Defence Minister Mohamad Sabu said the unsatisfactory quality of work, do not according to specifications which resulted in redundant work caused delays to the RMN assets which should be ready in April being undelivered to date.
Mohamad said the ministry, however, did not stop the purchase as it had paid up RM6 billion.
“But to continue with the construction of the ships, we need to cover additional costs set by the contractors amounting to RM1.4 billion. I have gone to the shipyard and the metal pieces had been cut. This is the problem of the project.
“We will try to ensure they are completed according to the schedule given by the contractor, Boustead Naval Shipyard Sdn Bhd (BNSSB). The first ship should have arrived in April this year but was informed it would only be completed in February 2022,” he said when winding up the debate on the 2020 Supply Bill at Dewan Rakyat today.
He said the matter also caused a delay in delivering five other ships.
December
Billions lost in defence procurement scandals
Reading the long and never-ending litany of malfeasance, corruption and incompetence in our nation is always a frightfully depressing affair.
It has become so commonplace that even the public has become blasé about it. But we cannot afford to just roll our eyes, mutter under our collective breath and move on; it is, after all, our money that is being plundered.
Of course, it is encouraging to see former leaders like Najib Razak, Ahmad Zahid Hamidi and Tengku Adnan Tengku Mansor, among others, in the dock on charges of corruption and abuse of power. But anyone who thinks that this signals a new toughness against corruption in Malaysia should think again.
1MDB, as horrific as it was, was only the tip of the iceberg, part of a pattern of systematic plunder that has plagued the nation for decades. Worryingly, it is an iceberg that many of today’s leaders prefer not to see, perhaps because it might wash too close to shore.
Take, for example, recent news reports concerning the RM300 million deal to acquire lightweight combat helicopters from American aerospace giant McDonnell Douglas (MD). Two were to have been delivered in July 2017 with the remaining four in December last year.
To date, 35% of the contract value – RM112.65 million – has already been paid but there’s still no sign of the helicopters. It was reported that the local company appointed as the agent for the purchase had its dealership rights terminated by MD. The government might now cancel the project and seek to recover the monies already paid. Good luck with that.
Strangely, when discussing the issue in Parliament, Defence Minister Mohamad Sabu was quoted as saying, “If the helicopters are delivered and the Armed Forces refuse to use them, discussions will be held with other ministries on how they can be utilised.”
He did not explain why the Armed Forces might refuse to accept them but, in any case, which other ministry would have need for combat helicopters? Perhaps Entrepreneur Development Minister Redzuan Yusof might need a few to shoot down out-of-control flying cars.
In the meantime, the RMAF’s fleet of Nuri (Sea King) helicopters has been grounded following the crash of a Nuri in early August this year due to an “unspecified technical fault.” Press reports indicate that the air force is now looking to lease helicopters to replace the grounded fleet.
Coming, as it does, after the defence minister admitted last year that only four of the 28 Russian fighter jets in the RMAF’s inventory are actually able to fly, it does raise questions about the ability of the RMAF to adequately maintain its aircraft.
And then there’s the Royal Malaysian Navy (RMN) which seems to be the victim of one procurement disaster after another.
In 1998, an Umno-linked company which had never built anything but trawlers and police boats before, was awarded a RM4.9 billion contract to supply six offshore patrol vessels (OPVs) to the RMN by 2006. The project was plagued by delays, shoddy workmanship and cost overruns which pushed the final price tag to RM6.75 billion.
It was also discovered that the defence ministry had paid RM4.26 billion in advance to the contractor even though the progress of work done amounted to only RM2.87 billion.
After an 18-month delay, two OPVs, poorly finished and full of flaws, were delivered; it chalked up 298 complaints in its first few months of operation. Reports at the time indicated that it had even failed initial sea trials.
But apparently, we learned nothing from the OPV fiasco because we are embroiled once again in another naval procurement scandal. In October 2013, the government signed an agreement with another local shipyard to supply six littoral combat ships (LCS). The first vessels were to have been delivered in December last year.
The defence minister recently confirmed in parliament that RM6 billion has already been paid but there’s still no sign of the ships. Delivery has now apparently been pushed back to 2023. The minister also hinted that the government might have to pay an additional RM1.4 billion to ensure full completion of the contract.
