Abandon Ship, Scrap the LCS Part II

The latest picture of LCS Maharaja Lela taken on August 13, 2022. It appears no work had been done on her recently. Mindef

SHAH ALAM: Abandon ship, scrap the LCS Part II. The forensic report on the LCS programme, first made public in the Public Accounts Committee (PAC) report was declassified yesterday. The declassified report is published on the Parlimen website.

You can go to the website above to read the whole report for yourself or you can go here to take a news report on it. There is no need to guess who were involved as it is likely the people will be formally identified (or charged themselves) when the CBT case against the former MD of Boustead Heavy Industries Corporation (BHIC) and Boustead Naval Shipyard goes to the trial stage.

This is likely the stern of LCS 2. Mindef

Anyhow just like the other declassified report, this one also confirmed my believe that it is better to scrap the LCS project altogether and start anew, even with the LMS Batch II as a starting point. It will not replace the LCS of course but as I said earlier it will give us at least, its cost and timelines for delivery and commissioning.
The rear of the LCS Maharaja Lela as seen during the visit. LTAT

If the JKSTUPKK report, had not convinced you that the LCS project is not worth saving, the declassified forensic report – although already excerpted in the PAC – will surely do it.
Media taking a briefing when they visited the BNS facility on August 13, 2022. Mindef

The forensic report alleged that officials of five companies – DCNS; MTU; CentraalStaal; Contraves Advanced Devices Sdn Bhd and Contraves Electrodynamics Sdn Bhd – involved in the LCS had colluded with officials of BHIC and BNS in financial shenanigans resulting in massive money drain and raising costs for the whole project.
BNS CEO Azhar Jumaat briefing reporters with some of the equipment for the LCS which are stored at BNS. LTAT

It is likely that these shenanigans (whether BNS can deduct payments and take action against these officials, though its hand is weak as it happened due to its own officials involvement) will be a major contentious point during negotiations for the resumption of the LCS project and its delivery deadline in 2025. Their involvement in the project (four of them) is paramount that if they decided to withdraw completely, BNS is – for the lack of a better word – will be hanging in the air. (despite what the LTAT CEO has to say about it).
Another stack of equipment meant for the LCS in the BNS warehouse. Mindef

It is likely that the government will not abandon the LCS project, though. They will talk about companies and workers losing their income. It must be noted that most of the workers involved in the LCS project, especially those working with the sub-contractors have already been laid off as early as November 2019. Many will be wary to return their old jobs especially now. Again, it will be better for the government to pay off BNS debts and abandon the project altogether. It will be black mark as they will be spending at least RM11 billion with no ships in hand now than waiting for another two years for the same result. But of course, it will be a problem for the next guy.

— Malaysian Defence

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Shah Alam

27 Comments

  1. Humbly disagree here as we have already went this far. What we should do is go back to the revival plan and get NAVAL to takeover the project continuation (that was part of the revival proposal but not selected).
    https://www.malaysiandefence.com/options-two-and-three-for-lcs/

    If its the case of simply lacking money to complete the project as BNS ascertained https://www.malaysiandefence.com/show-me-the-money/
    Then the issue here is just money but if that is not the issue then BNS should also be sued for fraud as they had mislead the Cabinet in approving said plans to continue with BNS (Option2) rather than with NAVAL (Option1).

    Ultimately this is a highpoint as previously it was believed that Government would not sue a GLC but it would seem this LCS case will break that assumption.

  2. So scrap is better than saving it then. If that’s what the majority consensus are, why still want to save the cursed project though? Also, why the Navy also doesn’t want this project to be scrap and made a new one?

  3. Unfortunately Marhalim, the government will still continue to finish at least 2 of those ships. Yes I do agree that scrapping the LCS project and save rm5 billion or whatever amount left needed to complete the 6 LCS to be used to buy LCS of different design or use it to buy LMS Batch 2 using parts from LCS immediately. But sadly that is not what the government want due to of course saving face, saving jobs for whatever people that is left (I guess most of the BNS workers already been laid off and maybe found other jobs), saving the funds of our beloved retired soldiers savings in LTAT so and so forth and what not.

    I still stand in support of scrapping the LCS altogether and go for plan B.

