Show Me The Money…Part…

The new hangars (far right) and gantry crane at BNS added specifically for the LCS programme. Picture taken in 2017.

SHAH ALAM: Show me the money..part xxx. Setiawangsa MP Nik Nazmi Nik Ahmad, the chairman of the Parliamentary Select Committee on Defence and Home Affairs has wade into the debate regarding the LCS project. The committee has investigated the project and the chairman wrote about it at length in the comments section of the Malaysiakini. The full article can be found here.

Nik Nazmi revealed the nature of the RM1 billion “funds which were not accounted for” the stand taken on the issue by former deputy Defence Minister Liew Chin Tong. The senator had also made the same missing money claim in Dewan Negara when he was still the deputy minister and several times after that including on 10 September 2020.

The keel of the fourth LCS in the BNS hangar for the ceremony in 2018. The ceremony was graced by the then deputy defence minister Liew Chin Tong.

In his comments in MalaysiaKini, Nik Nazmi said:

“The committee (The Special Investigation Committee on Public Governance, Procurement, and Finance (JKSTUPKK)) was also told that BNS had applied and received an advance of more than RM1 billion on the contract, which is more than the norms established by the Finance Ministry

Based on his statement, we can assumed that the RM1 billion was and is the same “funds which were not accounted for” as claimed by Liew. In fact, Nik Nazmi confirmed this as he continued:

An exception however was made at the request of the Defence Ministry due to the supposed weak financial state of BNS even at that early stage. So the current problems faced by the LCS was not something inevitable if normal government financial procedures were followed.

The JKSTUPKK committee in fact heard from BNS’ management itself that almost RM396 million from the LCS project was used to pay off debts and interest that occurred from the NGPV project. Effectively, this was robbing Peter to pay Paul.

So some RM396 million had been accounted for, it was used to pay off BNS debts, though Nik Nazmi is silent on the rest of the funds, some RM604 million. Do note unlike the MP and the senator, I do not have access to any of the documents above but I am aware that BNS got the funds ahead of the actual shipbuilding so as to prepare the yard for the project. I am not aware that the funds were also used to pay its debts however. But as Nik Nazmi said “RM396 million” was used to pay off BNS debts, it is likely the rest of the RM1 billion, around RM604 million was used to upgrade the shipyard for the LCS project. Nik Nazmi was silent about this. PSC-NDSB the company that ran the NGPV project into the ground also got similar funds to develop the yard for the project.

The new hangars (far right) and gantry crane at BNS added specifically for the LCS programme. Picture taken in 2017.

Based on Nik Nazmi comments, it is certainly unfair for anyone including he himself, the former deputy minister and others to say the money was missing. This matter was even made worse when some parties implied that the money went missing due to malfeasance or corruption. The question that should be asked instead is the RM1 billion included in the RM6 billion the government (both PH and PN) had said were already been paid to BNS.

Boustead chairman TS Ramlan Mohamed Ali(second from right, facing camera) listens as the then Defence Miniter Mat Sabu is briefed on the LCS project during his visit to BNS in late June, 2019. Mat Sabu FB.

Again I am not absolving BNS or the BN government of anything with the LCS fiasco but tarring the issue with allegations of corruption is to me, disingenuous to say the least. I am also not saying that there was no corruption with the project – the fact that the Malaysian Anti Corruption Agency (MACC) have yet to find anyone to charge – is not to me an indication of its being clean.

It is interesting to note that Nik Nazmi said the audit committee had presented its finding to the then PM, Tun Mahathir Mohamad, which had presided over the NGPV project together with his then Finance Minister Tun Daim Zainuddin. Of course they might not remember what had happened with PSC-NDSB! Nik Nazmi also lamented that BNS should not be given the LCS project based on its track record, again another disingenuous attempt to tar the state-owned company with the fiasco created by PSC-NDSB and its owner Amin Shah Omar Shah. PH has not seen fit to publicly publish the JKSTUPP report though some of its lawmakers are calling it to be made public now after the media storm following the resumption of the LCS building by the government.

Boustead executive chairman TS Ramlan Ali (centre) greeting Defence Minister DS Ismail Sabri when the latter visited the BNS yard in November 2020 to check on the LCS project. The LCS hull in the background looked appeared to be fitted with the propellors but without the rudder. I am guessing that this is the second hull as it does not have water marks on it. Kementerian Pertahanan picture.

