The LCS scandal has been dominating social media for weeks, from netizens sharing memes of the “invisible” ship to political pundits analysing the misconducts found within the project.
But to truly make sense of what went wrong with this multibillion mega-project however, we have to go back right to the start.
Let us begin in 2011 when Boustead Heavy Industries Corporation Berhad (BHIC) was awarded the LCS mega project by the government that was then led by Prime Minister Najib Razak and Ahmad Zahid who was the then Minister of Defence.
With a project valued at RM 9 billion, six new ships were expected to be built by BHIC to be added to the Royal Malaysian Navy (RMN) fleet. This project was set to run from 2013 to 2023. However as we approach 2023, there has only been one ship that was announced and launched. This naturally raised many red flags.
In 2020 the Public Accounts Committee (PAC) started an investigation into this scandal and two years later in August 2022, they published a report of the results of their investigations. Some of the key findings from the investigation reported cost overruns and funds that were unaccounted for from the RM 6.08 billion sum that has been spent so far. Worryingly, there has not been even one ship that is near completion including the one that was launched in 2017.
The contract was awarded by the government under Najib Razak’s tenure as prime minister to Boustead Naval Shipyard (BNS). The 10-year project, which spanned from 2013 to 2023 was expected to produce six LCS vessels.
The first vessel, LCS Maharaja Lela that was launched in 2017 turned out to be an unfinished vessel.
BNS spent a further RM 400,000 on masts to be placed on the LCS Maharaja Lela which turned out to be merely an aesthetic feature.
“It does look nice, and it may give the impression that the vessel is more beautiful than what it was meant to be“, testified Encik Sharifuddin, head executive officer of Boustead Heavy Industries Corporation to the PAC.
Initially, the Sigma-class ship, a Dutch design, was chosen by the RMN and approved by MinDef. However, on July 11, 2011, Ahmad Zahid made the decision to pick GOWIND’s design.
This came just THREE DAYS after the GOWIND design was recommended to Ahmad Zahid by BNS on July 8, 2011.
How did it take him only three days of deliberation to reach his decision?
Concerns about the procurement of the LCS mega project was raised by the then Chief of Navy, Laksamana Tan Sri Dato’ Sri Dr. Abdul Aziz bin Jaafar.
In essence, decisions that were supposed to be in the hands of the navy were instead done by the government on its behalf. The decision to do so was seen as “gravely wrong” as stated by the Chief of Navy himself.
As such, a total of 19 letters of concerns were written to key people expressing his disapproval of such a procedure. Out of the 19 letters, 10 of them were sent to the Chief Secretary of the Defence Ministry (KSU), 5 were sent to the then Minister of Defence Ahmad Zahid Hamidi, two were sent to the then Prime Minister Najib Razak, one was sent to the secretary-general of treasury (KSP) and one to the chief secretary of the government (KSN).
Unfortunately all these letters were ignored.
GOWIND is a design that was developed by the French Naval Group (DCNS). DCNS was also responsible for the Scorpene submarine project that was under the responsibility of Najib Razak.
The Scorpene submarine project also saw misappropriation of funds that linked Najib Razak, Malaysia’s defence minister at the time.
The Public Accounts Committee (PAC) exposed irregularities in the procurement right from the start of the project.
For example, the Ministry of Finance’s stipulated financial guideline states that an advanced payment should be determined by the lower value of either 25% of the total value of the project or RM 10 million.
However in the case of LCS, the government paid an estimated RM 1.36 billion in advanced payment to BNS.
According to the PAC report, BNS was paid approximately 136 times beyond the threshold?
The LCS mega project also showed a sum of RM 1.4 billion in cost overrun.
Of that sum, RM400 million was used to pay off old debts of BNS from a previous vessel project dubbed New Generation Patrol Vessel (NGPV), RM305 million went to setting up a shore and software integration facility in Cyberjaya which leaves another RM700 million unaccounted for.
Outside of the RM1.4 billion in cost overrun, 15% of RM 1.7 billion worth of LCS equipment were found to be obsolete.
There also seems to be insufficient due diligence in regards to background checks on BNS financial position before awarding them the LCS contract.
As of 2018, BNS’ financial performance has been deteriorating. BNS made a total of RM462 million in losses from 2015 to 2018.
BNS also owed RM 801 million to original equipment manufacturers (OEM) and another RM 956 million to financial institutions.
Another distressing aspect of the LCS mega project is the role played by CAD. In February 2012, Contraves Advanced Devices (CAD) was appointed as lead contractor to procure materials for the LCS project.
PAC reports show that CAD’s role as lead contractor had led to exceptional markups in prices as middle men, double claims for the same tasks worth RM 898 million and unfulfilled services despite reaching payment milestones. CAD is a joint venture company between Boustead Heavy Industries Corporation (BHIC) and German company Rheinmetall Air Defence AG (RAD) with BHIC holding a majority stake in CAD.
The second distressing aspect here is that RAD was given full control of CAD’s operations despite not being a majority stakeholder. As a result, operations within CAD cannot be monitored by Malaysian audit officers from BHIC. This agreement was made by Tan Sri Dato’ Che Lodin bin Wok Kamaruddin who was then the managing director of Boustead Holdings Berhad.
Interestingly, Che Lodin was also a board member in 1MDB where he was accused of committing fraudulent misrepresentation, fraudulent breach of duties, fraudulent breach of trust, breach of statutory and contractual duties, conspiracy, negligence, knowing receipt, dishonest assistance, fraudulent misappropriation and unjust enrichment.
Until today, out of the RM 6.08 billion was paid, RM 2.945 billion went to the ships, RM 1.7 billion had gone to purchasing equipment while RM 1.4 billion has either been misappropriated or unaccounted for. Yet, not even one of the six ships are near completion.
