This article first appeared in The Edge Malaysia Weekly on August 29, 2022 - September 4, 2022

MANY questions have cropped up in relation to Boustead Naval Shipyard Sdn Bhd’s (BNS) RM9.13 billion contract to build six littoral combat ships (LCS), which has gone awry and is in the spotlight for all the wrong reasons.

While the government has sunk in RM6.08 billion, or 66.59%, of the contract’s value since the award in December 2011, not a single vessel has been supplied. LCS 1 is only 44% completed, LCS 2 to LCS 5 are between 16% and 35% completed, and absolutely no work has been done on LCS 6.

The six ships, essential for the patrolling of our waters and defence, were slated for delivery on a staggered basis from April 2019 to June 2023.

Declassified documents — a report from the Special Investigation Committee on Public Governance, Government Procurement and Finance (JKSTUPKK) on the LCS project chaired by former auditor general Tan Sri Ambrin Buang and the forensic audit done by Alliance IFA — indicate that the cost of building the six ships had ballooned by 22% to RM11.14 billion, and resulted in potential losses of RM890.22 million to Boustead Heavy Industries Corp Bhd (BHIC), among a whole host of other adverse findings.

To put things in perspective, BNS is 20.77%-controlled by BHIC, 68.85% by Boustead Holdings Bhd and 10.38% by armed forces fund Lembaga Tabung Angkatan Tentera (LTAT). Meanwhile, Boustead Holdings controls 65% of BHIC.

After all these damning revelations, Tan Sri Ahmad Ramli Mohd Nor, previously the managing director of BNS, was charged with three counts of criminal breach of trust of BNS’s funds amounting to RM21.08 million earlier this month. He pleaded not guilty to all charges.

“The existing charge against Ahmad Ramli seems so disconnected from the larger issues altogether,” says Liew Chin Tong, former deputy defence minister and Democratic Action Party (DAP) deputy secretary-general, in a short text message.

Ahmad Ramli was alleged to have approved payments of RM13.54 million to Setaria Holding Ltd without approval from the BNS board. Similarly, he is alleged to have approved a payment of RM1.36 million to JSD Corp Pte Ltd and a payment of RM6.18 million to Sousmarin Armada Ltd — which in the larger scheme of things seems like a pittance in contrast to the sums involved.

The Edge had reached out to Ahmad Ramli, but the 79-year-old was not well. Former defence ministers Datuk Seri Ahmad Zahid Hamidi and Datuk Seri Hishamuddin Hussein did not reply to messages sent. The duo were defence ministers when the project was ongoing. Another name that frequently cropped up in the reports, Anuar Murad, who was BNS’s LCS programme director, declined to talk to The Edge.

Many whom The Edge spoke to were reluctant to go on record, as much of the information concerning the LCS is intertwined with national security and thus governed by secrecy laws.

The report by the Public Accounts Committee (PAC) (chaired by Wong Kah Woh, who is also the Ipoh Timur member of parliament for DAP) had also highlighted that Tan Sri Abdul Aziz Jaafar, the chief of the Royal Malaysian Navy (RMN), had written a total of 10 letters addressed to the highest levels, including the premier (Najib) and deputy premier (Tan Sri Muhyiddin Yassin) at the time, protesting that BNS had managed to sway the government to go for the French outfit Naval Group’s Gowind LCS, despite the RMN’s preference for the Dutch-based Damen Shipyard, which makes the Sigma LCS.

Naval Group, formerly Direction des Constructions Navales (DCNS), has had a controversial history with Malaysia and the RMN. Under recently incarcerated former premier Datuk Seri Najib Razak’s tenure as minister of defence from 1999 to 2008, Malaysia acquired Scorpene submarines from the company for €1.2 billion. Investigations into alleged kickbacks are still ongoing in France.

In his interview with the PAC, Abdul Aziz had said, “Never has the design [of the LCS] been decided by the contractor [BNS] and not the end-user [the navy].” He had said that “something is gravely wrong!” and that BNS is “too powerful”.

