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Friday, August 5, 2022

Admiral tells PAC of fighting 'losing battle' with contractor over LCS


PARLIAMENT | The Public Accounts Committee tabled its much-awaited investigation report on the procurement of six littoral combat ships (LCS) by the navy yesterday.

At RM9.13 billion, the contract to procure the six LCS was the most expensive defence contract in history.

This article will detail salient points from the report.


In 2011, Putrajaya approved the navy’s request for six LCS and awarded the contract to Boustead Naval Shipyard Sdn Bhd (BNS).

BNS is owned by Boustead Heavy Industries Corporation Bhd (BHIC). Among the largest shareholders of BHIC is Armed Forces Fund Board (LTAT), a statutory body managing the pension funds for military personnel. All non-officers are required to contribute to the fund.

BNS is based in Lumut, Perak, which also hosts a naval base.

Putrajaya greenlit the deal in 2011. At the time, Ahmad Zahid Hamidi was the defence minister, while Najib Abdul Razak held the posts of prime minister and finance minister.

The contract was awarded to BNS without an open tender being called. The contract took effect on Oct 3, 2013, and would expire on Oct 2, 2023.

The first LCS was supposed to be delivered in 2019. According to the PAC report, that ship is only 44 percent completed.

So far, RM6.083 billion (66 percent) of the allocated funds have been disbursed. Some of these payments are ahead of schedule.

In 2019, the Pakatan Harapan administration set up a Special Committee on Governance Investigation, Government Procurement and Finance (JKSTUPKK), chaired by former auditor-general Ambrin Buang. The committee’s report was tabled to the PAC on Dec 1, 2020.

Former prime minister Najib Abdul Razak

Scope of the PAC probe

The PAC had decided in 2020 to discuss the National Audit Department’s report in order to determine if the procurement was done correctly and whether the key objectives of the project were met.

Among others, the PAC summoned former defence minister Zahid and Hishammuddin Hussein to testify.

Zahid sided BNS’ design choice

The JKSTUPKK established that LCS was based on a model not chosen by the navy, despite it being the end-user.

JKSTUPKK deputy chief secretary Guna Arulalan David testified that the navy wanted a Sigma-class vessel designed by the Netherland’s Damen Schelde Naval Shipbuilding.

Then defence minister Ahmad Zahid Hamidi gave the greenlight on May 26, 2011.

However, in less than two months, Zahid changed his mind and instead followed BNS’ recommendations to use the Gowind-class design owned by France’s Naval Group.

Naval Group was also Malaysia’s contractor for two Scorpene-class submarines in 2002, a deal which is now subject to a formal probe by French authorities.

The Royal Malaysian Navy (RMN) was not happy with the decision.

“There is no precedent of the design being decided by the main contractor and not the end-user,” wrote then admiral Abdul Aziz Jaafar in one of his correspondences to the government. This letter was cited by Guna in his testimony.

Former defence minister Ahmad Zahid Hamidi

Was the contractor also the end-user?

When Zahid was called to testify, he denied responsibility for the design switch and instead placed the blame squarely on BNS and Naval Group.

“If the admiral wants to state it was the ministry’s decision, I deny it because the minister had no background in naval architecture... Therefore, (choosing the design) was the responsibility of BNS and France’s Naval Group.

“There was no interference from the minister in the choosing of the design. The design solely depended on and was within the jurisdiction of the contractors.

“It has nothing to do with the ministry or the minister. We agreed with (BNS) because the end-user knows that design was needed in Malaysian waters - Sigma or Gowind,” Zahid said.

Several PAC members caught on to Zahid’s contradictory remarks, which appeared to conflate the contractor with the end-user and quizzed him on this.

Nurul Izzah Anwar (Harapan - Permatang Pauh): “Are you saying that BNS is also representing the end-user?“

Zahid: “The BNS executive chairperson is a former Navy admiral. He is very knowledgeable about the needs of the end-user. In my opinion, the chairperson at the time had very wide expertise in maritime affairs and the needs in our waters.

“After seeking the views of the end-user, he would definitely suggest changes to the design. I would like to reiterate that the ministry, the minister and other (ministry staff) will accede to any suggestions by the end-user.”

However, the Defence Ministry’s role in switching from the Sigma-class design to Gowind-class design was not in dispute based on the testimonies of various government officers.

For instance, Defence Ministry (Procurement Division) secretary Ahmad Husaini Abdul Rahman confirmed that it was his ministry that was solely responsible for proposing the Gowind-class design for the Finance Ministry’s consideration.

