The Littoral Combat Ship (LCS) programme for the Royal Malaysian Navy (RMN) has raised a stinker much worse than a heap of rotting, decaying fish by the pier side.
Senior Minister of Defence Datuk Seri Hishammuddin Hussein’s commitment to see the programme through, come hell or high water, must have been met with raucous celebration in Lumut, Perak.
However, this threatens to plunge the programme deeper into the financial abyss faster than the Titanic.
For the uninitiated, the LCS, or Maharaja Lela-class programme, calls for the delivery of six stealth frigates that will be the lynchpin of the RMN’s “15-to-5” programme to streamline operations and improve combat efficiencies.
In early 2011, Malaysia announced its Second Generation Patrol Vessel programme (which morphed into the LCS) with an initial budget of RM6 billion.
Later that year, it was announced that the Gowind-class had been selected, and that the contract had been awarded to Boustead Heavy Industries Corporation (BHIC).
The work would be undertaken by BHIC though it subsidiary, Boustead Naval Shipyard Sdn Bhd (BNS). The designer of the Gowind-class – French shipbuilder DCNS (now known as NGF – Naval Group France) – was brought in as a technology partner.
The initial ceiling price of RM6 billion was now RM9 billion, and included intellectual property rights and technology transfer. All six ships would be built in Lumut.
However, it later emerged that the RMN had originally picked the Sigma-class (Design 10514) by Damen Schelde Naval Shipbuilding from the Netherlands, but this was allegedly overruled by then defence minister Datuk Seri Ahmad Zahid Hamidi at the request of BNS, and without referring to the end user, the RMN.
In 2014, BNS announced that the first ship would complete sea trials in 2018, with fleet service expected in 2019. The remaining five ships would be delivered at six-month intervals thereafter.
In 2020, signs that things were not right with the programme began bubbling to the surface. The lead boat in the class was supposed to have entered service in 2019, but a year later, there was still no sign of the ship. It was reported in December 2020 that the first ship was only “59.79 per cent complete despite some RM6 billion having been paid out”. This prompted derision from critics who said that the RM9 billion LCS was “so stealthy, that you can’t see them.”
To mitigate the problem, the Defence Ministry floated several options.
The first was to bring in NGF (the original designer) to complete at least two ships. This was rejected outright by Parliament.
The second option was to allow BNS to continue with the construction of the first of two ships. On May 5, 2021, the Malaysian government decided that it would retain BNS as the prime contractor, albeit with certain conditions, which have not been made public.
In November that same year, Hishammuddin announced the new date for the commissioning of the first ship – 2025. Six years behind schedule.
The government’s decision to retain BNS as lead contractor is perplexing, and raises a number of questions.
Why was BNS not held accountable for the delays? A typical procurement exercise of this magnitude would have certain stipulations in the contract, under work delivery schedules. Any delays in the delivery of key milestones in the construction process, and of the completed vessel, should have resulted in hefty penalties.
Also, instead of staggered payments based on the work done, RM6 billion was paid upfront, to BNS. But the RMN has nothing to show for it. Now, the shipbuilder is seeking a “substantial amount of funds” from the government – on top of the earlier projections of RM9 billion – to complete the project.
BNS’s track record in its previous work for the RMN – the New Generation Patrol Vessel (NGPV) – is hardly stellar. The Kedah-class NGPV was plagued by technical problems, quality issues, delays, and cost overruns; it even failed its pre-delivery sea trials. The government decided to cut its losses and pulled the plug on the programme, whittling it down, from a planned 27 corvettes, to only six vessels.
Now, history seems to be repeating itself, with the LCS. The question is, isn’t all this “confidence” in this shipbuilder that had already failed to deliver, twice, a little misplaced?
In 2020, the Parliamentary Select Committee on Defence and Home Affairs was told that BNS had applied for, and received an advance of more than RM1 billion on the LCS contract. Under the strict guidelines established by the Finance Ministry, this is something unheard of. Had normal government financial procedures been followed, Malaysian taxpayers would not be in this current pickle.
The management of BNS also told the committee that RM396 million from the LCS project was used to pay off debts and interest that had been accrued from the earlier NGPV project.
Additionally, the shipbuilder had also taken loans to manage the cash flow for the LCS project, but this resulted in the need to pay interest of RM571 million by February 2020. This had not been considered, when the contract was being negotiated.
As a result of these cash flow problems, vendors and OEMs for the LCS project were not paid, leading to work stoppages, and delays.
Last Wednesday, Hishammuddin said some 400 vendors were involved in the project, with a financial implication of over RM4 billion, if the project was cancelled.
The government’s decision to go ahead with BNS as the prime contractor can mean only one thing – that the initial ceiling price of RM9 billion will inevitably swell to some astronomical figure.
Hopefully, this decision was driven purely by the need to ensure the survivability, effectiveness, and relevance of the Royal Malaysian Navy; and not to keep a troubled ship afloat.
