More delays to LCS project?


WHEN Defence Minister Hishammuddin Hussein appeared before the Public Accounts Committee (PAC) on January 25, he spoke about “corporate restructuring” of the RM9 billion littoral combat ships (LCSs) contract and that the contractor, Boustead Naval Shipyard Sdn Bhd (BNS), will have to deliver two LCSs without any new cost to the government.

He also said BNS will not get any more money from the government until these two ships have been delivered.

On August 8, Hishammuddin told the Dewan Negara that the first of six LCSs purchased from BNS should be ready no later than two years from now.

He also pledged that the Defence Ministry will be transparent with the public on status of the project and provide regular updates to ensure the vessels are delivered on schedule.

In a Facebook posting dated August 13, Hishammuddin said negotiations with vendors, original equipment manufacturers (OEM) and banks are being carried out.

In a reply to queries from reporters on August 17, Hishammuddin again reaffirmed that no injection of additional funds will be provided until the first ship is delivered, reneging on his earlier commitment to the PAC in January, where he stated there would be no injection of additional funds until two ships are delivered.

In an announcement to Bursa Malaysia last Friday, Boustead Heavy Industries Corporation Bhd (BHIC) said that Contraves Advanced Devices Sdn Bhd (CAD) and Contraves Electrodynamics Sdn Bhd (CED) had received a notice dated August 23 that the letters of awards issued by BNS to CAD and/or CED under the LCS project are void.

According to its corporate website, Boustead Holdings Berhad (BHB), a subsidiary of Lembaga Tabung Angkatan Tentera (LTAT) and a major shareholder of BHIC, is listed on the main board of Bursa Securities.

The shareholders of BNS, incorporated on June 13, 1990 and whose principal activities are construction, repair and maintenance of naval ships, weapons and electronics, design and engineering, fabrication of steel structures and commercial shipbuilding, are BHB, LTAT, Perstim Industries Sdn Bhd, a wholly owned subsidiary of BHIC with 68.85%, 10.38%, 20.77% equity interest in BNS respectively and one fully paid special share held by the finance minister on behalf of the Malaysian government.

Shareholders of CAD are BHIC Defence Technologies Sdn Bhd, a wholly owned subsidiary of BHIC holding 51% and RD Investment AG (RDI), who hold the remaining 49%.

According to a BHIC’s Bursa Malaysia filing on August 16, 2017, RDI, is a subsidiary of Rheinmetall Air Defence AG, a company that specialises in the management of the electronics and additive manufacturing, integration and training services business for defence, industrial and aerospace markets.

Both BHIC and BNS shared a common shareholder which is BHB. BHIC also has a minority stake in BNS.

BNS has now terminated a contract they previously awarded to the subsidiaries – CAD and CED – of a company listed on Bursa Malaysia, BHIC with whom they shared the same controlling shareholder – that is BHB – for the procurement, engineering, integration and supply of combat management system, fire control, communication system, ammunition, radars, torpedos and missiles design for the six vessels.

Obviously from now onwards, in a normal situation, there will be suits and countersuits between both parties.

As company listed on Bursa Malaysia, BHIC has an obligation and responsibility to seek legal redress or recourse against BNS with whom they both share the same common and controlling shareholder.

In seeking legal redress, BHIC’s board of directors has to assure the investing public that they are acting in the best and most optimal interest, notwithstanding that its major and controlling shareholder is also the major and controlling shareholder of BNS.

It is presumed that combat management system, fire control, communication system, ammunition, radars, torpedos and missiles design are core components to the function and operational capability of these ships, without which the vessel is of no use for the purpose for which it was designed and built for.

Now that the contracted party that is supposed to deliver the above has their contracts voided, there is no way BNS is able to complete and deliver the ships.

BNS has to seek a new supplier to fulfil its obligations

Hence, regardless of whichever supplier or systems BNS signs with, it will take time from re-tendering to evaluating and deciding on the new supplier.

BNS might not be able to proceed with contracting a new supplier until the voiding of the contract that was decided unilaterally by the principal, is disposed off in the courts, if and assuming BHIC is able to act independently, obtain an estoppel order from the courts.

All these inordinately would prolong the August 2024 of the one or two ships – depending on the representation made by Hishammuddin.

Or is the voiding of the contract with the subsidiaries of BHIC is a precursor and justification for the government to inject new funds for the completion of this contract for a new supplier to undertake the project, including the first or first of two ships Hishammuddin has committed to deliver by August 2024? – September 5, 2022.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.



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Comments


  • Your last paragraph.

    ... and .... an excuse for the voided companies to shred documents to "cover-up"?

    Posted 1 year ago by Malaysian First · Reply