SHAH ALAM: Abandon ship, scrap the LCS. The Special Investigation Committee on Public Governance, Procurement and Finance (JKSTUPKK) report on the LCS was declassified yesterday, following the recommendation of the Parliament’s Public Account Committee.
Based on the report’s extensive financial details of Boustead Naval Shipyard (BNS), I am of the opinion that it is simply cheaper to scrap the LCS project and cut our losses. Instead of pumping more money down the drain. It would have been cheaper in 2019 (when the report came out) but I guess no one at that time would dare to do it (even now I suspect).
Excerpts of the reports from the Star (I have access to the report but I am too tired about writing about the LCS to translate it):
PETALING JAYA: It’s no longer a RM9bil scandal. The cost of completing the six Littoral Combat Ships (LCS) may balloon by more than RM1bil to a whopping RM11.145bil.
This is due to variations which led to increasing procurement bills as well as time extensions, the investigating audit committee said in a just declassified report.
Based on Boustead Naval Shipyard Sdn Bhd’s letter dated July 16, 2019, an additional RM1.41bil was needed for some changes to the project.
“According to the letter… following the changes of main equipment and Implementation Schedule, an additional cost which is estimated to be to the tune of RM1,416.44bil, comprising RM58.41mil in direct cost and indirect cost of RM1,358.03bil, were needed to complete the six ships,” the report said.
PETALING JAYA: Boustead Naval Shipyard (BNS), the company embroiled in the Littoral Combat Ships (LCS) scandal, was in bad financial shape, running up losses amounting to RM462mil between 2014 and 2018.
This led to payments to the original equipment manufacturer (OEM) and suppliers of the LCS project to be delayed, according to a report that was declassified yesterday.
What’s worse, BNS is expected to face serious issues in servicing loans amounting to nearly RM1bil.
The report highlighted the poor financial management and cash flow issues faced by BNS and said the company had “limited financial ability” to carry out the project.
It cited BNS’ financial statements from 2014 to 2018, where the company had losses of RM462mil, affecting the company’s equity (with RM130mil of paid-up shares) to negative RM332mil.
It said that with payments to OEMs and suppliers delayed, “these companies refused to supply raw materials and parts, causing construction works at the shipyards to be stalled”.
“Up to May 31, 2019, the overall position of BNS’ creditors amounted to RM801.11mil, and the LCS project creditors totalled RM733.55mil,” the report read
From both articles, one can surmised that BNS is insolvent. Its financials will not be helped with the resumption of the project. It may help the sub-contractors but placing the responsibility back to BNS to restart the project is clearly foolish.
The best way forward is for the government to scrap the project altogether and pay the debts of BNS (especially those involved in LCS) with whatever left-over funds and shut down the shipbuilding division. The ship-repair business should be allowed to continue to recoup some losses from the LCS project (in 20 or 30-year time, though it still must compete for the jobs, of course).
Get prominent shipbuilders like Naval Group, Damen, HHI and DSME to inspect the equipment of the LCS already paid for and get them to use them as part of their request for proposals for ships with similar or lower specifications. Pick the best offer and let the shipyard build the ships with a new budget. At least this way we will know how much it will cost and how long, it will take to get them.
It is clear despite what have been said by our politicians and BNS and LTAT people, clearly no one knows how much the LCS will cost and when it is ready to be commissioned into the RMN. Yes, we may end up paying more than RM9 billion to scrap the project but at least RMN will get new, proper ships by 2026 at least.
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