THE government’s due diligence on Boustead Naval Shipyard Sdn Bhd (BNS) had failed to detect the company’s financial weaknesses, said the Public Accounts Committee (PAC).

“As such, the government had to pay an upfront fee of RM1.36 billion to BNS, which is against government protocols,” said PAC in a statement today.

“BNS’ poor financials were caused by abuse of power and mismanagement. As of 2018, BNS owed the OEM company RM801 million and another RM956 million to banks.”

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

“The forensic audit on the companies shows that both companies are highly doubtful,” said PAC.

PAC has released its report on the ministry of defence’s (Mindef) purchase of littoral combatant ships (LCS) from BNS. Although the government has already paid RM6.083 billion, none of the LCS ships have been delivered. 

According to the original schedule, five LCS ships should have been delivered to Mindef by August 2022.

According to PAC, the terms and conditions of the LCS contract was unfavourable to the government as payment for the project was based on development and item procurements instead of actual progress of the LCS ships.

“This is unusual and caused the government to pay 63.8% of the project compared to just 42.7% in the project.”

“Until today, the government has not finalised the detailed design with BNS and as such allowed variation orders to be issued which allows room for manipulation,” said PAC.

PAC said that BNS did not use all the money it received from the government for the project and instead used RM400 million to pay off its other debts.

“Add to that, the amount of equipment at the BNS warehouse is worth RM1.7 billion, of which 15% is already obsolete.”

In 2011, the government awarded a RM9 billion contract to build six units of LCS to BNS. Although the first ship of the project was supposed to be delivered in April 2019, a two-year delay from the initial maiden delivery date in 2017, none have been delivered so far. 

The Malaysian Anti Corruption Commission (MACC) has detained two chief executive officers on suspicion of misappropriation and corruption after discovering new leads into the procurement of the six LCS ships in January. – August 4, 2022.