Explaining the delay, the defence minister said the contractor had failed to submit complete designs, failed to acquire the necessary equipment and failed to adhere to design specifications. If this is true, it would mean that the taxpayers will be paying an extra RM1.4 billion to compensate the company for its own incompetence and negligence.
At the end of the day, having spent billions on defence, we are left with aircraft that cannot fly, helicopters that are grounded, submarines that have problems diving, and ships that exist only on paper. What is the point in tabling grandiose white papers on defence in parliament when we cannot even keep our air and naval assets operational and cannot properly manage the acquisition of needed assets? It’s an absolute disgrace!
And here’s the amazing thing: despite the corruption, mismanagement, malfeasance and incompetence involved, despite the annual auditor-general’s reports and the findings of the Public Accounts Committee, not a single politician, senior general, senior civil servant or CEO has ever been taken to task, leave alone charged, for malfeasance, corruption or dereliction of duty.
Instead, the cabinet, on many occasions, waived late delivery penalties, topped up payments and generally went out of its way to avoid sanctioning the contractors concerned. The cabinet seemed more interested in protecting and helping out cronies than in safeguarding the interests of the nation and giving our men and women in uniform the equipment and support they deserve.
In other democracies, those involved in such scandals would have been charged for malfeasance or at the very least ranked over coals by parliament; but here, we award them with titles, reward them with high paying positions in government-linked companies or allow them to run around making political deals and holiday abroad with key cabinet ministers.
The fact is we’ve created a corrupt system of acquisition that enables politicians to channel lucrative defence projects to cronies who inflate prices but cannot deliver on their commitments, all in the name of promoting bumiputera empowerment. Call it anything you want but there’s no escaping the fact that it’s a gigantic scam that has enabled unscrupulous politicians and their cronies to rake in billions at the expense of taxpayers.
Of course, all these issues took place during the former Barisan Nasional administration; the question now is what is Pakatan Harapan going to do about it? Are they going to clean house once and for all or continue mollycoddling the cronies at the expense of the people? This is particularly important as the government is currently mulling new big-ticket defence acquisitions including next-generation fighter aircraft, trainers and helicopters as well as naval assets.
As well, by the looks of things, some of the old cronies appear to be making a comeback, hungry for new opportunities for plunder.
When the OPV scandal came to light in 2007, Lim Guan Eng, then in opposition, angrily questioned why cabinet approved the increase in contract price twice from RM4.9 billion to RM6.75 billion or 38% even though the OPVs were either not delivered or fully operational at the time. Hopefully, now that he is finance minister, he might be able to prevent history from repeating itself.
Dennis Ignatius
2020
Let Boustead Naval Shipyard finish combat ship project
PETALING JAYA: A group of veterans and retired police officers today urged Putrajaya to let Boustead Naval Shipyard Sdn Bhd (BNS) complete the delivery of six littoral combat ships (LCS) instead of getting a French company to take over.
The National Patriots Association (Patriot) added however that this must be done under the supervision of BNS’ parent company, Boustead Heavy Industries Corporation Bhd (BHIC), and the Armed Forces Fund Board.
Patriot president Arshad Raji said the responsibility of building naval vessels should remain with local companies.
“Bring in the right people, including some who were with BHIC since the commencement of the LCS project,” he said in a statement.
Last week, the defence ministry said it was considering three options to resolve the delay in delivery as BNS had completed none of the six orders.
These were the appointment of Naval Group France as a rescue contractor to complete at least two LCS units, the completion of at least two units by BNS with the remaining contract ceiling, and the termination of the contract with BNS.
Defence Minister Ismail Sabri Yaakob said this at the Dewan Rakyat, noting that the overall progress of the project was 56.67% compared to the original plan of 85.73%, a delay of 29.06% or 31.1 months.
Arshad said it should be “easy and plain sailing” for BNS to complete building all six ships.
He added that BNS should be allowed to continue with the project as the ships’ design was a prototype.
“Our design engineers, together with the French, are building it for the first time.
“Keeping the contractor in Malaysian hands will help in competency moulding,” he said.
However, he said the current project team should be replaced, while the BHIC board members involved should resign given their failure to deliver the vessels.
“The business of building ships for our navy is for the real professionals.”
