Malaysia pushes Norway to expedite US$252 million refund, says Oslo cannot ‘wash its hands of’ missile deal

KUALA LUMPUR: Malaysia has urged Norway to help expedite a refund of more than RM1 billion (US$251.5 million) for a scrapped missile procurement deal, insisting that Oslo cannot absolve itself of responsibility.

Malaysia Defence Minister Mohamed Khaled Nordin said on Tuesday (Jun 2) that he had recently met his Norway counterpart Tore O Sandvik and conveyed that the root cause of the issue was Norway’s decision to revoke the export license.

"The source of everything is Norway’s decision not to approve the export licence to Malaysia,” Khaled was quoted as saying at the sidelines of an event at Kota Tinggi Bus and Taxi Terminal. 

“Therefore, Norway cannot wash its hands of this matter because its decision caused the problem," he added.

Khaled said that he had told Sandvik that if Norway was sincere about maintaining bilateral relations with Malaysia, it should help facilitate the refund process, reported Malaysian news outlet The Star.

“But if Norway truly wants to maintain its friendship with Malaysia, it can help by prioritising the return of more than RM1 billion,” he said. 

Khaled suggested that the Norwegian government should consider advancing repayment before seeking reimbursement from the Norwegian defence firm Kongsberg Defence & Aerospace (KDA), which Malaysia had contracted for the missiles.

"The company that cannot fulfil the contract is a Norwegian company. As a government, Norway can negotiate with the company rather than force Malaysia to wait indefinitely," he added. 

On May 14, Norway refused to approve an export license under a 2018 contract for a Naval Strike Missile system that Malaysia bought for its six littoral combat ships (LCS), with Oslo saying its defence technology exports would be limited to its “allies and closest partners”.

Days later, Malaysia said on May 19 it was seeking more than RM1 billion in damages from KDA, which it had paid 95 per cent of the defence contract value to before Norway unilaterally revoked the export licenses.

Malaysia had sent a notice demanding compensation for both "direct and indirect costs" from the defence firm, Khaled added. 

After the Kota Tinggi event on Tuesday, Khaled said that the compensation funds were needed to secure an alternate missile system for its national navy, noting that Malaysia was evaluating missile systems from countries such as Italy, Japan, France, Turkey and South Korea.

He also said that Malaysia was prioritising securing missiles that were already in production as placing fresh orders could lead to delays to up to five years, reported local media.

“We cannot place a new order because we would have to wait a long time. That is not an option. We want what is already in production,” he said, adding that pricing and integration compatibility were also being evaluated.

“Perhaps the US (United States) is making some for its own ships, Italy too. If there are available units, I want to request those first,” he said. 

On Sunday, at the annual Shangri-la Dialogue held in Singapore, Khaled had criticised the “deafening silence” from major powers over the scrapped deal for a naval missile system, saying it “sends a dangerous message” about the integrity of international contracts.

"No serious concern was raised about the integrity of contracts or accountability. This deafening silence sends a dangerous message that some countries are simply above scrutiny," he said.

Later, Sandvik told CNA on the defence forum’s sidelines that the decision was due to the “new security situation and restrictions for sensitive military equipment from Norway”.

"It's nothing to do (with) Malaysia, the restrictions from the security authorities are now restricted to NATO members and close partners of NATO," Sandvik said, apologising for the “difficulties” of the scrapped deal.

"We had a good meeting ... good conversation today, open and honest. They are pretty direct, and we will continue to have this dialogue ... We want to have a nice and good partnership with Malaysia, as we have had in the past,” he added.

Asked if Norway would be refunding Malaysia for the contract’s 95 per cent of costs that was paid, Sandvik told CNA that Malaysia would have to speak to KDA.

"According to Norwegian law, it's the board of directors of the company who is responsible for answering that question,” he added.

Malaysia Prime Minister Anwar Ibrahim had warned in May that Norway’s decision "will have grave consequences for Malaysia's defence operational readiness and the LCS modernisation programme".

The LCS programme, first approved in Malaysia in 2011 with an initial contract worth RM6 billion, was for six vessels.

The deal, which had been plagued by allegations of mismanagement and rising costs, was relaunched in 2023 following a government review, with the number of ships reduced to five.

Delivery of the first vessel, expected in August, has been pushed back to December due to delays in equipment deliveries and ongoing rework, according to officials cited in local media reports.