As for BNS lacking funds as stated by Nik Nazmi, this was expected as it had no further contracts after the Kedah class project ended (apart from the refit projects including the ones for the Kasturi class). It was in the first place created to bail out a failed project and company. Boustead, I was told only took the rescue after it was given verbal assurances that it will be given the follow on naval shipbuilding contract. The people there realised that they cannot recoup their investment from refits as it comes and goes based on the decisions (some say whims and fancies) of the RMN. The shipbuilding contract – the one fo the LCS – was only signed in 2014 – not when it was awarded the project in 2011.

Nik Nazmi as the chairman of the select committee on defence and home affairs must be aware of the background issues with BNS. Unfortunately he did not mentioned them and instead used half-truths, to make his arguments, which to me smacks of hypocrisy. Do the government needs to be transparent on the BNS bail out, of course, but Nik Nazmi himself failed to be truthful as well.

Another angle of the keel of the first LCS, most likely from the bow end when the then Defence Minister Hishammudin Hussein launched the first keel in 2016. H20 picture

Again I am not absolving any of the parties involved in the LCS fiasco. Infact, long time readers of Malaysian Defence, will know that I had long ago urged caution as the project was using a similar script as the NGPV one and we may end up repeating its failures as well.

Some commenters here had stated before that I was overly pessimistic on this and they would prefer to wait and see before making a stand on the issue. I have been unfortunately been proven correct. Again I am not celebrating the fact that my fears were realised, I am disgusted by the fact that many of our bravest people are out there patrolling the nation’s waters in ships and boats which should have been replaced with new ones a decade ago.

Sea water was sprayed on Maharaja Lela and fireworks boomed as part of her launch gimmick in 2017.

I am not keen to write things based on incomplete data especially ones that is already available – I may yet regret writing this post but it is more distressing to see people with all the facts hiding them in order to push forward their objectives.

The keel of the second LCS (right) prior to the keel laying ceremony. Next to it is the structure of the 1st LCS. Most of this facility were built specifically for the LCS project. RMN

Anyhow Selamat Hari Raya and Maaf Zahir Batin.

— Malaysian Defence

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Shah Alam

32 Comments

  1. We’ll end up with 4 most expensive OPV in the world and we must be proud about the achievement.

  2. Selamat Hari Raya…
    A hole which never can fully filled.
    Pay more to solve top management issue amd not affecting few thousands worker life during Pandemic. RMN 15 to 5 plan already fail half way. Settle the 6 lcs and fullstop. RMN need re-strategic their plan. Lcs and ngpv number that’s it and make it capable to face bigger threat. Put more focus + add more on LMS and utilize the 80% task which LMS can carry. China made ship no good? I think now is better than local make. Luckily PH did one right move is let LMS complete at China.

  3. Learning from past ‘mistakes’, I think it’s best to procure defence equipment directly from the manufacturers and delivered from them for the most part.

    Reply
    Its the process really if a requirement is suddenly hijacked by politicians like the MD530G, it will be screwed up as well

  4. Yes Marhalim; from the onset you were pessimistic about the LCSs being delivered on time and within budget. I on the other hand was optimistic; saying it was too early days to come to such a conclusion. I was wrong and you were right – unfortunately. Yet again the end user and taxpayer will get bug***ed.

    It’s noteworthy however that we have a politician who has openly spoken about how the needs of BNS took precedence over that of the RMN and how BNS was in the position to make the final decisions on various things (something I’ve long harped on an in about like a broken record).

    Apart from the final eventual outcome of this whole mess; the question really is whether we’ll learn anything from it or whether it will eventually be forgotten? Is there even the political will to look at the root causes which led to this and acknowledge that unless deep fundamental changes are made; we’re doomed to repeat the same mistakes and we’ll never get the value we should pay what we spend in the MAF.

    Reply
    It was PSC-NDSB before that really

  5. Accusing the missing 1 billion is a just sensational issue. Some people are still singing old tunes to a create bad sentiments among malaysians which makes this LCS issue worst. They knew where the money goes actually but they pretend and act like they dont know and let the story spread for speculation- 1 billion missing!!. This is the same story about the scorperne that couldnt submerge. Pity malaysians. Hopefully the LCS construction work will progress well after this and RMN got this ship based on the new dateline.

  6. “It was PSC-NDSB before that really”

    For the Kedahs yes. I was referring to the whole system (other procurement programmes have faced issues): as well as the circumstances which led to BNS (having taken over Naval Dockyard) being in the position it was; when it was awarded the LCS contract.

