This article first appeared in The Edge Malaysia Weekly on February 6, 2023 - February 12, 2023

THE story of the beleaguered RM9.13 billion contract — to build six littoral combat ships (LCS) awarded to Boustead Naval Shipyard Sdn Bhd (BNS) — has taken a new twist.

BNS is a 20.77% unit of Boustead Heavy Industries Corp Bhd (BHIC), with Boustead Holdings Bhd holding 68.85% of BNS’ equity, while armed forces fund Lembaga Tabung Angkatan Tentera holds the remaining 10.38%. LTAT has a 59.42% stake in its flagship Boustead, which in turn has 65% equity interest in BHIC.

To recap, when things went awry and questions were asked about how the government had sunk in RM6.08 billion, or 66.59% of the total contract costs, to build the six LCS, and not a single vessel had been delivered, a draft and unsigned report by auditors Alliance IFA (M) Sdn Bhd was given to the Public Accounts Committee (PAC) by BHIC.

The PAC’s role is largely to examine reports from the auditor-general and scrutinise the government’s finances and the spending of funds allocated by the government for public expenditure.

It is understood that the PAC had relied extensively on the draft report by Alliance IFA in its investigation into the LCS project.

The Edge sighted a letter from an official of Alliance IFA dated Aug 29, 2022, addressed to BHIC, saying it is “aware that you (BHIC) have furnished my draft report to the PAC, and my said draft report has been extensively referred to in the PAC report … At the outset, I would like to place on record that what is being quoted is my draft unsigned report on Aug 4, 2020.

“You will appreciate that I had stated expressly that my draft report is meant for the board of directors of BHIC and not to be circulated. I have also stated in no uncertain terms that in compiling my report, I had relied on oral and documentary representations made to me and was unable to confirm the veracity of these representations. You will further note that I had stated that should additional information [be] made available after the date of the report, I have the right to revise my report and conclusion.”

The official also questioned why his consent had not been obtained before the report was disclosed — as per the letter of engagement between Alliance IFA with BHIC.

In closing, the officer asked BHIC to make known that the report is not a forensic report, that some of the oral representations had not been verified, and that the report was made only for the board of directors of BHIC and not meant to be circulated without his consent.

The letter ended with, “Should you not make a press statement to this effect, I will be constrained to make such a press statement.”

When The Edge sent questions to BHIC on the matter, it said, “Thanks for your mail and for The Edge’s interest in developments at BHIC. We reserve our comment on the matter.”

Meanwhile, Wong Kah Woh, who was the PAC chairman from August 2020 until parliament was dissolved on Oct 10, 2022, could not be contacted for comment.

Alliance IFA had been given the mandate to undertake the investigation by the Special Committee on Governance Investigation, Government Procurement and Finance, chaired by former auditor-general Tan Sri Ambrin Buang. The report was declassified by the PAC.

The findings indicate that the cost of building the six ships had ballooned by 22% to RM11.14 billion, from the initial RM9.13 billion, and had resulted in potential losses of RM890.22 million for BHIC.

On accountability thus far, only 79-year-old Tan Sri Ahmad Ramli Mohd Nor — former chief of the Royal Malaysian Navy and former managing director of BNS — was charged with three counts of criminal breach of trust amounting to RM21.08 million. The RM21.08 million accounts for 0.23% of the RM9.13 billion contract value and 0.35% of the RM6.08 billion spent.

Also in the spotlight were two companies, Contraves Advanced Devices Sdn Bhd (CAD) and Contraves Electrodynamics Sdn Bhd (CED), both of which are 51%-controlled by BHIC, with the remaining 49% stakes held by German outfit Rheinmetall Air Defense AG, a unit of German-listed Rheinmetall AG, which has a market capitalisation of US$10.69 billion (RM45.51 billion).

While there were some who questioned the presence of Rheinmetall in the joint venture with BHIC, The Edge understands that the German firm, which is well-known in the defence industry, had fulfilled its obligations and acquired the requisite equipment for the ships. Both Boustead and LTAT officials said that the equipment had been acquired and were in storage when questioned by the press on the LCS project.

This would then indicate that the issues with the building of the six ships could be at the BHIC level.

An executive familiar with the goings-on, and speaking on condition of anonymity, says the investigation undertaken by Alliance IFA should be completed and the real perpetrators brought to book.

The first of the six vessels was slated for delivery in April 2019, but as at end-August last year, it was only 44% completed, with the others between 0% and 35% completed.

Newly appointed Defence Minister Datuk Seri Mohamad Hasan has said that the LCS project will continue, subject to a review. Late last month, Vice-Admiral Datuk Abdul Rahman Ayob said the original plan had been scrapped and the new idea was for five ships to be built. There was no mention of costs.

In a note accompanying its financials, BHIC says, “The proactiveness of the government of Malaysia to complete the LCS project within the timeframe set augurs well for the group’s prospects. Following bilateral meetings between officials of the Malaysian and French governments and Naval Group, the project’s main subcontractor, all parties have expressed their commitment to support efforts to continue the LCS project … Additionally, we will continue to capitalise on our strengths as one of the country’s leading defence contractors by pursuing defence-related contracts vigorously while exploring new businesses, most notably in the commercial segment.”

For its nine months ended Sept 30, 2022, BHIC chalked up a net profit of RM6.56 million from RM103.2 million in revenue.

As at Sept 30, 2022, the company had cash and bank balances of RM2.88 million, as well as long- and short-term debt of RM68.3 million and RM193.1 million respectively, resulting in net debt of RM258.52 million.

BHIC closed at 38 sen last Friday, translating into a market capitalisation of RM94.41 million.

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