Malaysia's Auditor-General flags out inconsistencies in littoral combat ship programme
by Ridzwan Rahmat
Malaysia’s Auditor-General has identified a couple of inconsistencies in the county’s troubled littoral combat ship (LCS) programme, including a failure to collect MYR116.54 million (USD28 million) in late penalty fees from the shipbuilder.
These inconsistencies were highlighted in the 2019 edition of the country’s National Audit Department’s report, which was released on 24 August.
The Malaysian government selected a design variant of the Gowind family of corvettes from French shipbuilder Naval Group (then DCNS) for the LCS programme, and in December 2011 awarded Boustead Naval Shipyard (BNS) a MYR9.13 billion contract to build six vessels.
“Clause 23.1 in the main contract indicates that the physical handover of the six LCS vessels would be done in stages beginning in April 2019 till June 2023,” said the Auditor-General’s report. “However, LCS1, was yet to be delivered as at 31 December 2019,” it noted.
“The audit discovered that given the 245-day lapse, a late penalty of MYR116.54 should have been imposed on the shipbuilder for the period up to 31 December 2019,” said the report, adding that the provision for late penalty payments is provided for in clause 30.1.1 of the contract.
“As at 30 June 2020, despite the delivery being a year late in April 2020, MINDEF [Malaysia’s Ministry of Defence] has yet to issue a letter of demand for the penalty fees to the shipbuilder, only issuing a reminder of the lateness in June 2019,” said the report.
“This delay in enforcing the terms of the contract has caused a MYR116.54 million deficit in the government’s revenue for the 245 days up to 31 December 2019,” it added.
August
The Edge
Lack of talent, design changes at the core of BHIC’s LCS delays
THE construction of six littoral combat ships (LCS) for the Royal Malaysian Navy (RMN) by Boustead Heavy Industries Corp Bhd (BHIC) has been beset by delays. The Ministry of Defence awarded the project to BHIC in 2011 and at least two vessels should have been built by now.
The government is mulling a move to salvage the project, either by instructing BHIC’s shipbuilding arm Boustead Naval Shipyard Sdn Bhd (BNS) to complete two vessels, or to have them completed by the Naval Group of France through a deed of assignment.
The Naval Group, formerly known as DCNS, is the owner of the Gowind 2000 corvette design, which the LCS is based upon. The group is also the technological partner for BNS for the LCS programme, but it is not involved in the construction of the vessels, as the government wanted the project to be built entirely in Malaysia.
What caused the delays?
According to industry sources, the delays stem from BNS’ inability to come up with a good schematic design plan for the construction of the vessels. The schematic plan must be detailed and take into consideration all aspects, from engineering to work flow, so that the construction phase can be done smoothly.
“The project faced multiple delays because they [kept making mistakes and encountering problems] while constructing the ships, and then they had to go back to the [drawing board],” says an industry insider, who has undertaken jobs for the Malaysian Armed Forces, including procurement and maintenance and repair.
BHIC did not respond to questions from The Edge on what caused the delays.
Last Monday, Senior Minister (Defence) Datuk Seri Ismail Sabri told parliament that the LCS programme was facing delays and cost overruns, and that the government was considering salvaging the programme, as well as imposing fines on BNS.
He said two of the six LCS units should have been delivered to the RMN, but until July 31, no vessel had been completed, and that the overall status of the entire project stood at 56.67% completed, as opposed to the original schedule of 85.73%.
This means the project is facing a delay of 29.06% or 31.1 months.
In terms of individual vessels, five are under construction, with the highest completion level at 59.79%, while construction has not started on the remaining vessel, said Ismail. He added that a special committee had been tasked to review the entirety of the project, including from the perspective of integrity.
The delay is not the first. In 2019, then minister of defence Mohamad Sabu said the government would fork out an additional RM1.4 billion to complete the project, having paid RM6 billion prior to that.The report on whether to continue or terminate the project will be presented to the Cabinet in the near future, he added. Ismail also acknowledged that a report has been filed with the Malaysian Anti-Corruption Commission (MACC) to investigate the project delays and cost overruns.
BHIC admits that the programme has been facing delays.
In its 2019 annual report, chairman Tan Sri Ramlan Mohamed Ali said the group was working hard to deliver the ships and was focused on reducing its operational costs and completing the projects in accordance with the specifications.
