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How the Malaysia patrol boat deal sank

AAP logoAAP 31/12/2016 Max Blenkin, Defence Correspondent

As defence deals go, jointly acquiring new warships with Malaysia seemed to have special allure, cementing the relationship, opening up plenty more defence business and creating thousands of jobs.

Shame it all turned out to be a total fizzer.

Under the plan promoted by Labor in the 1990s, Australian firm Transfield Shipbuilding would bid to construct Joint Patrol Vessels for both Australia and Malaysia.

The Royal Malaysian Navy needed up to 27 vessels, which would be constructed in Malaysia. The Royal Australian Navy needed up to a dozen, which would be built in Melbourne.

All this stemmed from coincidental requirements for new patrol vessels for both nations, with the possibility of a collaborative build program raised as early as 1992.

Australia and Malaysia had even developed a common JPV capability specification which Transfield used as the basis for its design. This was a vessel of 1300 tonne, 81.5 metres long, carrying a helicopter and with a patrol range of 6000 nautical miles.

Cabinet documents for 1992-93, released by the National Archives of Australia, show the Labor government of Prime Minister Paul Keating saw many benefits from this deal.

At the time, Keating was vigorously promoting Australian relations with regional nations.

A cabinet submission of November 1993 says the potential benefits of the deal were many and significant, enhancing relations, boosting exports and creating about 2000 jobs.

It noted that Transfield would not have much chance of winning without strong government endorsement and a favourable reception from Mahathir.

"While Dr Mahathir is often idiosyncratic, he is also pragmatic," it said.

Just how idiosyncratic would soon be apparent as Mahathir took vigorous exception to Keating referring to him as "recalcitrant" for failing to front a major conference.

Keating apologised but relations spiralled towards rock bottom and the row only ended when Malaysia backed off.

The cabinet submission, which preceded the row, observed Mahathir would depart office before the project reached completion and his successors would likely be just as pragmatic and maybe less unpredictable.

For all the pluses, the project featured many potential risks. Going ahead would mean the navy would be acquiring larger and more expensive vessels sooner than it required, likely at the expense of other defence procurement programs.

Treasury urged caution. The plan deserved "careful, hard-nosed and full consideration" to assess whether it best served Australia's interests.

Finance said the deal would hand Transfield, without any competition, a contract to supply vessels that weren't actually needed until 2004 when existing Fremantle-class patrol boats were to start retiring.

Still, the government had to help an Australian firm as best it could, promoting the deal at ministerial and prime ministerial level and putting up $12 million towards design costs. However, cabinet mandated no more than "modest support".

With its early association Transfield, one of 14 contenders, could reasonably have expected to be in with a good chance - right up to February 1998 when Malaysia abruptly announced a patrol boat deal with Blohm and Voss.

As it turned out, it wasn't such a great deal for the German shipbuilder which ended up building just six vessels.

For Australia there were longer-run consequences. For both OPVs and the new Anzac frigates, Defence decided it needed an intermediate sized helicopter and picked the Seasprite.

After long delays and seemingly intractable technical problems, the Seasprite project was cancelled in 2008 at a cost of $1 billion. In a crowded field, Seasprite is routinely cited as Defence's worst ever procurement project.

Defence is now looking to replace the Navy's 13 hard-worked Armidale-class patrol boats with 12 larger and more capable offshore patrol vessels, with construction starting in Adelaide in 2018.

Three firms have been shortlisted but whatever design is chosen won't be all that different to what Transfield proposed more than two decades earlier.

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