Wong Kah Woh (Harapan - Ipoh Timur | PAC chairperson): “So Mindef proposed Gowind...?”

Ahmad Husaini: “Mindef proposed.”

Wong: “To the Finance Ministry, and it was endorsed?”

Ahmad Husaini: “Yup.”

‘We were fighting a losing battle’

Abdul Aziz was a key figure in the procurement of the six LCS, but not in the way he wanted.

He served as admiral of the RMN from 2008 until 2015. During his helm, the navy proposed the procurement of the six LCS to the Defence Ministry.

He also chaired the capability management board (CMB). This CMB met six times between October 2009 and May 2010 and decided on the scope of the LCS project.

However, when the government’s procurement process went awry in 2011, Abdul Aziz told the PAC he wrote 10 protest letters - five addressed to Zahid and two to Najib.

Abdul Aziz said he did so to keep a record of his protest.

“We archived (our protest) to ensure that it will be available for reference, and I would not be blamed for the failure to perform my job as the chief of the navy. I anticipated that.

“I have criticised the procurement process from the beginning... Something was gravely wrong. I didn’t say this in public. (The letters) were my best chance to register my greatest disappointment to everyone that was supposed to be listening to me,” he said.

PAC chairperson Wong Kah Woh

According to Abdul Aziz, he had informed the proper authorities that BNS was setting the terms for the project and not the navy.

However, his protests fell on deaf ears.

Despite all the letters and personal presentations to the chief secretary of the government, the defence minister and the prime minister, we were fighting a losing battle.

“Right from the start, it was not right because BNS was given the leeway to make their own rules to suit them,” said Abdul Aziz.

Abdul Aziz described BNS as “angkuh” (arrogant) and that “they were very well protected”. Therefore, his letters would not amount to anything but a protest on record.

What’s wrong with the Gowind-class?

According to Abdul Aziz, BNS, not the defence ministry, informed the navy that the project would follow the Gowind-class design.

Abdul Aziz said this was unacceptable because, at the time, the Gowind-class design was not proven, whereas the Sigma-class was already operating in Indonesia and Morocco.

Secondly, Abdul Aziz said the vessel was not big enough for its intended use.

Finally, Abdul Aziz explained that the Gowind-class was designated as a “patrol vehicle” while the Sigma-class was a “combat ship”.

BNS blew RM400k on a showpiece

In 2017, BNS invited Raja Permaisuri of Perak Tuanku Zara Salim to launch the first LCS known as KD Maharaja Lela, even though the vessel was - and still is - very far from operational.

After being pressed by the PAC members, BNS’ director of the LCS programme, Azhar Jumaat, conceded that the company had put up a “temporary” mast to make the ship look good for the event before taking it down again.

“After the ship was launched, we removed the mast. It was to create an impression. It is not an industry requirement... or contractual requirement to do so,” Azhar said.

At this point, BHIC CEO Sharifuddin Md Zaini Al-Manaf jumped and conceded that the temporary mast was a “waste of money”.

“It is just for show. That is my view. There is no point, and it did not serve any purpose. It looks nice, and it may give an impression that the vessel is more beautiful than what it was meant to be. It was a cost that BNS had to absorb,” Sharifuddin said.

For that extra good looks, BNS had to fork out RM400,000, navy chief engineer Rear Admiral Mohd Shaiful Adli Chung Abdullah told the PAC.

The PAC report on LCS procurement can be downloaded here, while the full transcripts of proceedings can be downloaded here.

Members of the PAC are Wong Kah Woh (Harapan-Ipoh Timur, chairperson), Azizah Mohd Dun (PN-Beaufort, deputy chairperson), Wong Shu Qi (Harapan-Kluang), Ahmad Maslan (BN-Pontian), Ahmad Fadhli Shaari (PN-Pasir Mas), Nurul Izzah Anwar (Harapan-Permatang Pauh), Ahmad Hassan (Warisan-Papar), Jalaluddin Alias (BN-Jelebu), Yamani Hafez Musa (PN-Sipitang), Fasiah Mohd Fakeh (PN-Sabak Bernam), Lukanisman Awang Sauni (GPS-Sibuti), Noh Omar (BN-Tanjung Karang), Ahmad Tarmizi Sulaiman (PN-Sik) and Hatta Ramli (Harapan-Lumut). - Mkini

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