Abandon Ship, Scrap the LCS

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. 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).

BRP Jose Rizal frigate. It was built in 2018 and commissioned into service in 2020. PN

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.

Another one:

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

Sigma class frigate Tarik Ben Ziad of the Moroccan Navy. The ship is the Sigma 10513 design.

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.
Italian Navy Carabiniere – Bergamini-class / FREMM ASW frigate at LIMA 2017. Zaq Sayuti. Malaysian Defence

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).
German Navy future F126 frigate. Damen Naval

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.
A CGI of the FDI frigate for Greece. Naval Group

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.

— Malaysian Defence

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15 Comments

  1. I was shocked reading the reports that BNS took more than 3 years just to do basic designs but the detailed design which until now not even completed. If like this then i support your recommendation that this project is no longer viable. Even if BNS managed to complete one unit there is no guarantee it will ever see service judging from the poor construction methods. BNS shoul only built fishing vessels or barges and that also will have some hull integrity issues.

  2. Quoting the statement from Prabhat Kumar, the executive director of Alliance Investigative and Forensic Accounting testified to the PAC, “those involved had no intention to deliver the LCS project, but only had intentions to maximise their own gains.”

    As much as the navy urgently needed the ship, at this juncture, it may be best to scrap the whole LCS project. What is the guarantee they would not simply ask for more money and would not finish even one ship? Hell, even the detailed design is not yet completed. What is the guarantee that the ship that they build would even meet the standard that is required? Are we going to accept a ship that is riddled with issues for the sake of having the necessary asset? Scrapping the project and perhaps simply buying a readymade military asset, seem to be a much better choice for Malaysia.

    When even the former navy admiral is only looking out for his own chequebook, Perhaps any involvement of any retired military officer in a defence contract should be reviewed again.

  3. Afiq – Perhaps any involvement of any retired military officer in a defence contract should be reviewed again.”

    That simple and clear cut? Was this cockup caused solely or mainly by “retired military officers”? If there were no “retired military officers” in BNS would the ships have been delivered on schedule; within spec and on budget?

  4. Sometimes it is that simple. Do we fix a complex problem by making complex solutions? Or should we start by simplifying the problem, so we can find simple and actionable solutions. So we can solve a complex problem one step at a time. Alternatively, what would be the non simple solution? Other than we need to change the entire system? Some make specific recommendations to address specific weaknesses, solve one problem at a time, however simple it maybe, in order to move the needle in the right direction, however small the movement maybe.

  5. Scrap the whole project n pay whatever balance to bns.ask for new quotation from the country that build. Compare value of ship buying n building on our own with LATEST technology gadgets

  6. SETUJU SCRAP LCS GOWIND.

    RM 6 Billion dah belanja, 1 kapal pun tak siap. Kalau nak siapkan 6 buah kapal LCS GOWIND, nak kena tambah sekitar RM 5 Billion. Kalau siap pun bukan spec yg TLDM nak.

    Maka baik buat baru. SCRAP sahaja LCS GOWIND. Saya sokong

  7. Suggest that LCS continue but limit to 2 ships instead of 6, the spares ordered can also be use standby parts, that way out losses will be reduced

  8. Kel “Sometimes it is that simple”

    And sometimes it isn’t. Ultimately one can spin it however one desires but there is no “simple” fast solution for something deeply ingrained within the bureaucratic/political psyche and practised for decades – none. Fantasy delusion to think there is a “simple” solution.

    Rectifying or revamping the system will first take political will to acknowledge that a decades long policy is deeply flawed and self defeating and requires a determined, holistic and apolitical approach – made harder by the traditional indifference on the part of the average voter towards defence issues. It’s also not as “simple” as doing away with the agents as they are merely one component of a deeply rooted flawed system.

    Kel – “So we can solve a complex problem one step at a time. Alternatively, what would be the non simple solution”

    Sounds like a self improvement; motivational or spiritual narrative necessitating the need for a stiff beverage.

