SOME 11 years after the RM9 billion littoral combat ship (LCS) contract was awarded to Boustead Naval Shipyard Sdn Bhd (BNS), the Royal Malaysian Navy (RMN) has yet to take delivery of its first vessel.

However, despite the protracted delay, the government has paid RM6 billion to BNS, the largest shareholder of which is Lembaga Tabung Angkatan Tentera (LTAT) with a 61% stake.

The LCS programme started on December 16, 2011, when BNS was awarded a letter from the Ministry of Defence to deliver six vessels, then known as “second generation patrol vessels littoral combat ships (frigate class)”, as part of its fleet renewal plan.

The first vessels were supposed to have been delivered to the RMN in 2017, with further deliveries every six months until 2021.

Despite the process starting in 2011, an official contract was only signed on July 17, 2014, during which the delivery date for the first vessel was pushed from 2017 to April 2019.

Then in 2018, when Pakatan Harapan came into power, the project was put on hold and subsequently frozen in 2019.

In October 2019, then defence minister Muhammad Sabu told the Dewan Rakyat that the project was 55.7% completed, as of the third quarter of 2019, lagging far behind its 78% completion target.

With BNS unable to meet its target, the delivery date slipped by a further three years to 2022.

The contract, which was initially worth RM9 billion, began to swell to RM10.6 billion, due to the additional delays.

Meanwhile, in October 2020, it was alleged that RM1 billion of the RM6 billion spent thus far had vanished.

Forensic accounting the same year found financial irregularities and three individuals were arrested by the MACC.

PAC findings

The PAC summoned Defence Minister Hishammuddin Hussein, former defence minister Ahmad Zahid Hamidi, Ministry of Defence (Mindef) secretary-general Muez Abd Aziz, RMN chief Mohd Reza Mohd Sany, former RMN chief Abdul Aziz Jaafar, Boustead Heavy Industries Corp Bhd CEO Sharifuddin Md Zaini Al-Manaf and Boustead Naval Shipyard Sdn Bhd chief operating officer Low Kok Chiang to testify.

Following this, the PAC said the government’s due diligence on BNS had failed to detect the company’s financial weaknesses.

It said that the government had to pay an upfront fee of RM1.36 billion to BNS, which was against protocol.

The PAC said that BNS’s poor financials were caused by abuse of power and mismanagement. 

As of 2018, BNS owed original equipment manufacturers (OEMs) RM801 million and another RM956 million to banks.

According to the PAC, BNS had appointed two other companies to procure equipment from the OEM, causing cost overruns.

The original schedule stated that five vessels should have been delivered to the ministry by this month.

The PAC also said that the terms and conditions of the LCS contract were unfavourable to the government, as payment for the project was based on development and item procurement instead of the actual construction progress of the ships.

The original Sigma design chosen by the navy, which was approved by MinDef, was also changed to the Gowind design on July 11, 2011, after BNS had recommended it to the then minister, PAC said.

The committee also revealed that the lead ship Kapal Diraja (KD) Maharaja Lela, which was launched in August 2017, was in fact incomplete and had to return to the dockyard soon thereafter.

Something gravely wrong, according to former navy chief

Then navy chief Abdul Aziz Jaafar had warned that something was gravely wrong with the LCS programme after BNS decided to change the original design chosen by the navy.

Aziz, who was the navy chief from April 2008 to November 2015, had expressed his suspicion and the view of the contract through letters of reprimand and dissatisfaction to the cabinet and MinDef.

This included two letters to former prime minister Najib Razak, five letters to the defence minister, 10 to the ministry secretary-general, and one each to the secretary-general of the treasury, and chief secretary to the government. 

Aziz had testified that he suspected something was off with the LCS procurement because, while procurement was by the government on behalf of the navy, BNS was given full control over the project. 

He also said BNS ignoring the demands of the navy showed that the company was being very arrogant and appeared as though it was “very well protected”.

Calls for investigation

Various parties – including the PAC, the RMN, Hishammuddin and opposition MPs – have called for the scandal to be investigated by the MACC and for those involved to be charged.

After the PAC report was released, the MACC said that investigations into the LCS programme were also complete and that investigation papers have been passed to the Attorney-General’s Chambers.

Retired Brigadier General Mohd Arshad Raji who is president of the National Patriots Association (Patriot) said the whole LCS saga shows that there is high level corruption within the ministry and BNS.

“This high-level mismanagement was known some years ago but was probably kept under wraps, hoping that the problem could be managed and resolved,” Arshad said.

“The loss of RM6 billion of public funds that was reportedly paid out, but it ended without a single ship ever being completed and handed to the navy is clearly thievery at its best, whichever way you choose to argue.”

Arshad said that it was mind boggling that the Finance Ministry did not do any due diligence before disbursing the money to BNS.

“It certainly is not like paying for the purchase of a can of kacang putih (peanuts).

“Patriot stands by the members of the PAC for their thorough investigation of this monumental loss of public funds.

“We now demand the PAC report be acted upon speedily by the MACC. Bring to justice those found guilty of abuse, corruption and mismanagement of this multibillion-ringgit LCS project.” – August 8, 2022.