KUALA LUMPUR (Sept 6): Boustead Heavy Industries Corp Bhd (BHIC) will not be penalised for mismanagement and irregularities related to the troubled littoral combat ship (LCS) project. 

“There will be no penalty on BHIC,” Azhar Jumaat, CEO of Boustead Naval Shipyard Sdn Bhd (BNS), clarified in his response to The Edge's query on Tuesday (Sept 6). 

BHIC controls a 27.77% stake in BNS, the Defence Ministry's contractor for the construction of six frigates under the LCS programme. The LCS project is the largest defence procurement in Malaysia's history, with a total cost of RM9 billion. 

BHIC’s forensic audit report, prepared by Alliance IFA (M) Sdn Bhd, revealed last month that BHIC could potentially incur losses of RM890.22 million due to double claims, dummy payments and overlapping letters of awards (LOAs) related to the LCS project. 

The group is estimated to have lost RM23.37 million amid alleged dummy payments made to three companies for technical services related to second generation patrol vessels in 2011 and 2012. 

There was an overlapping LOA issued in April 2012, in favour of BHIC's 51%-owned Contraves Electrodynamics Sdn Bhd (CAD) for the Boustead Integrated Technology Centre (BIT), which amounted to RM305 million, although the cost of this BIT was already included in an original RM898 million LOA issued by BNS for a combat management system to Contraves Advanced Devices Sdn Bhd (CED). 

The RM898 million LOA, together with another RM287 million, also for combat management system, was reassigned from CAD to CED and endorsed by Tan Sri Ahmad Ramli Mohd Noor on behalf of BNS on April 9, 2012.

Notwithstanding that, BHIC incurred an estimated loss of RM537 million due to double claims for the same services with different nomenclature related to services costs and combat system integration, which was confirmed by Azhar Jumaat. 

Additionally, BHIC faces potential losses of RM4.58 million due to additional variation orders issued in favour of IHC Metalix BV for Mill Certificate during 2017, despite its cost being part of the original request for quotation.

There is also a potential loss of RM13.49 million due to the change in currency from ringgit to euro for LOAs issued in favour of CAD for main surveillance radar and towed array sonar in 2013. In addition, there is a possible loss of RM6.78 million to Boustead Penang Shipyard due to the reorder of 23 non-delivered items by Alizes Marine.

BHIC’s cumulative net profit in the first half ended June 30, 2022 tumbled 47.4% to RM5.99 million, from RM11.385 million in the same period a year ago, due to higher finance costs and negative contribution from the joint venture companies.