  4. Yes I meant them (NAVAL/DCNS) since they are the OEM after all.

    @Akmal
    Despite preference for another ship design and all that has happen, TLDM would still prefer to stick with this project if it meant getting those ships, unless there is concrete commitment from the Government to start getting replacement ships and preferably back to the original design they wanted (ie Damen). If that were to happen expect another RM 11-15Bil more and another 3 years (at least) since we’d have to start from scratch.

  5. For the record, the report released was only for financial year from 2011 to 2014 and already found many hidden skeletons inside BNS cupboard. Not to mention financial years of 2015 until 2018. I am sure many more will be found. The equipments purchased are not all paid for because some of it are on credits. Maybe BNS can negotiate to return the unpaid one. I am sure during this process an overseer must be appointed to makesure all the expensive equipments are accounted for. BNS should be put under management of the insolvency dept just to find way how to pay their debts. Building the ship is out of the question as it is clear as crystal that they dont have the know-how and know-why for such complex project as the SGPV. Another option is to get Naval Group to build a baseline gowind FFBNW. This is where the programme is heading. H2O said no further funding will be allocated for the first ship. And i doubt BNS can complete it without the money. Adios amigos, sayonara scrap the project & dissolved BNS assets to cover losses.

  6. It will require more than RM3b to finish the first ship. The final tranche of RM3b for the LCS is for work already done, not for new work. If the government doesn’t increase the ceiling there is no LCS. The problem is, no one knows how much will be needed to finish 1the first 2 ships. So having spent RM9b, technically, based on the PAC report, as of October 2020, LCS1 and LCS2 are only 64% and 60% completed. Even if the government increases the funding, work hasn’t resumed as of August 2022, and there is no detailed design to complete the ships. Collectively this means the 2025 delivery is probably impossible. In conclusion we have 2 problems, 1) don’t know how much it will cost for first 2 ships, and 2) don’t know when it will be delivered. With the parameters, people should decide how best to allocate extremely valuable shipbuilding funds. Concurrently, be mindful that the entire defence budget is shared with the Army and AirForce, both of which have their own programs to fund. The decision to stay the course to finish all 6xLCS is still a decision, but must come with a new approach and additional funding. The decision to scrap the program and write-off RM9b is still a decision, but must come with a Plan B. Either way, things move forward, instead of the current limbo.

  7. Errata. I stand corrected, the actual progress of LCS1 and LCS2 is actually 44% and 35%. But payment is 64% and 60%.

  8. @Qamarul
    BNS had the knowhow and know why to build such high tech ships, they just don’t have the knowhow and know why to DESIGN such high tech ships. Different things.

  9. Keep getting better isnt it? this whole LCS saga are just a preplan ponzhi scene to siphone fund from the govt to elsewhere..Auditor mentioned that irregularities about this project already occured as early as 2010 2011..No wonder the then Navy chief said they fought the losing battle..

  10. @joe
    “TLDM would still prefer to stick with this project if it meant getting those ships”
    hmmm I think you got a point there. RMN maybe dont want to risk waiting longer to get new design ship (though one can still argue going for non BNS option is still a lower risk).

    @kel
    Isn’t rm9 billion to complete 2 ships? or rm9 billion + rm1.4 billion for 2 ship?

    Regardless, from JKSTUPKK report page 39-43, the actual LCS price as per quoted by BNS to MINDEF was rm10.5 billion but was then reduced to just rm9.1 billion by omitting Integrated Logistic Support (ILS) and Trials Aid and also other things. I dont know what ILS and Trials Aid is but from my understanding both are must have things. So from the onset rm9 billion ceiling price was clearly not enough!!!

  11. The ILS is maintenance post launching and after commissioning, the trials aid is money needed for the acceptance trials, money for fuel and other consumables needed

  12. Enlighten me on this..I kinda believed that 10-11 billion for 6 ships of LCS are still acceptable all thing considered (currency hedging thinggy etc )..Or is it not? Egypt got their gowind 2500 for 1.9 billion each ..The problem that persisted here are BNS trustworthiness to continue building them..

  13. There is no way the six ships will be completed within RM11 billion. As of 2019, BNS had already projected the cost to be some RM11.5 billion. And that before the project went cold.

  14. @Luqman
    “going for non BNS option”
    What is the local alternative non BNS option?

    “onset rm9 billion ceiling price was clearly not enough!!!”
    Indeed it was underbudgeted from the start. Likely the intention was to quietly pad it up with Supplementary Budgets so the public would not be aware of its true cost. RM 7.5Bil(after deducting NGPV debts and money for infra upgrade) for 6 high tech warships is ridiculous low even without the leakages and wastages!