But could Ahmad Ramli — the only one charged thus far — have managed to undertake all the shenanigans without any external or political support?

Importantly, will he spill the beans on who enabled the whole fiasco to take place? A source familiar with the former managing director of BNS says “he is unlikely to do that [reveal any information on who his political masters, if any, are]”.

The Malaysian Anti-Corruption Commission (MACC) had detained Ahmad Ramli in January this year. Why was he freed seven months ago only to be charged now after the PAC report surfaced? Was he cleared by the MACC then?

The Edge also asked PAC chairman Wong why Ahmad Ramli and Anuar Murad were not called in for questioning by the PAC, but he did not respond.

It is also noteworthy that BNS seems to be disputing the reports, which raises more questions over the LCS project.

In a media briefing earlier this month in Lumut, Perak — where the BNS shipyard is located — news personnel were shown RM1.7 billion worth of equipment stored in wooden boxes in warehouses, and were told there was RM1.8 billion worth of big-ticket equipment installed on LCS 1 to LCS 5, while RM2.5 billion was supposedly spent on infrastructure, insurance, finance costs, overheads, project management, and construction, among others.

This explanation is supposed to indicate where the RM6.08 billion that the government forked out was spent.

In stark contrast, the forensic audit undertaken by Alliance IFA says, “The evidence of irregularities and lack of proper governance was gathered as early as 2010, confirming that the vendors were determined, even before the issuance of the Letters of Award, by the government of Malaysia in favour of BNS.”

Some sources say there could be other discrepancies as well concerning the RMN opting for Damen Shipyard’s Sigma design.

Sources familiar with the LCS project indicate that there were six bidders in a restricted tender exercise for the LCS project. They were Navantia, a Spanish state-owned shipyard; Damen Shipyard of the Netherlands; Naval Group of France; ThyssenKrupp Marine Systems GmbH of Germany; Fincantieri SpA of Italy; and a Turkish shipyard.

A source says Damen was knocked out in the early stages of the bidding, but this piece of information had yet to be verified at press time.

The source adds: “The Navy is being painted as angels … Everybody is fighting for survival, not to be implicated in the scandal .... Why is the focus entirely on BNS? Are you telling me no one else was involved?”

In contrast to the frequently painted picture of Naval Group being a rogue outfit, the source says the company has the capability to build advanced weapons and has been around for almost 400 years, and such blatant irregularities can happen only with the knowledge and consent of both contracting parties — that is, it is wrong to point the finger at Naval Group without questioning the government officials involved as well.

Apparently, Naval Group was appointed the participating shipyard for the LCS contract — much like a sub-contractor — to provide the design, technical support and people on site to help with the construction.

Naval Group’s reputation has been tarnished, however, after the Scorpene submarine fiasco with the RMN in 2002.

The source also disputes the PAC report, which says the Gowind-type vessels had no track record, and highlights that Naval Group’s Gowind is now being used in Egypt and a couple of other countries. In 2014, around the time that Malaysia’s order was placed, Naval Group secured a US$1.2 billion contract from Egypt to deliver four Gowind corvette type ships.

While there is a huge disparity in pricing — RM9.13 billion for six LCS and US$1.2 billion (RM4.8 billion) for four vessels — the specifications of the ships are not known, to be fair.

Nevertheless, a market watcher says, “It doesn’t really matter who won the bid for the LCS project — whether DCNS (Naval Group) or Damen. What is important is to get to the bottom of things, to find out who the culprits are.

“Ahmad Ramli is about 79. He stepped down from BHIC as managing director when he was 75 in 2019 and was re-designated non-independent non-executive chairman … Do you know of any other 75-year-old managing director? Can a 75-year-old man handle such a big task as running a heavy industries company? Couldn’t they have found another managing director who is younger and more energetic? Or was he there at someone’s behest?” he asks.

