Turkey Of The Year: More delays in costly combat ship programme

This article first appeared in The Edge Malaysia Weekly, on December 28, 2020 - January 10, 2021.
Turkey Of The Year: More delays in costly combat ship programme
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THE RM9 billion Littoral Combat Ships (LCS) programme has been beset with numerous delays, putting the government under the spotlight.

Given that the combat ships were supposed to be the most advanced vessels in the Royal Malaysian Navy (RMN) fleet, the ramifications are many.

In 2019, then defence minister Muhammad Sabu made a startling revelation — none of the ships ordered under the LCS programme had been completed as per schedule. However, they are apparently at various degrees of construction.

What is also galling is that a whopping RM6 billion of the RM9 billion allocation under the programme has been spent by both the government and the contractor, Boustead Naval Shipyard Sdn Bhd (BNS), according to the Ministry of Defence.

The saga is not about to end anytime soon.

Under the LCS programme, six vessels were to be built by BNS using the Gowind 2000 corvette design by the Naval Group of France. The programme was first mooted in 2011, and after the design was chosen, BNS was appointed as the lead contractor in 2014.

The contract calls for the first ship of the class to be completed and delivered to the government in April 2019, followed by another ship in six-month intervals. Had the programme proceeded as scheduled, four ships would have been completed already.

After the change of government in February, Datuk Seri Ismail Sabri Yaakob was appointed defence minister, and he thus has to contend with the LCS conundrum.

In August, he told parliament that the ministry is mulling three options.

In the first option, the project is to be continued by appointing the Naval Group of France as a rescue contractor, through a deed of assignment, to complete at least two ships.

Under the second option, the contract with BNS will be continued, with the shipyard completing at least two ships, using the balance of the budget that has been allocated. And in the third, the government terminates the contract with BNS and starts a rescue operation of the programme.

In September, The Edge Malaysia reported that BNS is asking for the remaining RM3 billion from the budgeted RM9 billion, plus another RM3 billion, to complete the project.

It is not known whether the extra RM3 billion is to pay BNS’ debts, but Ismail Sabri had assured parliament in August that the government would not be assuming the company’s debts to help it complete the programme. He added that Putrajaya did not intend to provide additional funds to BNS for this purpose.

In its 2019 annual report, Boustead Heavy Industries Corp Bhd, which owns BNS, attributed the delays and higher costs to variation orders (VO) that were required for the LCS programme.

“We have engaged and will continue to consult with various stakeholders to obtain the final approval for these VO. Given the scale and complexity of the LCS programme, it is not unusual to have VO involving the ship design and equipment,” states BHIC CEO Sharifuddin Md Zaini Al-Manaf in the annual report.

Many versions of what went wrong with the programme have been given to the media and the public, but none can be confirmed, as the parties involved are keeping mum.

Questions sent to BHIC and its major shareholders, Boustead Holdings Bhd and the Armed Forces Fund Board (LTAT), regarding the LCS programme went unanswered.

But one of the versions that has been circulating is that BNS did not have the capability to come up with a good schematic design plan for the construction of the vessels, which led to delays in construction starts.

There are also claims that BNS encountered delays because the powers that be kept requesting changes in specifications and equipment to be used for the ships. BNS needed to go back to the schematic design plan and rework it every time a change was requested. Consequently, the company faced frequent disruptions in the construction of the vessels.

Ismail Sabri said in parliament that the progress of the LCS as at end-July was 56.67%, compared with the scheduled 85.73% — a delay of 29.06% or 31.1 months.

The first LCS is 59.79% completed and the other four are at various stages of completion.

Does a VO amount to a cost overrun?

Thus far the government has not mentioned any VO as claimed by BHIC in its annual report. As a public listed company, BHIC is required to reveal VOs in its annual reports, to provide a fair and accurate statement about its businesses.

On Putrajaya’s part, it appears not to have recognised any VO, but has talked more about “cost overruns” and “delays”. Given the discrepancy in terms, the government should explain the VOs raised by BHIC.

In November, there was another twist to the saga when BHIC lodged a report with the Malaysian Anti-Corruption Commission (MACC) on possible irregularities in the LCS programme. BHIC said that it had conducted a forensic audit of the programme in February and submitted the findings to the MACC in September.

Earlier in September, former deputy defence minister Liew Chin Tong told the Dewan Negara that the special investigation committee on procurement, governance and finance had found that RM1 billion of the RM5.94 billion paid for the warships could not be traced.

At present, the LCS programme remains in limbo.

Armed forces veterans have insisted that the LCS programme be completed. Persatuan Patriot Kebangsaan president Brigadier General (Rtd) Datuk Muhammad Arshad Raji said that the six vessels are sorely needed to beef up the nation’s maritime security.

So far, the government has only issued a notice of claim for liquidated and ascertained damages (LAD), amounting to RM180 million over the programme’s delays.

At the same time, the Public Accounts Committee will be conducting its own investigations into it and has sounded its intent to call up former deputy prime minister and defence minister Datuk Seri Ahmad Zahid Hamidi for questioning.

Will the LCS ever be completed, and in what manner? Will the government agree to spend more than what was budgeted when the agreement was signed in 2014? Why were there delays and cost overruns and who is to blame?

 

 

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