In the same report, CEO Sharifuddin Md Zaini Al-Manaf said the construction of the LCS, a “first-in-class” ship, came with huge challenges that the group continued to discover and manage.
“For the LCS programme, we have had to face a series of challenges over the past few years. The learning curve for the project team has been very steep. We have had to build our capabilities while delivering key project milestones in carrying out the project.
“This proved to be achievable but very challenging,” he said.
He added that the group had to accommodate variation orders, some of which had an impact on cost and time.
“We have engaged and will continue to consult with various stakeholders to obtain the final approval for these variation orders. Given the scale and complexity of the LCS programme, it is not unusual to have variation orders involving the ship design and equipment.”
BHIC recorded a loss after tax (LAT) of RM116.6 million for the financial year ended Dec 31, 2019 (FY2019), on the back of RM168.9 million of revenue. The losses stemmed from lower maintenance, repair and overhaul (MRO) activities for both the defence and commercial segments and higher impairments of RM57.9 million.
The group’s results were compounded by negative contribution from associates amounting to RM57.7 million, as well as higher finance cost of RM16.9 million in FY2019, primarily due to the drawdown of borrowings for working capital purposes, it said in its 2019 annual report.
“Our associates’ results were impacted by adjustments made pursuant to changes in the Malaysian Financial Reporting Standard 15 (Revenue from Contracts with Customers) and cost overruns in the LCS programme.
“However, the profits from the progress of the LMS (Littoral Mission Ship) Programme helped cushion the associates’ results. MRO works undertaken by the associates for seven RMN vessels in FY2019 were carried out on time and at cost,” says Sharifuddin when commenting on BHIC’s FY2019 results in the annual report.
Not only is the LCS programme is in limbo following Ismail’s statement, but BNS itself has also been having a difficult time.
On July 3, BHIC announced that BNS had been served with a winding-up petition by MTU Services (Malaysia) Sdn Bhd. In the petition, MTU alleged that BNS owes it a total sum of RM56.04 million for equipment supplied and services provided.
A check with the Companies Commission of Malaysia shows that BNS had sizeable revenue but made huge losses. In 2018, BNS recorded net loss of RM255.55 million, on the back of RM1.073 billion of revenue.
BNS is majority-owned by Boustead Holdings Bhd, which has a 68.84% stake. BHIC owns a 20.8% stake in BNS through its direct subsidiary Perstim Industries Sdn Bhd. The remainder is owned by Lembaga Tabung Angkatan Tentera (LTAT), with the Ministry of Finance holding one share.
Looking back at BNS’ history, how it came to be part of the Boustead group was also due to the failure of a contractor in delivering navy vessels.
BHIC was created in 2005 when the government forced a merger between Boustead’s commercial shipbuilding companies with Penang Shipbuilding and Construction-Naval Dockyard Sdn Bhd (PSC-ND), after the latter failed to deliver the New Generation Patrol Vessels (NGPV).
PSC-ND was part of the stable of companies owned by entrepreneur Tan Sri Amin Shah Omar Shah. In 1998, the government awarded the contract for the construction and commissioning of six offshore patrol vessels to PSC-ND as the prime contractor, using the Blohm + Voss MEKO 100 model.
The contract cost was around US$270 million per vessel. The NGPV programme was to replace RMN’s ageing patrol boats that had been in service since the 1960s. A fleet of 27 vessels was envisaged to be commissioned into service with the RMN.
By 2005, the Public Accounts Committee had brought up the issue of delays in the delivery of the six NGPVs. It was found that PSC-ND required additional funds of around RM120 million to complete the programmes.
It was also reported that 40 vendors were owed RM180 million by PSC-ND.
These issues and the fact that the programme risked being a total failure forced the government to step in and reorganise PSC-ND, with Boustead taking a 37% stake. With Boustead as the largest shareholder, it merged PSC-ND with its own commercial shipbuilding business to form BHIC.
BHIC managed to complete the four vessels contracted to be built at the Lumut dockyard by PSC-ND, with deliveries starting in 2006.
Meanwhile, although the LCS programme has been beset with delays, BHIC did manage to deliver the LMS programme on time to the RMN. However, this is because the LMS was not built by BHIC, but instead built at the Wuchang shipyard in China by its partner China Shipbuilding and Offshore International Co Ltd.