  7. So in not so many words, Nik Nazmi is admitting this whole LCS fiasco actually has its roots in the earlier Kedah class drama. That the whole drama happened under the stewardship of then Tun M and his Mr Moneybags Tun Daim. The latter attempts to pay off earlier debts ultimately led to the bleeding of RM from funds that were actually slated for the LCS project. Nice! I don’t know whether I should cry or laugh at the sheer idiocy of the saga. Well, for starters Tun M and Tun Daim can claim to not remember details of this episode. The subsequent BN government can claim they strive hard to find and amicable solution whilst the PH government can claim the previous regimes are to blame for the failures making it necessary to investigate (stall for more time to assign blame!). Ah, the world that we live in… The LCS whether we get 2 or the whole 6 units will be the most expensive light frigates to sail the pond (ie. The South China Sea).

  8. Wonder how much of the RM396 million is the interest incurred since the Kedah project? Difficult for BNS regain from investment as their business scope is just too narrow and only focuses to the government.
    Also curious to know if the balance RM3 billion of RM9 billion is allocated for in RMK11 or 12?
    Still hopeful for all 6 LCS to be completed by BNS. ☺

  9. “RM396 million… pay off BNS debts”
    I recalled that BNS agreed to take over PSC Lock,Stock,Barrel including their debts so I guess this payment was part of that condition.

    Rm600mil to setup new hangar and gantry, but me thinks lion share is to upgrade the manufacturing process & equipment to meet DCNS standards, as AFAIK they used submarine standards even to build surface ships (one of those tech difficulties that’s part of the delay). IIRC this was shared by Api69.

    “they cannot recoup their investment”
    Its a GLC, any moneyed men can see this was a bad deal, but as GLC they are forced to accept it, typical Mahathirism bailoutism. See MAS, see Perwaja, see Proton, see MISC.

    “tarring the issue with allegations of corruption is to me, disingenuous”
    “Of course they might not remember what had happened with PSC-NDSB!”
    “disingenuous attempt to tar the state-owned company”
    “used half-truths, to make his arguments, which to me smacks of hypocrisy”
    “it is more distressing to see people with all the facts hiding them in order to push forward their objectives.”
    Hehe. What did I say about politicians again? Unfortunately PH breed are some of the most smartest and at same time most disingenuous of them all.

    Ultimately there was a coverup of the true cost from BN side, so neither party are innocent. What’s left is the current side having to pick up the pieces left by these two.

  10. Actually using miney for one project not for the purpose of that project is either a breach of trust or a breach of contract. So either way its a breach of the law.
    But what happens to the RM600+ million. The Committee should be transparent n not hide hide.
    No matter no more further projects for Boustead in future. If they cant manage better to close shop. As it is the money is better used to purchase vaccine for citizens n buy more machines, oxygen n construct more hospitals for covid patients.
    Covid is critical n it needs a solution now. Dont just tell us to jaga. The gov must come out with a solution to protect its citizens from Covid. Protecting us from Covid is also defending the country

  11. Taib – “Well, for starters Tun M and Tun Daim can claim to not remember details of this episode”

    It’s called “selective amnesia” : a common ailment amongst politicians for which apparently a remedy is still highly elusive.

    Taib – “LCS whether we get 2 or the whole 6 units will be the most expensive light frigates to sail the pond”

    We deserve it. Our defence policy is based on politically driven Alice In Wonderland Cloud Cuckoo Land delusions where priority is not in ensuring the services get the desired capability and the taxpayer their money’s worth. Yet some would still work insist we can achieve self sufficiency and that we should participate in ambitious collaborative exercises.

    Ed – “hopeful for all 6 LCS to be completed by BNS.“

    At the rate we’’re going we should count our lucky stars if 2 or 4 are eventually commissioned.

    To look at things in perspective or totality; the RMN needs the 6 LCSs; it also needs the 6 ASW configured helos to complete the picture.

    On top of that there’s the 2nd batch of fully fitted out LMSs which are needed to replace FACs, Laksamanas and Mahamirus); assuming the modular payload approach actually suits our needs. Then there’s the need to replace stuff which will time expire soon and the need for UUVs and USVs to transform the RMN from a platform centric force to a new generation network centric one. Oh and the MPRSS requirement.

    To say it’s a challenging situation twould be an understatement.

  12. Really turning into a sh**show now..It looks like BNS not ready to build LCS from day 1..I get that part of expanding and upgrading the yard but that part of paying BNS’s debt..WT*

  13. Lee – “No matter no more further projects for Boustead in future. If they cant manage better to close shop”

    Easy to say … BNS is the country’s main naval refit yard and it folding will also lead to more delays in the LCS programme. Also, does BNS really share all the blame?

