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.