Comfortably Numb

Maharaja Lela at the BNS facility in October, 2018. She is still missing her mast and other items.

SHAH ALAM: The CEO of LTAT (the Armed Forces Provident Fund) Datuk Ahmad Nazim Abdul Rahman in an interview with the Edge business daily has brushed aside the criticism over the LCS project even saying that the ships cost were comparable with the ones bought by Egypt and UAE.

UAE second Gowind corvette after her launch. Naval Group

The Edge itself did’nt endear itself as it stick to the line that the LCS will only costs some RM10 billion, around RM1.2 billion more than the ceiling contract price. From the Edge. Click on the link to read the whole article.

Some people have called the continuation of the LCS project as a government bailout for LTAT and Boustead Group, as it has already paid RM6 billion and now needs to pay another RM4 billion for the project to be completed, or a total of RM10 billion. What is your comment?

I do not have the authority to respond on the additional money. But regardless of the funding, this is not a bailout of either LTAT or Boustead. The government was focused on saving the project, rather than the two entities. That is why in its deliberation, the government considered multiple options, including terminating the contract with BNS and handing it over to a new party to build the ships. But the latter would cost multiple times more and require a longer time to deliver.

Yes, the cabinet decision in favour of continuing with BNS has averted a massive financial fallout across the economic value chain, but the government’s paramount consideration was the security and sovereignty of the nation. LCS is not just another government project, like highways, schools or hospitals. LCS is a key combatant asset that we urgently need to protect our maritime security and economic interests.

The cost-benefit analysis from an economic perspective is very clear. The economic impact in terms of technical capacities, job creation and the development of the supply chain has been enormous and far outweighs the cost. Having said that, even if we were to look at LCS purely from a cost perspective, public records show that the US’ LCS cost the Americans about US$600 million per ship, while it cost Egypt and the UAE about €375 million per ship. This is not an apple-to-apple comparison, but from a cost perspective alone, they are comparable.

Egyptian Navy EL Fateh Gowind 2500 corvette. Naval Group

Malaysian Defence has posted previously that the cost of the project is now expected to be around RM14 billion, some RM5 billion more. And that is the estimation IF the project started in January, 2022. The project is now expected to start this October and November!
The most recent picture of LCS PCU Maharaja Lela taken in November 2021. BNS via LinkedIn.

Clearly the CEO has been listening to the wrong people, as he had mentioned the US Navy LCS programme. As for the price of the Egyptian and UAE Gowind corvettes supposedly costing Euros 375 million (RM1.7 billion), each, I have no idea really. But will it be comparable to the RMN LCS then? If the whole programme costs below RM11 billion it will. But it is unlikely. I know – the RM10 billion to RM11 billion – figures was bandied around in 2018 , before the change of the governments and the project suspension in 2019. The figure, as I had posted previously, is no longer correct.
PCU Maharaja Lela on BNS dock,

Anyhow, even if the CEO is right and we end up paying the same as Egypt and UAE (he has a higher pay grade than me so he should be better informed), RMN still need extra funds to cover late entry of the ships. This means the government has to spend much more money to cover the shortfall in capabilities due to the late deliveries of the LCS (apart from paying the cost of the project).
KD Lekir firing an MBDA Exocet MM40 SSM at EKs Taming Sari in the Malacca Strait on May 22, 2022. How much money need to be spend to maintain the legacy RMN fleet due to the delay of the LCS? ATM picture

Of course, as the CEO said it himself he was just talking about cost perspectives (to LTAT) alone! And it is likely, he will be gone once the ships are supposed to be delivered. Nothing wrong really, as that is the reason he was appointed to LTAT in the first place, to make the fund make a profit.

— Malaysian Defence

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24 Comments

  1. ” has brushed aside the criticism over the LCS project even saying that the ships cost were comparable with the ones bought by Egypt and UAE.”

    ”Comparable” in terms of construction and actual capability maybe but they have not been delivered and are way over budget; both these factors have major long term consequences on the RMN.

    At a time when it should be focusing on fully fitted out LMSs; ASW configured helos and other things including UUVs and greater networking; the RMN is straddled with the LCS programme having gone ratshit; the uncertainty; overruns and delays.

  2. sound a lot like the kedah solution where BNS absorbed the cost overrun while the missile won’t be bought

  3. Dumb comment from this CEO. Comparable means they should have been completed yesterday! There is lesser comparable of our LCS to their corvettes, the LCS at 3100T is the largest variant and not part of NAVAL Gowind catalogue. He should have clarified with his technical team the crazy challenges to design enlarged Gowind into LCS. All those are COST and he could have leverage these differences to justify a higher price tag.

