Irregularities in Boustead's RM9 billion combat ship project: What you need to know

KUALA LUMPUR:WHAT'S GOING ON?

Boustead Heavy Industries Corporation Bhd (BHIC) lodged a report with the Malaysian Anti-Corruption Commission (MACC) on possible irregularities in a RM9 billion littoral combat ship (LCS) project.

The project was awarded to Boustead Naval Shipyard Sdn Bhd (BNS) in December 2011.
The government has already paid RM6 billion for the first ship to be delivered in April 2019 but not one ship has been built to date.
In September, former deputy defence minister Liew Chin Tong told the Dewan Negara 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.
BHIC said forensic audit findings, commissioned in February 2020, were handed over to the MACC in September. Upon completion of of the audit last Saturday, BHIC lodged a report with MACC for investigations to probe possible irregularities in the LCS project.

Patriot’s president Brigadier General (Rtd) Datuk Mohamed Arshad Raji said the six vessels were sorely needed to boost Malaysia’s defences against naval threats as well as economic necessity. Image via Sinar Harian

WHAT IS CAUSING THE DELAY?

Persatuan Patriot Kebangsaan (Patriot) president Brigadier General (Rtd) Datuk Mohamed Arshad Raji, in an article on Focus Malaysia said trouble with the project started in 2011.
He said former defence minister Datuk Seri Ahmad Zahid Hamidi, contrary to the The Royal Malaysian Navy’s recommendation, changed the LCS design from Sigma (Dutch) to Gowind (proposed by the French Naval Group).
Request for change of weapon system and equipment halfway into design and construction was the main contributory factor for the project delay and subsequently cost overrun, Arshad said.
Defence Minister during Pakatan Harapan's administration Mohamad Sabu said the government would have to fork out an additional RM1.4 billion to complete the project.
In August 2020, current minister of defence Datuk Seri Ismail Sabri told the Dewan Rakyat that the ministry do not intend to inject additional funds. Instead BNS was asked to use the remaining allocation to continue the project, but for the completion of 'at least two units'.
Liew questioned this proposal as the navy would only be getting two of the six ships ordered despite paying two-thirds of the RM9 billion ceiling cost.

WHY IT MATTERS?

In October, Patriot criticised the Armed Forces Fund Board (LTAT) which owns a 10.36 stake of BNS and Boustead Holdings for its silence over the issue.
Datuk Mohamed Arshad Raji said the six vessels were sorely needed to boost Malaysia’s defences against naval threats as well as economic necessity.
The recent clash between the Malaysian patrol craft and China’s Coast Guard is a case in point.

WHAT'S NEXT?

In August 2020, Datuk Seri Ismail Sabri Yaakob said the ministry was contemplating on three options to sort out the delay in the delivery of six LCS units. The options are:

Appointment of Naval Group France as a rescue contractor to complete at least two LCS units.
Completion of at least two units by BNS with the remaining contract ceiling.
Termination of the contract with BNS.

BHIC said forensic audit findings, commissioned in February 2020, were handed over to the MACC in September. Upon completion of of the audit last Saturday, BHIC lodged a report with MACC for investigations to probe possible irregularities in the LCS project. REUTERSpic

BACKGROUND ON COMPANIES

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 LTAT while the Ministry of Finance holds one share.