  15. Firdaus – “.The problem that persisted here are BNS trustworthiness to continue building them.”

    No…. The “problem” is that the government was flushed with politically driven over confidence and hubris and priority was always national interests rather than the needs of the earned services. Like a lot of the things we do substance was lacking and the ever usual taking of things for granted was present; such as BNS’s ability to construct all 6 without going through a learning curve. We also thought we knew better and ignored anything which was told and was contrary to what we wanted to hear.

    A large part of the problem with BNS is that the system failed; nobody checked to ensure that BNS was in a sound position to embark on such an ambitious undertaking. BNS said it was ready [of course it would have] and because our system is such; all the conditions for a colossal cockup were there; ripe.

    It wasn’t just BNS which was at fault; was our system; the politicians; the bureaucrats; the casual indifferent mindset we have towards defence and the ingrained position that defence contracts are an essential and integral element of the system of patronage we have.

  16. As I said in a previous post, no one really knew about the actual cost of the LCS. Apart from the LTAT CEO who said it will be RM1.5 billion per ship.

  17. Going by the report it’s not that BNS is incapable of welding CKD parts together and turn it into a ship.

    Nor that the gowind is more expensive than the sigma. As the recent helenic navy corvette competition saw both offering at relatively similar price.

    The problem is that on top of mismanagement & corruption. Ie ex navy & politicians in BNS want to gowind as it maximise their own self interest but the navy doesn’t seem to want the gowind and are fighting all the way. They think it too small, with the wrongs CMS,SAM & SSM.

    Trying to retrofit the wrong platform to something the navy wants results in huge cost & time overrun.

    The gowind seem to follow the same playbook as the aussie tiger. The wanted an apache but they were given a tiger thus they turn the tiger into an apache. Then they found out its too expensive to run and doesn’t work really well. Heck we can throw the MKM Into it as well. A western fighter in a sukhoi skin.

  18. Comparison with other Gowinds can be an indicator.
    As @Firdaus pointed out (and I calculated myself from open source), Egypt’s 2500T (a smaller version) indeed costed RM 1.9Bil each so any figures less than that, be it the RM 1.25Bil as planned or RM 1.5Bil as per LTAT CEO, is bullcrap meant to hide the true cost of such high tech ships. A more realistic figure is RM 2.1-2.5Bil inclusive of everything plus TOTs and thats without wastages & leakages.

  19. They were fighting it because they have issues with some of the OEMs and that some of the equipment proposed did not meet their requirements.

  20. People just need to decide how they want to proceed, instead of trying so hard to support BNS or criticise the system. It is what it is. The mission is to get new ships to join the fleet ASAP. Either Gowind stays or it goes. If it stays, those who still believe in BNS and the LCS program will need to think of how to fund it without defunding the LMS Batch 2 program (2 LCS will definitely breach RM9b, 6 LCS will definitely exceed RM11b). Those who no longer believe in BNS and the LCS program (me included) will need to think of how to accomplish the mission. My Plan B has always been to split BNS and carve out the shipbuilding business into a SPV for bankruptcy purposes, although it is likely the Government has to figure out a way to ringfence the LCS equipment from being liquidated. Take the RM3b to bailout LTAT. Prioritise LMS Batch 2 and renegotiate with equipment providers to consider transferring their contracts to LMS Batch 2. Those vendors that cannot transfer their contracts to LMS Batch 2, tough luck. Even if the LCS continues, no one knows when the first 2 LCS will be ready. But we have an idea that an end 2022 LMS Batch 2 contract will likely see the first ship join the fleet on end 2025 (24 months after contract signing).

  21. Personally I don’t think that scraping the LCS is ever in the cards. Think about it for a moments. A gov is not like us mere mortal as its very Birocratic in nature. It ain’t capable of making shotgun decisions.

    Thus it usually took 5 years to finalise a requirement by doing ROI then it be tendered. It took 2 – 3 years for the tender to get a winner, after that 2-3 years of detailed design before construction start. And construction would took 3-5 years. Testing take another 2, then 10 years more to reach initial operating capability. Starting from scratch now mean RMN would only be getting a ship capable for war 20 – 25 years from now.

