Malaysia with the Scorpene submarines in another scandalous deal with purportedly links to a murder of a Mongolian woman and kickbacks worth RM500 million involving persons close to Najib.

    The deal is now under investigation by the French authorities.

    Zaid said Defence Minister Ahmad Zahid Hamidi must explain on the purchase of the second generation SPGVs from DCNS, especially when Malaysia had already spent RM300 million to purchase the first generation design.

    Owning the design was a cost-cutting move so that Malaysia could add additional SPGVs and merely upgrade it with new technologies but based on the original design.

    Stopping the use of third parties for defence procurement is one of the ways to curb corruption in the industry, said Zaid.

    “We should let the army, navy and airforce to determine on these purchases and not use ‘professionals’ for these procurement,” he said, describing the move as an “outsourcing” process that thickens bureaucracy and paved way for corruption.

    Zahid had previously denied any wrongdoing in the SPGV deal and shrugged off demands to disclose contract details on the basis of national security.

    Zaid said the “national security” reason was often an excuse to categorise defence procurement contracts as official secrets in a bid to conceal the abuse of power in the process.


  3. #3
    Join Date
    Oct 2008

    The emergence of invoices totaling millions of ringgit in relation to the purchase of the six naval patrol vessels raise the concern of kickbacks, echoing the Scorpene submarine deal.

    According to invoices leaked to Kita president Zaid Ibrahim, three 'agents' were paid a total of RM11.36 million for "technical assistance" in connection with the purchase from French arms dealer DCNS.

    "Why can't the navy determine what is required by the navy, instead of these consultants? Unless this is necessary to channel corruption money," he said when met in Tropicana today.

    Refusing to reveal his source, Zaid said the companies had received payments in Euro to foreign currency accounts in Singapore from 2010 to April 2011.

    According to a Oct 25, 2010 invoice, Sousmarin Armada, received 935,000 euros for "technical services fees for system infrastructure configuration, system engineering and evaluation, commercial negotiation and selection of design partners for the Second Generation Patrol Vessel project."

    The invoice was made out to Boustead Naval Shipyard Sdn Bhd, which won the contract for the six vessels, by the company purportedly based in Paris. The amount was paid in two parts on Oct 28 and Nov 1, 2010.

    Based on leaked documents, the same company issued anther invoice for the same service on Nov 3, 2010 for 986,000 euros and was paid the same month.

    Setaria Holdings Limited, said to be based in Brussels, had last February invoiced Boustead Naval Shipyard 850,000 euros for "technical evaluation and integration parameters of equipment and systems... for the second generation patrol vessels".

    Setaria also issued two other invoices to Boustead Naval Shipyard for 832,000 euros and 725,000 euros respectively.

    Both Setaria and Sousmarin Armada cannot be independently verified.

    Singapore bank accounts

    Another company, JSD Corporation Pte Ltd said to be based in Singapore, invoiced Boustead Naval Shipyard for 312,000 euros in April this year.

    According to the invoice, the service provided was "technical evaluation for MRG, SRG, SAM, SSM, hardware system, subsystems and completeness, software items, auxiliary or subsystem hardware, deliverable and completeness, test specification, modularity, redundancy and open architect for the second generation patrol vessels".

    The company's website reveals that it provides technical service for aviation maintenance, repairs and overhauls, specialising in the Boeing 747, 737 and non-military Kazaan helicopters.

    Incorporated in 1989, JSD also sells toy cars, boomboxes and remote keychain luggage finders.

    All three companies, despite two being based in Europe, received payment through foreign currency accounts in the Singapore branches of Standard Chartered Bank and OCBC.

    "Somebody has to stop this practice... as this is the reason our security is compromised. The army and naval forces have no say over the purchases and we pay too much for equipment that don't work," Zaid said.

    He added that if Boustead wanted to buy from DCNS, it could have gone straight to the suppliers and not through these middlepersons, adding to the final price.

    "Boustead is paying these agents, but they will recoup this through the price quoted to the government," he said.

    "Until today, we still don't know how the price of the six vessels had gone up from the initial RM6 billion to RM9 billion."

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