    Lee – “. As it is the money is better used to purchase vaccine for citizens n buy more machines, oxygen n construct more hospitals for covid patients”

    Let’s not conflate things …

    Money for Covid and money for defence are 2 very profoundly different things.

    We cant adopt the spurious argument that we should use the cash for Covid instead of defence as there are budgets for both and using cash for the LCS doesn’t mean we’ll be unable to buy vaccines, ventilators, etc.

  14. @Lee Yoke Meng @Firdaus
    Its not breach of trust if the takeover deal involving to take on PSC debts as well, under the condition that such losses were to be paid by the Govt. No sane private entity would take such burden unless the business revenue could cover the debts, which in this case it doesn’t. And again the debts aren’t from BNS to make this clear, it is from PSC which BNS took over.

    Its not that BNS has no technical capability to perform – they do – but they lack experience with such high tech ships, made worse when building all locally. There was no learning curve of starting in DCNS yard and perhaps it was either due to BNS or BN Govt overconfidence but ultimately it was a failure in either Top Management, not the technical or build team.

    About money for Covid, some finance expert said if we have retained GST, it would have been sufficient to pay for the vaccine. It is no surprise that majority of countries that are advanced stages of vaccinating their citizen have GST/VAT(some at very high rates) on top of stronger currency. But I digress.

  15. Joe
    No one forces Boustead to take over . Boustead went in witheir eyes wide open. They knew the score n they knew what they are going into. So no excuse. Can a company use money meant by the customer specifically for one purpose for another purpose until the original contract cannot be contracted?. Thats against the law. Just like you buy a house n the developer collects progress payments from you. Can they use the money collected to complete other projects or pay off debts unrelated to the project for which money is disbursed?. The answer is No

  16. Fyi developers use money collected from buyers to finance other projects or their internal over head costs..money for the project come from bank loans for the project …

  17. Mofaz.
    Yes if they have the financial muscles they can get away with murder. But not this case. They have a valid contract with the gov to contract the ships n the money disbursed is meant for completing the ships only

  18. At the end of the day, Malaysia needs naval ships to defend it’s seas. Not shipbuilders.

    Still no news on KD Jebat CMS? Did it work?

    Reply
    It works but how good is beyond me. The fact that it has not been installed on KD Lekiu is probably an indication of its worth. That said as I have written here before I was told that both ships need new wiring to get the best out of a new CMS of whatever make is another indication of what’s going on.

  19. No ones forces boustead to take over. OMG. Boustead as far as i know is a GLC not a private company. If mahathir said go rescue PSC, what else can they possibly do.

  20. Encik – ” Not shipbuilders.”

    Not ”shipbuilders” per see but ”yards” which can perform upgrades and refits which are needed by the RMN as part of its role of defending our maritime interested. Lest we forget;refits was the Naval Dockyard’s core business or raison d’être until it got into the ship construction business with the Kedahs.

  21. If the main business of Naval dockyard is maintenance n repair then they should not attempt something they ate not good at or have not before. There are yards that even build for foreign navys. Why dont use them?.
    If today the project is taken out of Boustead by a new contractor on condition the equipment already ordered locally be used impact on local suppliers n employment is minimal.
    I dont see the sense of using a failed yard to complete the ships

  22. Lee – “I dont see the sense of using a failed yard to complete the ships”

    You may not see the “sense” but look at things in totality.

    – BNS was not a “failed” yard prior to the LCS. It was a yard which has taken on various liabilities by the previous company which ran the yard; over the Kedahs.
    – Whose job was it to ensure that BNS was indeed in a position to handle the contract? Before awarding BNS the contract it should have been determined whether or not it was in a sound position.
    – At this point; getting another yard to complete the programme will not change the fact that the LCS will not be delivered on time and within budget. It will actually lead to more delays in the RMN getting the ships. If BNS can – under the terms agreed upon – complete the programme; then so be it.
    – We need to ensure this level of cock up does not reoccur. BNS – the way I see it – is not solely to blame. It’s way we went about things heavily driven by political imperatives; in turn heavily driven by out flawed defence policy.
    – As to the Naval Dockyard making the transition from a refit yard to one constructing ships; it was also a political decision – like most other things defence related.

  23. Azlan
    In totality it does not make sense to put in more money to save a failling yard. Boustead took over with eyes wide open.
    Boustead must not make use of the gov n rakyats money to pay off their debts.
    Its not right. No one forced Boustead to take over

  24. Some of us still thinks GLCs, one such as Boustead, are private entities free from Govt meddling. Far from the truth, GLCs are often used for other purposes like rescuing another troubled GLC. That is why Boustead came into the picture as they are used to rescue the debt ridden PSC which are holding onto remaining Kedahs. It was a bad deal any 3rd rate CEO could foresee but one that Boustead could not avoid its fate.