Of the four ships under the LMS programme, two have been completed, with one — KD Keris — commissioned and put into service with the RMN. The other completed vessel, KD Sundang, was to have been commissioned in April, but that had to be postponed to October, due to the Covid-19 pandemic.
Mindef to take action against company
for delay in delivering six littoral combat ships
KUALA LUMPUR, Aug 26 — The Defence Ministry (Mindef) will take appropriate action against the company responsible for the delay in delivering six littoral combat ships (LCS), which were supposed to be delivered in 2019.
Defence Minister Datuk Seri Ismail Sabri Yaakob said at the moment, they were waiting for feedback from the company.
He said his ministry was conducting an investigation into the matter as the company had failed to complete the project within the allotted time.
“Mindef can send a claim for late bill but that will not solve the problem. Therefore, this matter will be tabled in the Cabinet with the three proposals I mentioned in Parliament, earlier,” he told a press conference after a working visit to the Armed Forces Family Housing (RKAT), at Batu Cantonment Camp here, today.
Ismail Sabri said this when asked to comment on the 2019 Auditor-General's Report (LKAN) on the issue.
Earlier, the media had reported that Mindef was considering terminating the contract of a company supposed to supply six Royal Malaysian Navy (RMN) LCS assets.
Following that, Ismail Sabri gave three options in relation to the direction of the LCS project, that will be presented to the Cabinet as a measure to save the contract.
The three options are for the project to be continued by appointing Naval Group France as a rescue contractor through a Deed of Assignment with Boustead Naval Shipyard Sdn Bhd (BNSSB) using the remaining contract ceiling to complete at least two LCS units.
As for the second option, the project is continued by BNSSB with the remaining contract ceiling to complete at least two LCS units while the third option is the termination of the contract with BNSSB and the ministry starting efforts to save the project.
On Monday, according to the LKAN, it was found that Mindef had failed to impose a late fine of RM116.54 million on the company following the delay in the delivery of the six LCS.
LKAN found that the amount was for a delay of 245 days from the date it should have been delivered, which was April 2019 until the audit was conducted. — Bernama
September
Defence ministry has to answer over combat ships fiasco
By BG Mohamed Arshad Raji (Rtd)
The Ministry of Defence’s (Mindef) three options consideration after mulling over the troubled littoral combat ships (LCS) project is as troubling that do not clarify but add confusion to the already confused state of the shipbuilding project. Defence Minister Ismail Sabri Yaakob had stated in parliament on August 3 the three options – (1) appoint Naval Group (French company) as a rescue contractor, (2) allow Boustead Naval Shipyard Sdn Bhd (BNS) to continue, or (3) terminate the contract with BNS to build the six LCS.
Surprisingly Ismail Sabri did not mention a word about the Variation Orders and delays that were major factors that Mindef contributed to the problems. Patriot has some comments and suggestions to offer.
This troubled project started during the tenure of two previous defence ministers. In October 2011 Dato Sri Ahmad Zahid Hamidi, contrary to TLDM’s recommendation, changed the LCS design from Sigma (Dutch) to Gowind (proposed by the French Naval Group and naturally was roped in as the sub-contractor). Setiawangsa MP Nik Nazmi who was previously on the Select Committee for Defence Procurements placed the reason for the LCS delay squarely on the then Defence Minister Datuk Hishammuddin Hussein who did not make any decision on the Extension of Time request and the Variation Orders put up to him in January 2018 by BNS. Every month of non-fulfilment of variation orders added to cost piling up.
Request for change of weapon system and equipment by TLDM halfway into design and construction was the main contributory factor for the project delay and subsequently cost overrun. BNS had to claim for variation orders for the changes. The LCS project started end 2011. The project cost was RM 9 bil for the six ships. The question arises as to why the Naval top brass were indecisive then and had to make vital changes four years after the project commencement that resulted in redesigning and obviously cost increase. Whatever the excuses for the delays, variation orders and exorbitant cost overrun, the defence minister has to take responsibility.
The question also arises as to why, despite the lengthy discussion between BNS, TLDM and Mindef concerning the Extention of Time request and the cost of Variation Orders; Mindef and Putrajaya procrastinated on decision-making and therefore contributed directly to the delay.
