Wong Kah Woh (Photo by Kenny Yap/The Edge)

KUALA LUMPUR (Aug 4): "Something is gravely wrong" with the decision of the Defence Ministry and Boustead Naval Shipyard Sdn Bhd (BNS) to ignore the Royal Malaysian Navy's views on combat ships, said its then chief Tan Sri Abdul Aziz Jaafar.

Abdul Aziz was among nine witnesses in proceedings conducted by the Public Accounts Committee (PAC) on the procurement of littoral combat ships (LCS) worth RM9 billion from BNS, which is a subsidiary of Boustead Holdings Bhd.

PAC chairman Wong Kah Woh said in a statement on Thursday (Aug 4) that the maritime force's views as end users of the vessels were not taken into account, which led to the original Sigma design chosen by the Navy being changed to the Gowind design on July 11, 2011, following a suggestion by BNS to the minister of defence on July 8, 2011.

The committee also found that the contract for the LCS project was awarded to BNS through direct negotiations, according to Wong.

"The government has paid a total of RM6.083 billion for the LCS project, but not a single ship has been completed. According to the original schedule, five LCS were supposed to be completed and handed over by August 2022.

"The due diligence conducted by the government on BNS failed to detect the company's financial problems. This was proven when the government was required to pay a deposit of up to RM1.36 billion to BNS, which was contrary to Treasury Circular No. 5/2007, which was in force at the time," said the Ipoh Timor Member of Parliament.

According to Wong, BNS was in a critically weak financial position due to abuse of power and weaknesses in managing its finances.

As of 2018, BNS' debt to the original equipment manufacturer (OEM) was RM801 million, while owing RM956 million to financial institutions.

BNS had appointed its subsidiaries — Contraves Advanced Devices Sdn Bhd and Contraves Electrodynamics Sdn Bhd — to buy equipment from the OEM, which caused acquisition costs to swell several times.

Terms of contract not favourable to govt

The PAC also found that the terms of the LCS contract were not favourable to the government, with payments based on progress of activities or delivery of items, as opposed to actual progress of the project.

"This is unusual and has caused progress payments on LCS1 to exceed actual progress on the work by as much as 21.1% (payments of 63.8% compared to actual work progress of 42.7%)," said Wong.

"To date, the detailed designs have not been finalised by the government and BNS. This has led to continuous VO (variation orders) and provides room for manipulation."

In addition, BNS subsidiaries did not use all of the payments received from the government for the LCS project.

"This results in [BNS] facing a cost overrun of RM1.4 billion. Of this amount, a total of RM400 million has been used to settle the bad debts of the old NGPV (New Generation Patrol Vessel) project.

"The equipment stockpiled for the LCS project are estimated [to be] RM1.7 billion and an estimated 15% are already obsolete," Wong added.

The PAC held nine proceedings on the project from Nov 18, 2020 to March 8, 2022. Besides calling former Navy chief Abdul Aziz to testify, other witnesses include Senior Defence Minister Datuk Seri Hishammuddin Hussein and Special Investigation Committee on Public Governance, Procurement and Finance head Tan Sri Ambrin Buang.