Nevertheless, the issues with investigations into the LCS project stem from the inability to investigate the matter once funds are transferred overseas — unlike the 1Malaysia Development Bhd debacle, where the US Department of Justice managed to obtain and disclose the money trail.

Were the two names that crop up the most — Ahmad Ramli and Anuar Murad — simply taking instructions from their bosses?

Thus far, only the Minister in the Prime Minister’s Department (Special Functions) Datuk Abdul Latiff Ahmad, who joined Parti Pribumi Bersatu Malaysia in December 2018 after winning the Mersing constituency under an Umno ticket, has been mentioned in the investigations.

PKR deputy president Rafizi Ramli claimed Abdul Latiff was involved in the LCS fiasco via his second wife, Zainab Mohd Salleh, who controlled Alizes Marine Ltd and Alizes Marine Labuan, companies that are said to have misappropriated funds from the LCS project. Abdul Latiff denies that he is married to Zainab.

Yet another source says Anuar Murad was with the RMN for more than 20 years, having joined in the late 1980s, and had a master’s in shipbuilding and production, which meant he could have been qualified for the position.

But, then again, his qualifications are not in dispute; it is his alleged conduct that is being scrutinised.

Anuar Murad is understood to have led both the LCS and Littoral Mission Ship projects — the latter involved the construction of four vessels built with China Shipbuilding and Offshore International Co Ltd and known as the Keris-class vessels.

The spotlight has been on Anuar Murad ever since the PAC report surfaced late last month. The forensic audit report on the LCS by forensic auditor Alliance IFA, for instance, says: “Anuar Murad took advantage of the situation and, with the blessings of Ahmad Ramli, acted arbitrarily while making decisions pertaining to various Letters of Award (LoAs) and Variation Orders.

“In most of the cases, LoAs were issued to Contraves Advanced Devices Sdn Bhd (CAD) and Contraves Electrodynamics Sdn Bhd (CED) without first being presented to the LCS Steering Committee for their approval.”

CAD and CED are said to be key to the issues at the LCS project.

BNS also came under fire for appointing CAD and CED as the main contractors for the LCS project.

BHIC held the majority 51% stake in both companies while Germany’s Rheinmetall Group held the remaining 49%, in what was termed a lopsided agreement by the forensic auditor Alliance IFA, as BHIC basically conceded decision-making and management control to the minority partner.

While questions are being asked as to why BHIC even needed the joint venture in the first place, more questions have been raised, as the BHIC management and auditor had no access to the documents of CAD and CED, as the JV agreement gave BHIC no such powers.

CAD is also said to have marked up prices by four to five times for acquisitions by BNS and had doubled its claims to RM537 million for no apparent reason.

A source claims that BHIC merely put money into the JV while Rheinmetall actually possessed technology for fire control systems.

He says, “How can BHIC ask to look at CAD’s and CED’s accounts when BHIC is in a mess? They [CAD and CED] didn’t want them to meddle.”

Or could it be that CAD and CED were answering to some power higher than the officials of BHIC, which made the whole mark-up possible?

Nevertheless, the huge mark-ups and excessive claims cannot be explained or defended.

In the forensic audit on the LCS project, Alliance IFA executive director Prabhat Kumar had told the PAC: “Evidence suggested that CAD was used as a vehicle to minimise transparency and to avoid the scrutiny and detection by the procurement team, the steering committee and the internal audit of BHIC.

“A total of 12 letters of award including variation orders were issued to CAD/CED, valuing approximately RM3.3 billion, being 38% of the total value of the [RM9.13 billion] contract. The involvement of CAD resulted in a much higher cost than expected and provided an umbrella to hide the actual cost,” he said.

While the three reports — the report by the PAC, by the Special Investigation Committee on Public Governance, Government Procurement and Finance, and Alliance IFA’s forensic audit — all point to mischief occurring at BNS, detractors say the entire exercise — the timing of the PAC report and the subsequent declassification of the reports — is politically motivated.

Whatever the motivation, the real culprits should be taken to task.

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