  9. Azlan, so what are the specific steps, actions are you recommending to fix a complex problem, to achieve the holistic, long-term, apolitical change? You have the approach (i.e. holistic, long-term, aploticial). Now its time to implement. What specific actions, decisions, tasks, changes specific should be taken as part of your approach? As usual and as always, still waiting for your list.

  10. Kel – “As usual and as always, still waiting for your list”

    Patience is a virtue. Wait longer for all I care.

    We all know what the steps are and how it’s unlikely given the present politics climate and some of us also realise there are no “simple” of fast solutions.

  11. A way to mitigate this mess would be to form an independent procurement agency: similar to Sweden’s FMV and comprising the MAF and other bodies. In addition to overseeing tri service procurement this agency would perform oversight on local vendors, suppliers and agents. One of the issues with the LCS is that nobody actually conducted due diligence to ensure BNS was in sound shape to deliver on schedule; within budget and per spec – nobody.

    As any long term observer will attest there is simply no fast easy fix for what is a deeply ingrained problem which can’t be viewed in isolation given it’s a reflection of many flawed things in this country and the defence industry of part of the system of patronage. There is no political will; desire or impetus because acknowledging the system is shite has political consequences.

  12. There was no due diligence done on BNS as it took over the NGPV project with the promise of its continuing with the 21 ship contract that its predecessor was given. In hindsight the government should just pay all the debts incurred by BNS for taking over theNGPV project. It must be noted as well that the delay in implementing the SGPV/LCS was the other reason, BNS incurred all the debt. Amin Shah the gift that keep giving

  13. Yes Marhalim but why didn’t anyone ask whether BNS; which still had debts incurred from the last management; was financially sound? After all it was embarking on the most ambitious naval programme ever undertaken in this country. When the political decision was made for all 6 ships to be constructed locally; I know some in the RMN did voice concern that this was overly ambitious given BNS hadn’t constructed anything for a few years and that some of its most experienced people who had worked on the Kedahs were no longer around. Some within BNS also voiced concerns internally but were ignored.

    In short the policy we have and the hubris and over confidence on the part of the government; plus BNS’s unhealthy position made it ripe for the disaster which occurred. If there had been a sound policy in place with essential check and balances things wouldn’t have gone ratshit because alarm bells would have rang at an early stage.

    I have nothing for or against BNS [those in the know are aware of various issues with BNS way before the LCSs were ordered] but as much as people would like to pin the blame on BNS and ex high ranking service members [people like villains they can allocate blame on]; the government is just as responsible for the LCS cockup; just as it was with the South Korean training ships and Little Birds by awarding contracts to companies which weren’t fit for the job and gained revenue without offering any tangible value.

    The policy as introduced decades ago by a former PM; who is also responsible for various other things which afflicted the MAF; was intended to benefit various sectors first; the armed services came second and the result is the mess we’ve long been in; the LCS cockup is just an extension.

    Something else to ponder; yes ago we spoke briefly about the then RMN Chief; he had a certain reputation within the RMN. We know he sent letters to various people voicing concerns and we know he had a chain of command and other protocols he had to follow [like everyone else he also had to safeguard his career] but IMO he could have done more when it became clear to him that things weren’t going to plan.

  14. From the JKSTUPKK report page 12, from a few memos from Pengarah Rancang dan Pembangunan Markas Tentera Laut to the chief of navy,

    -It was noted that March of 2010, “BNS suggested Meko 100 design to RMN”.
    -While in July of 2010, “suggested Meko 100 hull from BNS with other structure from Milgem of STM Turkey.” But then BNS “failed” to named foreign partners as of 2011.

    So early on BNS and RMN were discussing on a modified Meko 100 which all of us knew but then BNS ‘failed’ to do so for whatever reason and after than Gowind was recommended by BNS in July 2011 as per stated in page 13 of the report

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