The RM6 Billion OPV contract for the Navy, Sorry Tony Pua you are definitely not a defense expert

"Now Pua’s analysis of ship prices is very much the approach of those unfamiliar with the defence field, namely to look on the internet for news reports of contracts on similar type ships and then contrast prices, unfortunately it doesn’t quite work that way for defence contracts for several reasons, first off, the Second Generation Patrol Vessel is a type known as a Corvette warship, however corvette vessels range in weight from 500 tons to slightly above 2000 tons, so in Pua’s case some of the warships he compares are less in tonnage and size than the SGPV’s planned 2,200 tons and 99m length and in the case of the Greek Super Vita, or Roussen class, he has got the comparison wrong as the Roussen class is actually a Fast Attack Craft of 580 tons and 62m in length, so it’s like comparing a mini-Cooper to a 4x4 WD in price"
Dzirhan Mahadzir

Right after the Government announced that RM6 Billion has been allocated to built 6 No Off Shore Patrol Vessel(OPV) for the Navy, the DAP came out full force to question the allocation while many members of the public are concerned that the sum allocated does not go to unwarranted third part commission/cost which does not add value to the OPVs:

Opinions split over another RM6b navy patrol ship deal

Sensing political blood to spill, ehem, ehem DAP's Whizz Kid Tony Pua wasted no time to come out with a posting which compares the cost of what he thought were similar vessels to the Malaysian OPVs from the navies of the US, Israel and even Greece etc., read Tony's article here:

RM6 billion for 6 Offshore Patrol Vessels - Deal?

How badly off the mark Tony Pua were when a rebuttal came from Dzirhan Mahadzir who is a Defense Consultant and Malaysian Correspondent for Janes Defence Weekly, I am producing the article from the MI in full for my record:

My thoughts on SGPV and opposition statements – Dzirhan Mahadzir
February 08, 2011


Unsurprisingly the recent announcement regarding the Second Generation Patrol Vessel program has the DAP up in arms (though noticeably its PR colleagues in PAS and PKR have been fairly quiet on it or maybe I missed something somewhere).


I do find it amusing that DAP member Liew Chin Tong said the ships would be better built overseas as it would be cheaper but provided no facts on it and at the same time alienates the people of Lumut where the ships would be built, and there I thought Pakatan Rakyat wanted to win back Perak. I actually wonder if the ships were to be built in Selangor, Kedah, Kelantan or Penang, would Liew still recommend the ships be built overseas?


Meanwhile DAP MP’s Tony Pua has put out a statement on the purchase of 6 offshore patrol vessels, Pua’s assertions though, particularly in regard to similar vessels comparison are fairly misleading to those unfamiliar with defence issues but which a number of people are likely to buy wholesale.


Before going into that sphere though, Pua’s assertion that the Ministry of Defence has a practice to award contracts before well before the terms of contract has been finalized should be addressed. The problem in this is that Pua confuses a Letter of Intent as in regard to the AV8 AFV and OPV announcements as to an actual contract.


An LOI is actually a document outlining a preliminary agreement between two parties before the actual contract is finalized and an official notification that the two parties are negotiating. In most cases it is also to clarify key points for complex deals and to provide safeguards for both parties if neither can agree on the final terms of the contract, and mostly it is non-binding in contrast to a contract.


A potential value is announced by the government in an LOI for various reasons however it often is not the actual value when the contract occurs, particularly in regard to complex arms purchases. The LOI value is actually an indication of how high the ceiling value of the contract will be provided that the company meets all that the government requires or specifies in terms both in terms of technical and delivery requirements and also if the company offers additional services, equipment etc to the government which the government had not considered in the deal but would like to also include in the deal since the company is offering it.


Basically the government is telling the company that is has X amount of money for the deal provided the company meets all that it wants and if possible offers more, but in most cases this never happens, the company naturally has it’s own idea as to what it will for provide for a particular amount and the result is both the government and company will then negotiate down to a deal satisfactory to both parties.