  4. Haha this CEO make himself look more stupid. Quoting an old price what a nonsense! If indeed the rm11 billion price is true, than the price of our LCS is the same as original USD value back in 2013 (where haven’t bought equipment much yet) and the same price as a normal Gowind (relatively). If the predicted price quoted by Marhalim at total of rm16 billion, each LCS cost usd592 million which is same as US Freedom LCS that in itself was wayyy to expensive and caused lots of trouble and many will be decomission next year. So he’s comparing the price to a failed US LCS program. Try compare that with Type31, FREMM and De Zeven Provincien and you know what capability you can get.

  5. Marhalim, in your opinion, how much of a factor did the RM drop would affect the LCS overall costing? I mean most of the weapons (bar the MICA), and I’m guessing the steel plating, sensors, engines have been bought early on so the RM drop doesn’t affect these high valued parts but anything else significant we haven’t bought yet that would bump up the cost?

  6. I am not sure really on the FOREX losses but it must be noted that the Euro has gone down compared to the RM. The major equipment not bought yet is the MICA missiles and of course the torpedoes which I had written before.

  7. I see, so giving a max of RM 500mil for the MICA and torps, my thoughts are the rest of that billions RM extra expenses would be for restarting, rehiring of workers, and refurb those early units, and I guess the integration of all the systems which would not be cheap since it would be in foreign currency too.

  8. Eh? Don’t they store these sensitive items within TLDM/ATM own storage facilities where they no need to pay for it? AFAIK hardly any private storage provider will accept weapons, munition, dangerous & volatile or costly insured items.

    But another fallout with the RM drop is that these dockyard workers & builders would have find/found better opportunities abroad that can pay better.

  9. Some things like the engines and non weapons stuff could be stored in bonded warehouses. It is likely the manufacturers insisted on this as they would be liable if there were any problems with them later on. Somethings like the radar mast are yet to be installed as they are waiting for the ships to be ready for it to be fitted. The radar mast Maharaja Lela is just an empty one used to test the fitting with the ship. Of course weapon stuff are kept either in their manufacturer warehouse or even TLDM armory as I speculated in the NSM

  10. marhalim, any idea what’s spefication is changed during the recently completed final design scheme?

  11. There’s no specifications change in the final design, they are just doing the engineering design which is of course will change to fit the build

  12. Total and final cost for all 6 LCS is not a problem at all.

    (ONLY if the fatal misjudgement to ditch GST not happened in 2018).

  13. As long they can finally set sail (preferably all 6 of them) it all okay but under no circumstances this fiasco will be allowed to happen again in the future..They better finish them with not more than 14 billion..even that is asking for far too lot for a mere 111m ‘stealth’ ship compared to neighbouring navy’s new ship

  14. @ZekMR
    Right now we got less sand to fill that big hole. With GST we simply got more sand to fill that big hole. It is still a big hole regardless.

  15. Sadly it was all political gimmick to grab power among power crazy politicians.

    Clearly hypocrisy at the highest level, when a side talked about integrity yet closed one eye about ‘black economy’ practices and tax evaders among themselves.

  16. The “tidak apa” attitude. The idea of success is solely the completion even it its 10 years late and 50% over budget. Weapons programs and the finances are planned years in advance. A screw up in 1 year can have a cascading effect on future spending. Examples: 1) LMS Batch 2 split into 2 batches 2) Air Force spent more than a decade on a replacement of the Mig-29, but ended up with a combined LCA program to replace both Mig-29 and Hawks in 2022 – yet still no decision. 3) Nuri replacement is outstanding for many RMKs. 4) MPA still unfunded. 5) MRSS still unfunded. 6) C-130 upgrades? By 2030, the Army will need to re-capitalise some assests (e.g. Astros II will be 25 years old, PT-91 at least 20 years old). The AirForce will need to start the SU-30MKM replacement (for deliveries in early 2050 – yes it takes that long based on Mig-29\LCA timeline). The F-18Ds would be more than 30 years old by 2030 which means the request must start in the next RMK for any chance of deliveries to happen in 2040. The list goes on. Every dollar and minute wasted today is taken from tomorrow.

  17. kel – ”The “tidak apa” attitude. The idea of success is solely the completion even it its 10 years late and 50% over budget”

    When defence is not a priority and is something you only spend on when times are good; when one’s threat calculus does not factor in any immediate state actor threats and when priority in procurement is the local industry and other national interests rather than the end user and taxpayer; what do you expect?

    kel – ”A screw up in 1 year can have a cascading effect on future spending.”

    Indeed. When the government can’t even provide an indication as to when funding can be made available and changes priorities; hard for the armed services to plan accordingly; nothing new.

    kel – ”Astros II will be 25 years old”

    Age won’t be factors to the extent it is with other things. Like arty rockets systems are meant to last; i.e. lots of Grads worldwide are 30-40 years old; the U.S. MLRS’s were ordered in the late 1980’s to early 1990’s, etc.

    Don’t forget capability gaps which arise when something is retired but has no immediate replacement; Starstreak and Nuri come to mind.

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