PROCES - VERBAL - Malaysia Today

"Wanna Buy a Sub?" (SM Malaisie)Sujet: "Wanna Buya Sub?" (SM Malaisie)De: Guy_KURKDJIAN/DCN_International/FR%MALAISIEDate: Fri, 9 Aug 2002 18:50:15 +0600Pour: Guy_ROBIN/DCN_International/FR%DCN_InternationalIl y a des informations qui relèvent normalement du confidentiel commercial: j'ai passé copie àPerimekar en leur suggérant de calmer leurs collaborateurs anciens ou actuels.---------------------- Envoyée par Guy KURKDJIAN/DCN_International/FR le 09/08/2002 13:05 ------------------Pour : Thierry de VANSSAY/DCN_International/FR@DCN_International, Henri deBRONAC/DCN_International/FR@DCN_International, Jean-Luc DELAGE/DCN_International/FR@DCN_International,Frédéric FAURA/DCN_International/FR@DCN_International, GuyKURKDJ IAN/DCN_International/FR@DCN_Internationalcc: Florent MEYNET-CORDONNIER/DCN_International/FR@DCN_International, YannL'HELGOUARC'H/DCN_International/FR@DCN_International, YvesGERARD/DCN_International/FR@DCN_InternationalObjet : "Wanna Buy a Sub?" (SM Malaisie)THE DEFENCE INDUSTRYWanna Buy a Sub?Source: Far Eastern Economic Review (15/08/02)An account of the wheeling and dealing that led to aMalaysian defence contract gives a rare glimpse intothe normally opaque process of arms purchasesAnnexé 3 .v N°_By S. Jayasankaran/KUALA LUMPURL'Offic de P®ll dA i^,- moi ^1 pw P^R,Issue cover-dated August 15, 2002IN EARLY 1999, representatives from DCN Internationalof France made a presentation to Malaysia's Ministryof Defence on the technical superiority of theirstealth-capable Scorpene-class submarines. Over threeyears later, on June 6, Kuala Lumpur signed a 3.6billion ringgit ($947 million) contract with DCN andSpanish ship maker TZAR to build two Scorpenes for theMalaysian navy.The following account of the makings of that deal,pieced together from interviews with governmentdefence planners, analysps familiar with theagreement, and businessmen involved in the project,provides a rare peek into the normally opaque processof Malaysian arms purchases. It also illustrates thelinks between arms deals and foreign policy. Finally,d 9p,tJ^c

"Wanna Buy a Sub?" (SM Malaisie)it underscores the importance of political connections cin winning a defence contract in Malaysia.Before the French won the contract, submarines hadbeen on the Malaysian navy's wish Iist for almost twodecades. In the 1980s, Malaysia contemplated buyingSweden's Sjoormen-class submarines but the 1986recession stopped the idea in its tracks.In the early 1990s, the navy finally had money tospend. But offshore patrol vessels were then thepriority. In 1995, in Malaysia's biggest-ever defencedeal, a 6-billion-ringgit contract to build 27 craftwent to German ship-builders in a joint venture with aMalaysian firm owned by Amin Shah, a protégé of formerFinance Minister Daim Zainuddin.Submarines returned to Malaysia's radar screen in late1998 when Singapore took delivery of its firstsubmarine--the same Swedish model that Malaysiacontemplated in the 1980s. A submarine force needs atleast five years of training, and the purchase putSingapore far ahead of Malaysia."Singapore has always been our bogeyman," says adefence expert in Kuala Lumpur. "What they buy we'llbuy as well, but a différent variant, and from someoneelse. "Annex' ^.^ .V NkL'O i*: de rté .i .iOther factors made submarines desirable, including the , .2000 kidnapping of tourists from Sipadan Island, offthe Sabah coast, by Abu Sayyaf guerrillas from the ' ,,^r^Philippines Interested foreign 9 p parties, together 9 with ^, ,Seitheir local partners, began jockeying for position.ô "^,^14Defence planners familiar with the deal say that theSwedes were ruled out immediately because they hadsold to Singapore. Dutch Moray-class submarines wereruled out because Malaysia saw them as technicallyunproven. The Dutch were thought to be in the runningwhen, in 2000, Amin Shah shipped two decommissionedZwaardvis-class submarines to his dockyard in Lumut,on Malaysia's west coast, for $10 million. PrimeMinister Mahathir Mohamad even visited Lumut,8br> triggering speculation that the Dutchwould win acontract. They didn't. The two Dutch submarines stillsit in the dock at Lumut.Meanwhile, the private French company Thomson-CSF (nowcalled Thales) had been working with Jasbir Chahl, aIow-profile Malaysian dealmaker, in an attempt to sella Crotale short-range missile defence system to theMalaysian government. (A British firm won the contract

