1 © 2008 BN Shipyard. Legal Dept. All Rights Reserved IMPLEMENTATION CHALLENGES IN DEFENSE ACQUISITION – REQUIREMENTS OF LOCAL CONTENT AND OFFSET By: Siti Naim Jamaluddin Boustead Naval Shipyard Sdn. Bhd. Defence and Aerospace Open Forum 22 nd April 2008

2 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved RMN PATROL VESSELS PROJECT  Awarded in conjunction with the Privatisation of Naval Dockyard.  Signed by the Government of Malaysia and Boustead Naval Shipyard Sdn. Bhd. (under its former name of PSC- Naval Dockyard Sdn. Bhd.) on 5 th September 1998  Effective Date of Contract is 1 st August 1999  Duration of Implementation – 128 months

3 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved OBLIGATIONS OF BOUSTEAD NAVAL SHIPYARD SDN. BHD. 1.Supply and Delivery of Six (6) Patrol Vessels for the Royal Malaysian Navy; 2.Integrated Logistics Support; and 3.Performance of Commercial Package Programme

4 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved COMMERCIAL PACKAGE PROGRAMME CPP consists of the following elements: 1.Incorporation of the local content in the design and construction of the PV of not less than Ringgit One Thousand Six Hundred and Five Million (RM1,605,000,000.00), referred to as CPP No Offsets programme of not less than Ringgit One Thousand Six Hundred and Ninety Million One Hundred and Sixteen Thousand Ninety (RM 1,690,116,090.00), referred to as CPP No.2 3.Counter-purchase obligations of not less than Ringgit Six Hundred Million (RM600,000,000.00), referred to as CPP No. 3

5 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved OBJECTIVES OF COMMERCIAL PACKAGE PROGRAMME  To assist in the establishment of an indigenous self sufficient sector to provide through-life support of the PV;  To develop and enhance the standards of the maritime related industries in Malaysia;  To upgrade the available technology in the defence related industries in Malaysia to support the PV;  To ensure the transfer of technology; and  To develop and enhance any other areas of technology as may be determined by the Government of Malaysia.

6 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved JOINT MONITORING COMMITTEE  For the purpose of monitoring the implementation of CPP, the Government of Malaysia set up a committee known as the “Joint Monitoring Committee” (JMC) which comprises the representatives from MOF, Defence Industry (MOD), MITI, MED, BN Shipyard and other Government representative(s) as may be required.

7 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved LOCAL CONTENT  Means:  man hours provided by Malaysian citizens employed for the design and construction of the PV by BN Shipyard or any third party;  raw materials produced, and components and equipment manufactured in Malaysia; and  imported raw materials or semi finished components.  Vendor Development Programme or VDP means the programme, which sets out the parameters for the development and promotion of vendors to participate in the:  Suppliers of raw materials produced, and components and equipment manufactured in Malaysia;  Suppliers of imported raw materials or semi-finished components in which local elements have been incorporated; and  Service providers of the activities referred to in production, manufacturing and performance related to steel components, machinery components, electrical, PCB assembly, equipment and services, accommodation outfitting, oil and gas fabrication and related services, fibre glass equipment and painting services.

8 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved OFFSET Consists of Direct and Indirect Offsets  Direct offsets are activities, which are directly related to the Patrol Vessels, which would assist in the establishment of an indigenous self-sufficient sector to provide through-life support of the Patrol Vessels.  Indirect Offsets are activities, which are not directly related to the Patrol Vessels, which would:  Develop and enhance the standards of maritime related industries in Malaysia;  Upgrade the available technology in the defence related industries in Malaysia to support the Patrol Vessels;  Ensure the transfer of technology; and  Develop and enhance any other areas of technology as may be determined by the Government of Malaysia

9 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved OFFSET - continuation Offsets activities shall be as follows:  Transfer of Technology  Research and Development  Technical Assistance  Training and Skills Upgrade  Procurement of Goods and Services  Sub Contract of Works  Investments  Marketing Assistance  Buy-back Arrangements  Joint Venture Arrangements  Collaborative Ventures with Universiti Teknologi Malaysia; and  Any activities as agreed upon between the Government of Malaysia and BN Shipyard

10 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved ACHIEVEMENT TO DATE Offsets  100% completed and fee is fully collected. Local Content  27% completed  27% of fee collected

11 © 2001 PSC-Naval Dockyard Sdn. Bhd. All Rights Reserved CHALLENGES Offsets  relatively easy to achieve and the fees have been collected in full. Local Content  Establishing common understanding on the “interpretation” between JMC and Implementor(s);  Participation of foreign entities to incorporate “local content” in their scope of obligations;  Trade secrets;  Time factor;  Ability and readiness of local entities.

12 © 2008 BN Shipyard. Legal Dept. All Rights Reserved