The ceiling value is also there so that for the government, it can allocate and plan accordingly for the future as such negotiations may take months so in essence it is necessary for the government to plan based on the highest possible cost though in actuality this would not occur and the contract price would be less. The ceiling value is also necessary for the company in the contract so that it can show to its shareholders, financiers and investors that it has a potential deal valued at such an amount in the works.


In the past, under previous administrations, one of the most common complaints of defence companies was that the Malaysian government often would not give any indications publicly of how much a defence deal was potentially worth, which made it hard for companies to justify their efforts to shareholders and investors and also obtain financial backing.


Occasionally companies would not be told of the ceiling value but only the requirements and as a result would submit something which met the requirements but be above what the government was willing to pay. Setting a ceiling value offers the company a figure to work around with during the negotiations to meet the potential contract.


Now Pua’s analysis of ship prices is very much the approach of those unfamiliar with the defence field, namely to look on the internet for news reports of contracts on similar type ships and then contrast prices, unfortunately it doesn’t quite work that way for defence contracts for several reasons, first off, the Second Generation Patrol Vessel is a type known as a Corvette warship, however corvette vessels range in weight from 500 tons to slightly above 2000 tons, so in Pua’s case some of the warships he compares are less in tonnage and size than the SGPV’s planned 2,200 tons and 99m length and in the case of the Greek Super Vita, or Roussen class, he has got the comparison wrong as the Roussen class is actually a Fast Attack Craft of 580 tons and 62m in length, so it’s like comparing a mini-Cooper to a 4x4 WD in price.


Of course, naturally people will say why not divide the price by tonnage for comparison but again this is not possible for three factors, firstly, there key differences to ships even if of similar size and tonnage due to the type of equipment they mount such as weapons, electronics, engines etc and their design along with construction material, all of which makes substantial differences to the price.


Secondly, is the time of the ships were contracted for, defence prices are not static prices, and citing prices for ships contracts 5 years or more ago do not reflect current prices. Finally a contract for a ship or ships is not just for the ships alone but also maintenance, support, training and delivery, hence if you decided to forgo maintenance, support and training options the cost would be lower, a slower construction/delivery schedule could result, depending on the negotiations, being cheaper or costing more in the fact that you have a series of lower payments but adds up to more in the end, pretty much like loans or hire-purchase.


In all Pua’s ship price comparisons, it all falls foul of the first and second factors so much that it makes the third factor pretty much moot. Morever his statement that the US built its LCS for at a budget US$300 million is wrong, the US may have budgeted such but there had been warnings that the US was too overoptimistic on the price which eventually ended up costing US$637 million and US$704 million respectively for each of the two different design initial ships as shown in this article here: http://www.defensenews.com/story.php?i=4403369


Just to show the comparison, here are the stats of each ship Pua shows (minus the LCS) in terms of tonnage, size and weapons/equipment capabilities, yes I have not mentioned engines/propulsions but pretty much engines are determined by vessel tonnage so somewhat moot; 

Second Generation Patrol Vessel (Proposed for TLDM): Corvette/light frigate class 2,200T max displacement, 99m max length, Armament (plus associated sensors for weapons): 76mm main gun, possible 20mm/30mm cannons, Anti-Ship Missile, Anti-Air Missile, Anti-Submarine Weapons, helipad/hangar for ASW helo Contract date: 2011 or 2012, USD329 mil per ship (expected to be lower at actual contract)


Main Role: Frontline Warship for Malaysian waters plus EEZ claims, Ancillary role: Annoy Indonesia by being in border waters claimed as Indonesian waters, also annoys opposition by planned construction and fact that it built by Boustead Naval Shipyards acronym to BN Shipyards (BN being normally used for Barisan Nasional govt. party)

Ireland Roisin class: Offshore Patrol Vessel 1700t, 78.9m. Armament: 76mm Main Gun, 2 .50 cal machineguns, 4 7.62mm General Purpose Machine Guns, no helo deck/hangar.


