Murky procurement of 'blacklisted' X-ray scanners
Originally published at Malaysiakini : https://www.malaysiakini.com/news/533331 Published: Jul 7, 2020 11:46 AM ; Updated: Jul 8, 2020 2:40 PM
SPECIAL REPORT | "There was a 40-foot container full of imported potatoes, and we couldn't see what was there at that small corner. However, the scanner enabled us to discover that more than 100kg of drugs were mixed in the potatoes, and we seized the drugs. Without this facility, we simply can’t detect that." "[...] firearms, for example, a pistol, maybe hidden on the wall of the container. We can also see the shape of the firearm through the scanner. Even if you open the container to check, you can't see it at all," said then director-general of the Royal Malaysian Customs Department (RMCD) during Public Accounts Committee (PAC) hearings in 2014. Customs inspection is the first line of defence against smuggling. Besides the constraints of human visual inspection, it’s impossible for the customs officer to inspect the containers by opening them one by one as there are thousands shipping in and out at the ports.
As such, RMCD started using X-ray scanners to detect hidden compartments and prohibited items in containers at the seaports and customs checkpoints since 20 years ago. However, the inspection equipment which assisted humans to detect wrongdoings is now tangled with an allegation of fraud.
This came as the government planned to spend over RM240 million to buy new scanners by a China-based manufacturer, despite the government allegedly blacklisting the products after finding them to be faulty about a decade ago.
What is more intriguing is that the manufacturer, which is closely related to the so-called, China's “Princeling", has been involved in corruption cases in various countries.
Frequent errors, malfunctions
According to a government source, the RMCD purchased a scanner manufactured by Nuctech Co Ltd for RM12.2 million and installed it at the Klang Container Terminal (KCT) about ten years ago.
However, error and malfunctions happened frequently within a few months after installation. The source said that according to government records, the machine had over 10 failures a month by the end of 2010, and the maintenance cost was extremely high.
An internal review, which was done by RMCD in 2011, concluded that the government should not purchase products of this brand again, if the technical problem was not properly resolved, claimed the source.
"The technology should have simplified human work, not the other way round. The recorded failure was just the tip of the iceberg. According to the personnel who were in charge, the failures occurred almost every day."
The government source pointed out that one of the recorded problems was that the machine could not scan and record car and container trailer number plates accurately.
"If it involves any court case, this problem may have undesirable consequences. The images displayed and recorded on the screens can be used as evidence in court, but the court case may be dismissed due to this technical error.”
"In order to deal with this, the officer in charge needs to manually write down the car and trailer number plates before the vehicle carrying the container enters the scanner."
The cargo scanners are usually installed outdoors and should be waterproof. However, the source revealed that the scanner had malfunctioned due to the infiltration of rainwater even before the warranty period expired.
It cost nearly RM200,000 per month for maintenance of two scanners of this brand, which cost nearly ten times higher than other scanners in the same port, claimed the source.
Frequent failures mentioned in PAC report
The Auditor-General Report of 2013 (Series 2) highlighted the problem and the PAC summoned RMCD to review the matter in the following year. During the PAC hearings, the representative of the National Audit Department (NAD) had named
Nuctech and pointed out the frequent failure of its products.
According to the Hansard of PAC hearings, the investigation by NAD found that the downtime of Nuctech scanners, which were installed in the Klang Port, North Port and West Port, was over 160 days in a year, and at times even as high as 214 days.
Generally speaking, when a scanner fails to operate, the customs officer still has the right to request the container to be opened for inspection. However, some smuggling activities are very difficult to detect with the naked eye.
The government also did not rule out that the customs officers may not be thoroughly inspecting due to fatigue or laziness, replied the NAD officer during the PAC hearings. In January 2018, RMCD issued a letter to terminate the maintenance service of Malaysia-based company Nuctech Engineering & Services Sdn Bhd. Malaysiakini has sighted the letter and contacted RMCD for clarification.
Malaysiakini learned that Nuctech Engineering & Services Sdn Bhd was renamed Nes Scan Sdn Bhd in October 2017.
In 2018, then finance minister Lim Guan Eng (photo) announced that the Pakatan Harapan government had decided to purchase 20 cargo scanners in order to enhance the prevention of smuggling and illegal declarations, thereby increasing tax revenue.
The PAC report in 2014 recorded that during the ten years between 2001 and 2011, the BN government purchased a total of 16 cargo scanners worth RM183 million. In other words, the purchase of 20 scanners by the Harapan government could be said to be a very large-scale procurement.
Intriguingly, the lease-purchase tender has been cancelled and re-tendered twice without clear reasons given, according to a source in the industry. Going in a big circle, the government might eventually spend over RM240 million to purchase the same product again which was found to be faulty about 10 years ago. The tender was announced for the first time at the end of 2018. In October 2019, Lim revealed that the government planned to allocate RM235 million to purchase the 20 scanners when he announced the 2020 Budget.
The tender information issued by the Finance Ministry (MOF) indicated the scanners would be installed at various ports in Selangor, Johor, Penang, Perlis, Kedah, Sabah, and Sarawak. The project was divided into two packages - one was for 13 scanners in Peninsular Malaysia and the second was for seven scanners in Sabah and Sarawak. The first tender was scheduled to close in January 2019, but it was cancelled and then restarted twice.
The notices for the second and third tender were published on the MOF website in April 2019 and August 2019 respectively, and the final result of the tender was announced in January 2020. The announcement of the tender result was only accessible for companies in related industries in the government electronic procurement system “e-Perolehan”.