  25. Lee – “In totality it does not make sense to put in more money to save a failling yard”

    If BNS can come complete the ships under some new arrangement then so be it. Anything else will see even further delays in the programme and that will have wide implications for the RMN.

    You can’t have your cake and eat it. Decide whether priority is in the RMN getting its ships without any further delays or in penalising BNS – you cant have both. BNS is the country’s main naval refit facility – it going under will have implications. Getting another company to take over the LCSs sounds great but will lead to further delays and will not change the fact that another politically driven programme has gone ratshit.

    Also BNS doesn’t share all the blame : whose job was it to ensure that BNS was in a sound position to deliver on time and within budget before awarding it the contact? On what basis did BNS get the contract and what oversight was there? Throughout their 18 months in power why didn’t the previous government (so keen on exposing wastage) get the Defence and Finance Minister conduct a thorough review?

    Priority now should be on getting the ships completed and commissioned and totally revamping out highly self defeating defence policy which has led us to where we presently are.

  26. Then we should probably try out private corporations to do smaller ships like Gading Marine and Shin Yang. Shin Yang has successfully built training ships and LSTs for a Persian Gulf navy. Thats experience for you.
    And get experienced oil rig and tug refitters like Brooke Dockyards to do maintenance for the navy ships. If they’re good enough for the British vessels of yesteryears they’re probably good enough for TLDM. They have more than a century’s experience in shipbuilding and repairs. Am not shooting my mouth here since many in my kampung for many decades worked in these shipbuilding companies, some from father to son with a Dad a welder and coolie, with the son or daughter a ship engineer or architect. I don’t see why it’s just BNS or another ‘LTAT anak syarikat’ that needs extra coddling. The struggling GLCs can’t compete. And shouldn’t be allowed to exist longer than necessary.

  27. Taib – “daughter a ship engineer or architect. I don’t see why it’s just BNS or another ‘LTAT anak syarikat’ that needs extra coddling”

    Same question can be asked of various other companies which have been given a near monopoly on things : DEFTECH comes to mind.

    BNS is the country’s main (not only) naval refit facility and its very location gives it an advantage; yet other yards also perform refits. The whole idea of giving Naval Dockyard the Kedah contract and the LCS one looked great on paper (like many things in our gagaland defence policy) but it was heavily based on political imperatives which are deeply entrenched in the system.

    Ultimately it all boils down to the need for a total revamp of the system for which – unfortunately – there doesn’t seem to be the will or even a basic intent.

    Another issue at play is the fact that so many companies want a piece of what is already an oversaturated market. A lot of these companies simply are not “healthy” enough to be awarded contracts (they also don’t provide value added services but that’s another story); the companies which were originally awarded the South Korean training ship and Little Bird contracts come to mind.
    There is little or no oversight to determine how fit companies are to be awarded major contracts.

  28. I am not sure how much more money is goin’ to be pour into this longest saga. A project to be proud of, have become a joke.
    Furthermore, this should not happen after bitter lesson during NGPV project.

  29. Azlan- “heavily based on political imperatives which are deeply entrenched in the system”
    I like the above. It sums up the entire malaise, affliction more like, of the Malaysian defence industry. I stumbled across examples of this ‘affliction’ nearly 2 decades ago, when a retired army officer chatted about the extreme difficulties in getting the right person to listen to you in MinDef. Selling a new concept entail a lot of ‘entertainment’ and at the end of the day, the proposal is rejected and/or gets stolen by a top brass or minister’s aide. It is still OK if the defence forces get what’s needed in this network centric world, but as always, it ends up lining someone’s pocket! That is sad. BTW, this guy is (was) into drones. * He’s not a middle man. I can imagine how far ahead we would have been defence-wise, if even a quarter of his proposal is accepted.
    And I have not seen any new defence minister that can curb this inherently disruptive Malaysian behaviour. Yet.

  30. Taib – “And I have not seen any new defence minister that can curb this inherently disruptive Malaysian behaviour”

    We’ve spoken about this before. It matters not who the Minister is as long as he’s part of the system and as long as the system is not revamped. As it stands there is no political will or intent to change things – to undo years of doing things in such a flawed manner which is deeply ingrained in the system.

  31. Any news on the LCS? Any budget allocated? Heard from insiders at the shipyard that the project has high possibility of being cancelled (parts structure will be sold off as scrap) or ships being reduced to the ones available at shipyards.

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