Contract date and price: 1997 US$34 million


Diff to SGPV: 700t lighter, 11m shorter, No ASM,ASM capabilities, AAW only guns no helo deck/hangar, (what do you expect for USD34 million) more than 10 years ago contract price


Main Role: EEZ patrolling, Search and Rescue, Maritime enforcement


Ancillary role: Proving Irish are still relevant outside Rugby, St. Patrick’s and Irish Jokes

German K130 Braunschweig class: Corvette 1840t, 89m. Armament: 76mm Main Gun, 2 27mm cannons, RBS-15 anti-ship missile, Rolling Airframe Missile (RAM) anti-air missile, minelaying capability, helideck for naval helicopters but hangar only large enough for 2 UAVs.


Contract Date: 2001 – Pua says US108m a ship, actual is US$185m


Diff to SGPV – 300t lighter, No ASW capabilities, cannot carry naval helo due to hangar size, has Minelaying capability (not Malaysian req as indiscriminate weapon, we might dmg/sink US or China ship by mistake which would be a bad thing for us), contract signed 10 years ago


Main Role: Anti-surface warfare ship designed to operate beyond German waters together with Coalition fleet.


Ancillary Role: Scaring the French when it cruises in the English Channel.

New Zealand Protector class: Offshore Patrol Vessel, 1900t, 85m. Armament: 25mm Naval cannon, 2 x.50cal MGs, helideck and hangar for Super Seasprite helo with torpedo, bomb or depth charge.


Contract Date: 2004 – USD70.5 mill or NZ$91mil but not final cost as NZDF states final cost will go higher, Pua fail to mention or unaware of this only cites NZ$91mil


Diff to SGPV: 300t lighter, 10m shorter, 25mm gun only and AAW capability restricted to such, anti-ship and anti-sub capability only contained within helo


Main role: Maritime enforcement, EEZ patrolling, limited wartime role.


Ancillary role: Protecting Middle Earth from seaborne invasion

Israeli Saar V class: Corvette, 1275t, 85.6m. Armament: 25mm Phalanx Close in Weapons Systems, Barak anti-air missile, Harpoon anti-ship missiles, anti-submarine torpedoes, helicopter hangar and helipad.


Contract date: Early 1980s –USD 260million Pua’s figures is correct but neglect to note that with Israel enjoying special relationship with US, the figure may be subsidized somewhat in the building of these ships in the US and I am not sure that even a phone call by the PM’s wife to Michelle Obama would get us that price for these ships. On a more serious note, the SAAR V also benefits from vitually all of the electronics and combat systems along with the Barak missile being Israeli produced, which in turn keeps cost down


Diff: To SGPV: Close to 1000t lighter, 25mm CIWS capability over SGPV but no main gun, likely built at discounted price.


Main Role: Frontline warship for employment within Israeli waters


Ancillary role: Inviting attacks by everyone who hates Israel.

Greek Roussen class (Super Vita class): Fast Attack Craft, 580t, 62m Armament: 76mm main gun, 2 30mm cannons, Exocet Anti-ship Missile, RAM anti-air missile, no helo/helipad


Contract date: 2000 – approx USD108 million per ship – Pua’s figure correct but this is much smaller ship than SGPV


Diff to SGPV: almost 1,700t lighter, no helo/helipad, no anti-sub capability


Main Role: Fast attack craft


Ancillary role: Discouraging Turkey in the Aegean.


Please note that the pictures of the various OPVs were inserted by eddy sourced from google pics search. kalau silap gambar then it is my error.


There is another jolly good blog carrying great articles on defense by blogger mumuchi who I speculate as being an ex military officer, the Navy agaknya, he wrote a very nice open letter to Tony Pua read here. I have put his blog in my Blog List.


Anyway Tony, great try however I think you really do need to refer to the experts if you want to comment or compare military hardware.


Before we get carried away with the Military jargons and what not, let us not forget that while the public would not question the purchase of military assets for the defence of the realm, the public is more concerned about making sure that 100% tax payers money are used to buy the asset so that we get 100% value for money. No unwarranted commissions please. TQ.