LANGKAWI: The cost for the five-ship LCS project has been bumped up for around RM2 billion more. The figure was released by Boustead Heavy Industries Corporation Sdn Bhd (BHIC) in a Bursa Malaysia announcement today (May 26). The cost for the five ships is now RM11.2 billion compared to RM9.1 billion, the release said. Do note that the new figure tracks the one presented by Malaysian Defence some months back.
As for the other revision to the contract, BHIC said only five ships will be built now. The deadline for delivery has also been moved to August 2026 instead of the very suspect – 2025 – deadline announced earlier by the Defence Minister. This is still seven years delay to the original deadline. The fifth will be delivered in April 2029, some five years after it was supposed to be delivered. Payments will only be made based on progress rather than milestone as had been done previously.
The announcement was made after its associate company, Boustead Naval Shipyard (BNS) Sdn Bhd signed the sixth LCS supplementary contract with the Defence Ministry at LIMA 2023 first public day.
Following the successful implementation and achievement of the objective stipulated in the Fifth Supplemental Contract dated 31 May 2022, the Company wishes to announce that BNS and MoD have finalised the negotiations on the resumption of the Contract and on 26 May 2023 signed a Sixth Supplemental Contract (“SA6”) to vary the Contract, amongst others, with the following salient terms and conditions:
(i) the resumption of all design and construction activities shall commence upon signing the SA6;
(ii) the reduction of the LCS Vessels from 6 units to 5 units;
(iii) the duration of the Contract shall be extended with the first vessel to be delivered, fully tested and trialled in August 2026 and the fifth vessel in April 2029;
(iv) the total contract price is revised to RM11.2 billion following, amongst others, the approved change of specifications and extension of time; and
(v) the terms of payment is varied from milestone activity to progress of works reflecting the various elements in the Contract based on weightage to the design, equipment, construction and trials & commissioning.
Earlier, after the contract signing ceremony, Defence Minister DSU Mohamad Hasan said that the BNS will be taken over by the Finance Ministry. The Finance Ministry will set up a special purpose vehicle to acquire the company and its assets from BHIC and reestablished it as a company under the Finance Ministry.
This is the same way, the MMEA OPV builder was bailed out by the government from Tabung Haji around 2019. Based on this example, one may think that the LCS project immediate future will not be rosy.
Defence Minister DSU Mohamad Hasan announced the creation of the SPV after witnessing the signing of the sixth LCS supplementary contract at the LIMA 2023 on May 26. Malaysian Defence was only present at LIMA 2023 during the three trade days – May 23 to May 25.
Malaysian Defence was told by industry sources at LIMA 2023 that work on Maharaja Lela was expected to start within three months after the sixth supplementary contract was signed. The sources said Maharaja Lela could undergo harbour trials by end of 2024 as most of the hull and the machineries had been completed.
They, however, cautioned the integration work on the combat management system, sensors, and weapons, may take much longer than the off-quoted 2025 deadline. BNS had also paid money owed to companies working on the LCS project after the signing of the fifth LCS supplementary contract. It is unknown whether BNS still owed other companies for work done with the LCS but it is likely they will be paid before the work on the ship can resume.
— Malaysian Defence