    The gov is also incapable of letting BNS fail. If they do that then the valuation of other GLC counter would be red. Some times ago minister gobind for popularity reasons decided to whack TM, tomorrow afterwards all other GLC counter lose billions in value as investors dump their stock holding.

    The PAC report pretty much spells out all of RMN desired modifications for the LCS, be it a different decoy systems , SAM & CMS then previously. The biggest cost for a war machine is not the weapon & equipment but the R&D & integration cost. If they decide to proceed then they would have to do all the modifications as we either scrapped it all or build it all. Building the 1st 2, mean we still pay for the integration cost. By then the other 4 is just a matter of welding all the equipment together.

  22. “instead of trying so hard to support BNS or criticise the system”

    Who’s “supporting” BNS or “trying so hard” here? You? You a supporter of the system or are maintaining these fetched simplistic notion that it’s as easy as doing away with the “agents”?

    What some have done is to point out that it’s a combination of various things: the government, the system; hubris, politics and other things. Also to “criticise the system” may be a novelty for you but it’s the system which brought us where we are now.

    It’s fine to speculate and find a villain one can conveniently lay the blame on but ultimately it was the system; the system created by politicians whose priority was national interests; not the MAF and that has led us to where we are now. To understand what went wrong; how it did and how we can perhaps avoid a repetition in the future we first have to start at the beginning and acknowledge the whole approach is rotten to begin with – problem is the will and desire is lacking on the part of the politicians.

    I’m keenly cognisant of the fact that the RMN has an acute need for extra hulls and way before the PAC report even existed and before joe public even knew about this cockup I expressed the concern that delays in this programme [sorry I use Brit spelling] would have an adverse bearing on other programmes.

    As for solutions well you know the cliche about how opinions are like orifices in that everyone has them; ultimately the solution is political and decisions made will be by politicians who will make politically driven decisions [it’s not
    for “people to decide how they want to proceed” – if only it were that clear cut]. We need to find the most optimal solution but also ensure there is no repetition; unlikely given our inability to learn from our mistakes and us maintaining the same cloud cuckoo gagaland policy.

    5zaft – “Personally I don’t think that scraping the LCS is ever in the cards”

    Indeed. What looks great in paper can differ in reality. For political reasons the government will not scrap the whole programme.

    5zaft -” The biggest cost for a war machine is not the weapon & equipment but the R&D & integration cost.”

    Incorrect. Only for gear which has yet to be integrated and certified.

  23. @5Zaft
    You hit the nail right there.

    Thing is, people talk about Plan B lah, LMS Batch 2 lah, etc but they never mentioned that starting from scratch meant doing it all again and therefore the time frame will have to reset, if TLDM are to expect getting Plan B ships in 10-20 years they’d rather stick with LCS project to continue. As for LMS2 being “a solution” the question is where are they gonna be built if BNS yard are still stuck with the LCS? Even if go ahead given to scrap them, it will take years to clear out before LMS2 can even start to occupy the yard so again LMS2 isn’t the solution we’re looking for.

    Going for a fully fitted LMS2 *will* help to alleviate the capability gap as we’ll likely not get LCS Batch 2 in the foreseeable future seeing the political fragfest of LCS1.

    Realistically, just as with Kedahs & Samuderas, we’ll eventually complete the LCS but unlikely will get further orders again.

  24. It doesn’t matter if it gets executed, only that at the very least, we think there is a workable solution to completing the mission, based on assumptions on what is acceptable and what is not (e.g. money not a problem, delays not a problem, etc). Ok, so let’s make this complicated. How many LCS should the government build at this stage of the project? How much should it pay for that number of ships? How much should the government be willing to pay for all 6 LCS? Should the government delay LMS Batch 2 to ensure the LCS is completed first? What is the likely or acceptable delivery schedule for all 14 ships (6LCS + 8LMS2)? Which is more important, that the ships get completed eventually or that the ships get delivered ASAP? Is it acceptable to reduce the LCS equipment list in order to complete it? How should the Navy deal with attrition in the fleet given the delays in LCS and LMS Batch 2? If delays in other programs (e.g. MRSS, LCA, MRCA, MPA) were to happen because of the need to fund the LCS program (whether 1,2 or 6), is it acceptable? Should the LMS Batch 2 program be led by a foreign shipyard or a local shipyard? Stay focused on the mission – get the Navy the new ships it needs ASAP.

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