KUALA LUMPUR – The eye-watering RM9 billion littoral combat ships (LCS) project courted controversy last year when multiple government and corporate reports outlined discrepancies behind the deal with main contractor Boustead Naval Shipyard (BNS) and other companies.
Questions were raised and accusations were thrown over how none of the six ships – the first of which was supposed to be handed over in 2019 – have been delivered to the Royal Malaysian Navy (RMN) to date, despite the government having paid RM6.083 billion to BNS.
With Parliament’s Public Accounts Committee (PAC) expected to table its progress report on the contentious project in the Dewan Rakyat on Monday, Scoop takes a look back at the various reports which exposed power abuse, procedural wrongs and questionable decisions.
Parliament’s PAC report
On August 4 last year, the PAC released a report on findings related to the LCS procurement after nine proceedings were conducted between November 18, 2020 and March 8, 2022, regarding the issue.
Among witnesses who were summoned to the proceedings include former defence minister Datuk Seri Hishammuddin Hussein, his predecessor Datuk Seri Ahmad Zahid Hamidi – who is now deputy prime minister – and former Defence Ministry secretary-general Datuk Muez Abd Aziz.
The PAC chairman at that time, Wong Kah Woh, had recommended for the Malaysian Anti-Corruption Commission (MACC) to take prosecutive action against those behind the LCS scandal.
Among key findings made following the proceedings include how the government had awarded the LCS contract to BNS via direct negotiations in 2011.
The report also stated that due diligence by the government against BNS failed to detect the financial problems of the company, which requested from the government a RM1.8 billion deposit, or 20% of the overall contract value, to kickstart construction of the vessels.
The “weak and critical” financial situation of the company, a subsidiary of Boustead Holdings Bhd, which has the Armed Forces Fund Board (LTAT) under the RMN as its biggest shareholder, is due to “wrongdoing, abuse of power and flaws in financial management.”
It was also noted that equipment kept in storage for the project is estimated to be valued at RM1.7 billion, with an estimated 15% of the equipment already obsolete.
Besides that, the committee’s report detailed that feedback from RMN as the vessels’ end user was completely ignored by the Defence Ministry and BNS during the implementation of the project, leading to the ships’ design being changed from the RMN-recommended Sigma to Gowind design.
This “gravely wrong” change is also detailed in the Governance, Procurement and Finance Investigation Committee’s (JKSTUPKK) report on the LCS project.
JKSTUPKK declassified report
According to the declassified report by the JKSTUPKK, the Defence Ministry, which was helmed by Zahid at that time, had opted for the “unproven, conceptual” Gowind design that BNS lobbied for despite former navy chief Tan Sri Abul Aziz Jaafar’s explanation of why the Sigma design was preferred.
The report said that in a letter dated July 26, 2011, Aziz had written to the ministry’s secretary-general at the time, stating that the Gowind design was still conceptual and would function as an offshore patrol vessel, which operates differently than an LCS.
This is in contrast with the Sigma, which is a proven design based on the corvette class of warships and has a proven track record under service with the Indonesian navy, thus reducing the risk to the Malaysian government, Aziz said in the letter.
Besides the letter referenced by the report, Aziz had written multiple other letters expressing his concerns over the ships’ design, including to then prime minister Datuk Seri Najib Razak, Zahid, the chief secretary to the government, as well as the secretaries-general of the Defence Ministry and the Treasury.
None of them reportedly replied.
Besides that, the investigative committee’s report also revealed that the vessels’ completion were hampered by inexperienced junior engineers BNS had hired to design the ships, as well as a shortage of skilled labour as subcontractors refused to send seasoned welders and quality control personnel due to late payments.
It was also reported that instead of the RM9 billion agreed upon in 2014, Putrajaya could end up forking out a whopping RM11.145 billion for the six ships due to changes in equipment, implementation schedule, and the procurement of an integrated logistic support system.
In concluding its report, the committee proposed two options for the government: either to continue or abandon the LCS project.
The former, it said, would require the government carry out a cost benefit analysis before approving any of BNS’ application for additional costs to complete the project, especially if government spendings are expected to balloon beyond the agreed upon RM9 billion.
It also found that the procurement contract lifecycle management by the Defence Ministry was “weak” while several clauses in the contract abandoned established procedures and were not in the government’s favour.
For the record, the JKSTUPKK report contained several redacted sections when it was declassified on August 17 last year. Among the redacted items were the names of BNS board directors and shareholders as well as the status of the company’s loans as of May 2019.
Wong, however, had assured that the redacted details do not affect the overall facts and summary of the document, which also contributed to the PAC report.
BHIC internal forensic audit report
The third report on the LCS issue revealed to the public was the internal forensic audit report by BNS associate company Boustead Heavy Industries Corporation Bhd (BHIC) based on audits conducted for the 2011 to 2014 financial years.
Declassified on August 22 last year, the report stated that BNS had approved a payment of about RM90 million to DCNS despite the firm appearing to not have reached targets outlined in three award letters (LoA) valued at a total of RM878 million for the LCS project.
The report said the transactions were instructed by then LCS programme director Anuar Murad and was approved by former BHIC managing director Tan Sri Ahmad Ramli Mohd Nor, who is also a former RMN chief.
The duo was said to have issued the LoA on complimentary services for detailed design and support (RM475.6 million) without necessary approval from the LCS steering committee and without possessing sufficient knowledge of vessel construction.
Ramli also suggested converting the currency for a separate LoA from ringgit to euros – a decision that caused BNS to suffer RM13.5 million in losses.
On August 16 last year, Ramli was the first individual to be charged in court over the LCS project, claiming trial to three counts of criminal breach of trust (CBT) in which he is accused of fraudulently approving payments of RM21.09 million to three different firms without the approval of BNS’ board while he helmed the company.
While the charge sheet made no mention of the LCS, it was reported then that sources confirmed Ramli’s charges were related to the project.
Meanwhile, the report also said that potentially critical evidence on the LCS scandal was intentionally destroyed by former BNS leaders in a blatant attempt to dispose of paper trails on misconducts plaguing the project.
“Destruction of numerous electronic devices and documents by the ex-directors including the ex-head of the supply chain who were managing the LCS programme…on behalf of the program management organisation was an indication of a cover-up,” the report said.
Besides noting Anuar’s suspicious actions of refusing to leave behind his company-provided laptop when he moved on from being LCS programme director, the report also stressed that no corrective measures were taken despite multiple red flags being raised on irregularities and wrongdoings within BNS.
Another notable figure mentioned in the forensic audit report is Abdul Razak Baginda, whose name surfaced in a section dedicated to highlighting “unethical means” adopted by DCNS in the Malaysian government’s “procurement of two submarines.”
Razak, who was once regarded as a political analyst, became a household name after he was charged with abetting the murder of Mongolian woman Altantuya Shaariibuu in 2006 before being acquitted in 2008.
The forensic audit report had linked Razak with a company called Perimekar Sdn Bhd, which it claimed was used by “Malaysian officials” to secure a RM514 million payment under the submarine agreement.
It was previously reported that while Razak is not listed as a current or past director of Perimekar, the company’s major shareholder is KS Ombak Laut Sdn Bhd, which has Razak’s wife Mazlinda Makhzan and daughter Rowena Abdul Razak as directors.
Another former director of Perimekar is reported to be Tan Sri Lodin Wok Kamaruddin, an ex-BHIC chairman who was alleged to have ignored warning signs raised by contractors of the LCS project. – October 8, 2023