MOF Loan For MMEA OPV project, Updated

OPV Tun Fatimah after her launch on October 10, 2022. APMM

SHAH ALAM: The Ministry of Finance, the Edge reported, has taken over the offshore patrol vessel project from the builder THHE Destini JV. Interestingly, the report also said that the project needed a loan of RM152.6 million from the government to complete the first vessel within this year (which is the real story, I believed). The MMEA first OPV was launched in October last year and currently is berthed at the THHE yard.

From The Edge:

KUALA LUMPUR (Jan 4): The Ministry of Finance (MOF) has taken over an offshore patrol vessel (OPV) project from THHE Destini Sdn Bhd, after discovering a number of “big issues” pertaining to the project, including the necessity of a RM152.6 million loan from the Government to ensure the completion and delivery of the first vessel within the year.

Following the delay in the project, Prime Minister Datuk Seri Anwar Ibrahim urged enforcement agencies to carry out their duties accordingly to ensure that nobody takes advantage of the public procurement process.

“[There’s] two actions. Firstly, we have to rescue [this project]. These OPVs have to be completed according to the schedule. Secondly, we should never let go of anyone who is responsible for abuse of power, [and made] a fortune out of this project,” he said at a press conference after the weekly Cabinet meeting.

THHE Destini secured the RM738.9 million job from the Government in January 2017 for the supply, delivery, testing and commissioning of three units of OPV fitting and accessories for the Malaysian Maritime Enforcement Agency over a period of 42 months.

THHE Destini was 51%-owned by Destini Bhd, and 49%-owned by TH Heavy Engineering Bhd.

However, TH Heavy acquired the 51% stake in THHE Destini from Destini for RM121,131.12 towards the end of 2021.

TH Heavy was delisted from Bursa Malaysia in September last year, after the group failed to submit a regularisation plan to exit its financial distress.

OPV TuN Fatimah after her launch early on October 10, 2020.

The report did not mention it but as reported previously, TH Heavy Engineering (THHE) now comes under Urus Harta Jemaah, an investment holding and asset management company wholly-owned by the Minister of Finance (Incorporated). This was done by PH government after the May 2018 general election. Urus Harta Jemaah remained the owner of THHE until now. THHE now completely owned the JV as it had purchased the stake from Destini previously.
The first MMEA OPV at her slipway at the THHE Fabricators yard in Pulau Indah in November 2020.

Anyhow with the RM152.6 million loan, that it is likely the cost over-run of the original contract of RM738.9 million. This is some 10 per cent cost over original contract, I believed. Hopefully, the statement that the loan was needed to finish the first ship is wrong, and the figure also covered the two other ships as well. I have been told that the RM152.6 million loan will need to be paid to the government, so it meant that there is no cost over-run (technically). The amount is enough to complete all the three ships in the contract.
* new headline and further information to clarify the real story

— Malaysian Defence

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Shah Alam

16 Comments

  1. Hopefully, the government will now realise that Malaysia, for whatever reason, is not capable of building anything over 250t, ie no bigger that the Bagan Datuk class. Let common sense prevail and just buy any future ships off the shelf. Malaysia tak boleh (bina kapal besar). End of story.. no point trying.

  2. Firstly, build all ships overseas. No more Malaysian built. Unless the built is done through open tender n open for bidding to all yards n not yards of a certain qualifications

  3. So OPV was also a mini-LCS failure? Looks like the MMEA team indeed learnt something from the LCS team; the wrong thing!

    On a serious note wasn’t this the project previously touted for being a cost saver since its original budget was supposedly just for 2 ships but the negotiators apparently managed to squeeze another boat in? So it seems that goal was unrealistic (much like LCS budget) and now we are likely going to be paying 50% more for another boat so in effect we aren’t getting any cost saved at all but MMEA will have an extra boat which wasn’t projected!

  4. Only in Malaysia, the laughing stock of the world. So much for TOT lah, self reliance lah but what really prevailed is ways to make money out of every project. Damning

  5. Although sound like a pathetic excuse for both LCS and this OPV fiascos, i kinda believed Covid pandemic period seriously hampered their progress (thus incurring more cost one way or another) especially during that first MCO when almost everyone need to stay at home except the frontliners.But yeah i hope our govt has learned their lesson and just buy future ships directly from designer’s shipyard

  6. joe,

    Other countries can build the same-sized coast guard OPV for just 50% of the original Tun Fatimah Damen OPV price. The numbers are achievable, and could easily be kept if we are better at executing projects. We are too used to paying 100-200% markups. RMN paid the same price for the LMS and only got a small ship also armed with a single 30mm gun like the tun fatimah.
    https://www.malaysiandefence.com/india-offers-malaysia-ship-building-collaboration/

    Korean Coast guard recently paid around USD61 million to get this 3200 ton, 115m OPV. Yes similar to the original cost of Tun Fatimah/Keris Class LMS.
    https://m.blog.naver.com/kevin1406/222275817192

    What can be done next?