In December 2019 then Defence Minister Mohamad Sabu had stated that Mindef had approved the LCS Variation Orders of RM1.4 bil, an amount that was estimated. However, a thorough and more accurate estimation put it at around RM 3 bil variation orders for two ships only. If this estimation is correct, it means the total project cost of RM 9 bil meant initially for six ships is now only for two ships, considering that close to RM6 bil has already been spent. Again, it is the ministers who have to take responsibility for this nonsense both at the shipyard and delay caused by indecision.
This explains the confusion and reason for Ismail Sabri and Mindef now suggesting the first two options utilising the remaining contract ceiling cost (of around RM 3 bil) to complete only two ships. Patriot is totally disgusted with this whole episode of mismanagement, irresponsibility, and absence of accountability. It is a fiasco and national shame.
This statement will be followed with another on Patriot’s suggestion for remedial measures.
*BG Mohamed Arshad Raji (Rtd) is president of Persatuan Patriot Kebangsaan.
October
Navy Wants The Govt To Solve LCS Issue
KUALA LUMPUR (Nov 27): Boustead Heavy Industries Corp Bhd (BHIC) has lodged a report with the Malaysian Anti-Corruption Commission (MACC) on possible irregularities in the RM9 billion littoral combat ship (LCS) project, which its associate Boustead Naval Shipyard Sdn Bhd (BNS) is undertaking.
BHIC said the findings of the forensic audit, which was commissioned in February 2020, were handed over to the MACC in September.
“This stands testimony to the BHIC’s group commitment in fighting corruption and bribery at all levels of the organisation and in all its business dealings. This is in line with its core corporate values of belonging, honour, integrity and commitment,” BHIC chairman Admiral Tan Sri Datuk Seri Ramlan Mohamed Ali, who is also a retired Chief of Navy, said in a statement today.
The project was awarded to BNS by the Ministry of Defence in 2011, and the order was for six LCSs to be constructed for the Royal Malaysian Navy.
News reports revealed that the first ship should have been delivered in April 2019, but not one ship has been completed although the government had already paid the company RM6 billion. Its first delivery was originally scheduled for 2017, according to a Dec 16, 2011 filing with Bursa Malaysia.
"BHIC Group would like to categorically state that it takes a zero-tolerance approach to bribery and corruption outlined in the MACC Act 2009. As enshrined in the group’s Anti-Bribery and Anti-Corruption Policy Statement, we abide by the Guidelines of Adequate Procedure pursuant to Section 17A of the Act," BHIC said in the statement.
In fact, it highlighted that the board of directors have already undergone major revamp in 2019 and 2020 to enhance corporate governance by appointing personalities known for their expertise in their respective fields.
"BHIC reiterates that the company will extend its fullest cooperation to MACC and other authorities in any investigation on the LCS project. It has had several discussions with MACC following the submission of the forensic audit report," it added.
Former deputy defence minister Liew Chin Tong, who is also a senator, told the Dewan Negara in September that Putrajaya’s special investigation committee on procurement, governance and finance, had discovered that RM1 billion of the RM5.94 billion paid for the warships could not be traced.
In August, Defence Minister Datuk Seri Ismail Sabri Yaakob said the ministry was considering three options to resolve the delay in the delivery of six LCS units, as BNS had completed none of the orders.
These options were for the appointment of Naval Group France as a rescue contractor to complete at least two LCS units, the completion of at least two units by BNS with the remaining contract ceiling, or the termination of the contract with BNS.
In August, The Edge weekly quoted industry sources as saying that the delays stem from BNS’ inability to come up with a good schematic design plan for the construction of the vessels. The schematic plan must be detailed and take into consideration all aspects, from engineering to workflow, so that the construction phase can be done smoothly.
BHIC, at the time, did not respond to questions from The Edge about what caused the delays.
BNS is majority-owned by Boustead Holdings Bhd, which has a 68.84% stake. BHIC owns a 20.8% stake in BNS through its direct subsidiary Perstim Industries Sdn Bhd. The remainder is owned by Lembaga Tabung Angkatan Tentera (LTAT), while the Ministry of Finance holds one share.
Edited by Lam Jian Wyn
December
Boustead voices support for BHIC in reporting irregularities involving RM9 bil combat ship project to MACC