"Wanna Buy a Sub?" (SM Malaisie)in April this year.) Thales introduced Chahl to Frenchgovernment-owned DCN, and the French submarine pitchbegan in earnest. (The Spanish firm, IZAR, though notinvolved in negotiations, shares joint rights with DCNover the Scorpene's technology, and so figured in thefinal contract.)Chahl added local political heft to the project bybringing in Ibrahim Mohamed Noor, a businessman closeto Daim Zainuddin, who at the time in 2000 was financeminister. Ibrahim's private company, Perimekar, was tobecome the local conduit between the Malaysian andFrench governments. Perimekar was owned by Ibrahimthrough his private firm, Simpletech. Chahl held theposition of adviser. (Apart from confirming his yoleas "a key playe( in the submarine project, Chahldeclined to discuss details of the deal with theREVIEW.)Ibrahim then brought in Abdul Razak Baginda, amilitary analyst who heads the Malaysian StrategicResources Centre, a Kuala Lumpur think-tank. He isalso an adviser to Defence Minister Najib Razak, whoMahathir said is the best candidate to take the postof deputy prime minister after Mahathir steps downnext year. Analyst Abdul Razak was brought in "tofacilitate the submission process," according todefence planners."I had been advising the French on strategic issues,on the justification for submarines," says AbdulRazak. "People know 1 am a trained defence analyst,thus my involvement."At the same time, Chahl and Ibrahim were seekinginvestment from the Armed Forces Superannuation Fund,or LTAT, which manages the only pension fund forMalaysian servicemen. A stake in Perimekar would iakethe company's success of interest to the MalaysianDefence Ministry.But June 2001 brought a setback for Perimekar: Daimresigned as finance minister amid rumours of a falloutwith Mahathir, a turn of events that may have beenperceived to have lessened Ibrahim's influence.(Ibrahim was unavailable for comment for thisarticle.)Then, in August 2001, Ibrahim's Simplepech soldPerimekar to Generasi Mulia, which according toexecutives familiar with the deal served to hold theshares temporarily. The sale paved the way for new,well-connected investors to step in.toD(Q POUCE^J\ciaii

4 sur 4 28/10/2011 16:26 1"Wanna Buy a Sub?" (SM Malaisie)EVERYTHING FALLS INTO PLACEBy January, 2002, everything had fallen into place.Generasi Mulia sold its 100% stake in Perimekar toOmbak Laut, a private company owned by associates ofAbdul Razak. Ombak Laut then sold 40% to LTAT and asister company.Also in Perimekar's favour, competition from Turkey,Germany and Korea bombed out in the face of foreignpolicy, where awarding a contract could boostrelations. "The Turks already won a 2002 deal tosupply infantry fighting vehicles to the army whitethe Germans won the biggest defence deal of the1990s," says an analyst familiar with their proposais."The Koreans were untested. Don 't forget defencepurchases are also part of foreign policy."Of the contract value, 50% will be offset throughcounter-trade of Malaysian goods through France orFrancophone countries in Africa and the Pacific.France also donated a decommissioned Agosta-class8/b>submarine that Malaysia will refurbish for 300 millionringgit ($79 million) and use to begin the process oftraining crew.And the payoff for the Malaysian businessmen? Defenceanalysts estimate that for ail the effort, and for itscontinued involvement in the contract, Perimekar willreceive, over the next six years, 8% of the totalcontract value: about 288 million ringgit, andpossibly more, as the euro, on which the contract isbased, has appreciated 13% against the ringgit sincethe signing.Far Eastern Economic Review•Og . ! .A P6t

Draft Contract & BGSujet: Draft Contract & BG (IDe : FrOxL182zdOxLI82zric_FAURA/DCN_International/FRDate : Wed, 2 Jan 2002 09:48:01 +0100Pour: Guy_ROBIN/DCN_International/FR%DCN InternationalEnvoyée par Frédéric FAURA/DCN_international/FR le 02/01/2002 09:48Pour: pbarre@dcnintl.com , Olivier FORGEOT/DCN_International/FR@DCN_International, eesteve@izar.es , imenendez@izar.escc: Guy KURKDJIAN/DCN_International/FR@DCN_International, Philippe CORMAN/DCN_International/FR@DCN_International, NicolasPILLET, Jean BOUVETObjet : Draft Contract & BGPlease find hereafter a mail sent by Perimekar on the 27th of December proposing:a comparison between our proposai for contract and the draft number 2 of the Government,proposai for appendices 6A and 6B (bank guarantees) as discussed between Perimekar and the Government and forwhich our comments are urgently required.With my best regards---------------------- Envoyée par Frédéric FAURA/DCN_International/FR le 02/01/2002 09:38Pour: Frédéric FAURA/DCN_International/FR@DCN_InternationalccObjet: Draft Contract & BGDear Frederic,I refer to the telephone conversation between our Razak Baginda and yourGuy Kirkdjian dated 27 Dec 2001.1. The Government has requested Perimekar to make comparison betweenPerimekar/DCNI/IZAR Scorpene Draft Contract and the Government ScorpeneDraft Contract No. 2 in order for them to clearly see which portion ofthe Government's draft is used, which portion is deleted and what arethe new additions by us. I have merged the two documents together inorder to track the differences between the two. I will officiallysubmit this document to the Government. Mr Kirkdjian has agreed to thisin his telephone conversation with Razak. I enclosed herewith the file.2. DCNI had mentioned their intention to slightly modify theGovernment's format for Bank Guarantee in order to include the conditionof breach or default before the Government can actually demand anyamount from the Bank Guarantees. We need to submit to the Governmentthe proposed modification on the Bank Guarantees. I enclosed herewithMr Dhiren's proposed modification on Schedule 6A and Schedule 7B.Please indicate whether you agree with this modification or give your \C,E'.,`^ Tcomment. Please bear in mind that the Government may agree only to b :1 jslight modification, so please do not add too much words. L'off't1I look forward to your immediate reply. Thank you and Happy New Year. x