    Rather than wasting millions of ringgit down no-value added stuff like rebranding PGA to PPH, changing all the blue PDRM uniforms into olive green (IDF closet fan somewhere doing the decision?) and getting yet another new camo (multicam dark) for PGK and PGA; spend that money to things that would actually increase our security capability. Use that money to buy more new ships for MMEA for a change!

    order 3 more Tun Fatimah batch 2 to be built by DAMEN, in vietnam, romania or somewhere. Concurrently order 3 of those large OPV from korea. That in all should cost no more than USD360 million, less than even a single Gowind! We can get all those ships operational even before we could get the 1st Gowind to be completed by BNS. Let the local industry sort their mess before we can give more orders to the local industry.

  7. The hope now is that the upcoming MRSS will just be off the shelf ships from Indonesia or wherever. On budget and on time. Forget about this whole made in Malaysia B.S. Utter nonsense.

  8. Unlikely, really. If they order the MRSS, it will be at least three ships so there will be pressure to build at least two locally. That said AFAIK no money allocated for MRSS during the current RMK

  9. KC Wong “Other countries can build the same-sized coast guard OPV for just 50% of the original Tun Fatimah Damen OPV price”

    Off course they could country like PRC & SK subsidies their shipping industry even for export. But the special price is only available for ship build in their shipyard, installed with their equipment & weapons which we regards as inferior.

    While the Chinese & Korean ship are cheap in dollar value. it doesn’t mean it affordable for the gov as we have a trade deficit with both & thus we don’t have much yuan or won to pay for it.

    This is in contrast to ship from Europe, we regards the equipment & weapons from Europe as superior, they have high manpower cost thus are open to local assembly & we do have lots of euro due to our trade surpluses.

    Getting ship from Europe is a match made in heaven. While some politicians can use their political power to push for stuff from PRC & SK ignoring the national interest but as we had seen as soon as they go out of power, the country reverts back to getting stuff from Europe.

    KC Wong “Let the local industry sort their mess before we can give more orders to the local industry.”.

    How to sort out if there’s no committed order?

  10. Marhalim -” If they order the MRSS, it will be at least three ships so there will be pressure to build at least two locally”

    Oh boy….here we go again.
    Another failing future project in the making

  11. If they built the first one overseas and its completed in time and under budget, it is likely the other two – barring the PSC NDSB shenanigans – it will be ok

  12. Mof “head” gives loan to mof “arm” to pay contractors to deliver the ships. Then how that mof “arm” pay back the loan? By dissolving itself?..am i seeing a creative accounting in progress…

  13. @KC
    It is all about political willpower. If the Government of the day has to pander to “national interest” it will be political suicide to build large ship projects wholly or majority outside. Building locally creates jobs and that is always a vote winner. Not just in Malaysia but everywhere else in the world.

    What makes others success vs ours boils down to realistic expectations, political power, and budgeting resources realistically.

    Unlike Korea or European makes, we are not a creator of those technologies that goes into defence equipment, we’re merely just users so we gotta pay for all those royalties disguised as TOT and R&D cost, etc. Many of their Governments too massively subsidised their defence purchases so comparison between local and international customer prices aren’t comparable. Coupled with the small numbers we get which drives per unit prices up and plus the cost of setting up localisation (a significant chunk of LCS budget went to upgrade BNS yard, nothing to do with the ships per se), the ancillary cost of overseas technical trips (plus wife in tow), and then finally the 3rd party markups, which drives cost up. We have to be realistic in our expectations that all these naturally leads to 100-200% markups.

    However again, this is not uncommon to just Malaysia but many others as well. In the end it comes down to money & politics. We need the political willpower to acknowledge that local builds and TOTs will not be a cost saver and rather it will cost even more money as compared to building at OEM yards/factories. Once we accept that fact, we can then budget resource sufficiently with the 100-200% markups and avoid repeating failures like LCS project which was underbudgeted, as well this OPV project which was originally budgeted for 2 ships but the negotiators tried to squeeze 3 ships in, so in essence money was already tight. If it were still only 2 ships they might have room to wiggle with the costing and not lead to this overrun.

    We have to accept this reality and budget appropriately, if we cannot or refuse to do that then better go full OEM route as otherwise we’re just setting up ourselves for failure and as the LCS & OPV projects shown this is exactly what happened. We’re just kidding ourselves if we think we can get high tech warships, built at local yards, for a cheaper price than made at OEM.

    Take SG defence industry for example, while it may appears more successful their stuff are freaking expensive hence why they have very limited exports. They only looks functional because SG Govt budgeted sufficiently to carry thru the R&D until it became viable product and then bought in sufficient numbers to make it worthwhile. Their Govt and people have accepted that its gonna cost a lot more and aren’t going to have unrealistic expectations and be comparing prices with US or EU makes.

    If our Govt, people and defence players can do that, then yes it can survive or at least can cari makan but it likely won’t be a total failure unless we bugger things up so badly.

  14. “barring the PSC NDSB shenanigans – it will be ok”
    Indeed. As long as the learning curve is well structured, our locals have the technical capabilities to carry thru. What failed the current projects wasn’t simply technical issues (which are being resolved) but the management and political failures.

    @nimitz
    “seeing a creative accounting in progress”
    What did you expect when the FM is also the PM? Left pocket goes to right pocket and into back pocket. Like all Govt “loans” (ie Proton) it will be absorbed by taxpayers.

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