A source in the industry told Malaysiakini that PTS Resources Sdn Bhd won the contract for 13 scanners in Peninsular Malaysia, with a total value of approximately RM147.04 million while Infomina Sdn Bhd was awarded the contract for seven scanners in Sabah and Sarawak with a total value of approximately RM95.2 million.
PTS Resources is registered as a supplier of industrial and electrical equipment, spare parts, as well as commissioning works. According to the company website, it specialises in the oil, gas, and petrochemical industries, with no experience in cargo inspection systems.
As for Infomina, it was registered as a company that provides maintenance and support services for information technology. Its official website shows that it is an IT company, mainly providing building automation, communication, green energy, information, and physical security systems including CCTV surveillance, access control, and perimeter detection.
The total value of the two packages was RM242.24 million, which is an extra RM7.24 million if compared to the RM235 million budget previously announced.
According to a tender document sighted by Malaysiakini, 12 of the 20 scanners will be newly installed while the remaining eight will be used to replace existing scanners, which include several scanners manufactured by Nuctech.
Since the tender does not allow foreign companies to participate directly, they would normally appoint local companies to do it instead. Even when the contract-winning companies were announced, the brands proposed by the winning companies are not disclosed to the public.
The industry source claimed that the seven scanners proposed by Infomina, to be installed in Sabah and Sarawak, were actually Nuctech's products.
Malaysiakini has also called Nuctech’s Beijing headquarters office to seek confirmation and respond to the allegations. The company responded that the media only need to contact their local partners for any enquiry.
When contacted, Infomina refused to confirm the product brand and model, citing a non-disclosure agreement with the government. Malaysiakini was asked to seek clarification from the government instead.
MOF and RMCD did not respond to Malaysiakini's request for confirmation and clarification.
Changing the brand after winning the contract?
According to the source, after the contracts were awarded, a more puzzling situation occurred. PTS Resources, which was authorised by another China-based manufacturer CGN Begood Technology Co Ltd, which won the contract for Peninsular Malaysia, allegedly issued a letter to the government to request to change the proposed brand to Nuctech.
"PTS Resources has sent a letter to RMCD or MOF after they found that they were unable to deliver the 13 scanners, and they requested for them to be replaced with Nuctech products," claimed the source.
In short, even though the Harapan government changed the culture of "direct negotiation" in the BN era, the government may eventually purchase products of questionable quality after a tendering process that took almost a year.
PTS Resources confirmed with Malaysiakini that it was awarded the contract for the Peninsular Malaysia package. However, it refused to comment on the request to change the brand, the reasons for such a request and if the government had approved it.
Similarly, PTS Resources cited a non-disclosure agreement with the government, and Malaysiakini
was asked to seek clarification directly from the government.
Malaysiakini has contacted RMCD director-general Abdul Latif Abdul Kadir and the deputy director of the Procurement Department, Mohd Faizal Mansor, to clarify on the above allegations.
Involved in corruption cases
Nuctech Co Ltd is a subsidiary of Tsinghua Holdings founded in 1997. It was headed by Hu Haifeng, the son of the former China president Hu Jintao, until 2008.
He resigned from Nuctech in 2008 and later joined Tsinghua Holdings and was also promoted as the Communist Party secretary.
According to some monographs, the company made great strides internationally and successfully entered the African market after Hu joined. Their security equipment was sold to various countries such as Macedonia, Philippines, Ireland, and the UK.
However, Nuctech was also involved in corruption cases in many countries not too long after that. The Telegraph reported that Nuctech was involved in a multi-million procurement scandal in Namibia which was probed by the Namibian Anti-Corruption Commission. Hu assisted the investigation as a "witness" in 2009.
The Namibian reported that three individuals were prosecuted in this case - namely a Nuctech Africa representative Yang Fan, Namibia’s former Public Service Commission member Teckla Lameck, and a representative of Nuctech’s local partners Kongo Mokaxwa.
The prosecution alleged that the scanner price was inflated to enable Nuctech to pay a multi-million “commission” to a party linked to Lameck and Mokaxwa.
The accused first went on trial in 2013, but the case ended halfway as the judge had to step down from continuing to hear the matter, according to The Namibian.
The trio was reportedly acquitted in 2019 after the prosecution conceded that the state did not manage to present sufficient evidence.
Additionally, in Taiwan, it was reported that the former head of the Aviation Police Bureau’s aviation security section, Sun Yi-Ming, was convicted in February 2020 for receiving kickbacks and engaging in other illicit activities.
Nuctech X-ray scanners which were purchased by Taiwanese authorities and installed at airports were found to have been repackaged in Japan to deceive Taiwanese regulators. Sun was also found to be lured by a female sales manager from Nuctech, according to Taipei Times.
A separate fraud case involving Nuctech happened in the Philippines.
ABS-CBN reported that the Philippine government purchased 30 X-ray scanners from Nuctech through a loan agreement with the Chinese government.
However, the Philippine’s Commission on Audit subsequently found that the machines were exorbitantly overpriced by 4.215 billion Philippine pesos (about RM360 million).
It was reported that the quality of Nuctech’s scanners was questionable as they had zero detection for methamphetamine or other drugs for ten years, despite their maintenance cost being 1.5 times higher than other international service providers.
Looking back to Malaysia, the integrity of the tender process was also questionable. Calling for a thorough investigation, the source who spoke to Malaysiakini had also notified the MACC in early June 2020.
This news portal has contacted MACC for a response.
Tony Pua, the former political secretary to Lim, responded that all things were done in compliance with open tender and MOF procedures.
He also claimed that the awarding of contracts followed the recommendation of the evaluation committee, which consisted of the Treasury secretary-general and senior officials of the MOF and RMCD.