JUSTIFICATION BY MINDEF ON SGPV CONTRACT PRICE OF RM9.0 billion

I would like to take this opportunity to thank YB Dato' Seri Dr. Ahmad Zahid Hamidi, Minister of Defence and Y. Bhg. Dato' Sri Dr. Haji Ismail Bin Haji Ahmad for briefing me and a few of my colleagues recently with regards to the above subject.

I am indeed pleased to share some of the explanation given by Hon. Minister and the KSU for MINDEF for your reading.


INTRODUCTION

As contained in the letter of Award dated December 2011, the RM9.0 billion is the ceiling price of the contract. The MINDEF is presently finalizing the costing with the various stakeholders (OEMs, RMN, GoM) in order to determine the final contract price.

JUSTIFICATION

1. Current Value of NGPV Justifies An Increase to at least RM8 billion.

The contract value for the NGPV, awarded in 1998, was RM5.35 billion. At an inflation rate of 3.5% per annum, the current price of the NHPVs is estimated at RM8.37 billion.

2. Different and Superior Nature of the SGPV (Littoral Combat Ships).

The NGPV is a Meko A-100 patrol vessel. These ships are primarily for patrol with limited weapon systems and are used to patrol the sea. The SGPV will be built with frigate specifications and are larger than patrol vessels or corvettes and have a fair mix of offensive and defence capabilities.

Thus, by it's nature, the SGPV is a far superior vessel as compared with the NGPV, and is designed in accordance to the present requirements of our GoM / RMN. The new ships will have long range surveillance capability including anti-surface, anti-air and anti-submarine warfare capabilities, not fitted on the NGPV ships. Specifically, the SGPV will be equipped with:

a) Surface to air missiles,
b) Surface to surface missiles,
c) Torpedo launching systems,
d) Towed array sonar, and
e) Surveillance radar.

Accordingly, the price quoted from foreign OEMs, for both equipments and services; shows an average price increase of 4.0% p.a. The increase was partly due to inflation but mainly due to the upgraded equipments and services required in the construction of the SGPVs.

The SGPV or 'littoral combat ships' specifications, some of which are mentioned above, calls for an overall larger and faster vessel as compared with NGPV or patrol vessels built earlier. The length of an SGPV will be more than 100 meter and it will be designed to sail at a maximum continuous speed of 28 knots, in comparison with NGPV figures 91.9 meter and a continuous speed of 22 knots. Thus the SGPV also requires a higher capacity engine and propulsion system.

SUPPORTING JUSTIFICATION ON SGPVs PRICE

CONTRACT VALUE - NGPV awarded in 1998 (6 PVs): RM 5,350,000,000.00
Value per ship: RM 891,666,666.67

Escalation rate per year * (note 1): 3.50%

Compounded period (1998 - 2011): 13

CURRENT VALUE NGPV: RM 8,367,164,922.89
Value per ship: RM 1,394,527,487.15

* (note 1): average price increase as per quotation from foreign suppliers @ 4.0%

SGPV's price is higher than current value of NGPV due to additional cost to accommodate the followings:

1) SGPV will be Frigate classifications as opposed to Patrol for NGPV.
2) SGPV will be bigger and longer than NGPV.
3) SGPV's speed will be faster than NGPV (required higher capacity engine and propulsion system)
4) SGPV will have additional combatant features:-
a) Surface to air missiles,
b) Surface to surface missiles,
c) Torpedo launching systems, and
d) Towed array sonar.