Report: No penalty on Boustead Heavy Industries despite LCS scandal

Report: No penalty on Boustead Heavy Industries despite LCS scandal

A general view of Menara Boustead in Kuala Lumpur August 7, 2022. — Picture by Yusof Mat Isa

By Ashman Adam

Wednesday, 07 Sep 2022 10:40 AM MYT

KUALA LUMPUR, Sept 7 — Boustead Heavy Industries Corp Bhd (BHIC) will escape penalties for mismanagement and irregularities related to the navy’s Littoral Combat Ship (LCS) project, The Edge reported today.

The local business daily cited the CEO of its subsidiary Boustead Naval Shipyard (BNS) Azhar Jumaat as saying “there will be no penalty on BHIC”, when contacted.

It also reported Azhar giving an assurance that there would be no major delays in the construction of the six LCSs, despite BNS terminating two of its main contractors for the project.

“We do not foresee that the termination of CAD and CED will further delay the project. BNS is committed to deliver the vessels in accordance with the new schedule, which is to be negotiated with the government.

“The termination will allow BNS to negotiate directly with the relevant OEMs and this can be done within the proposed delivery period for the vessels,” he told The Edge.

CAD and CED refer to the two contractors Contraves Advanced Devices and Contraves Electrodynamics respectively. BNS had previously appointed the two companies as intermediaries to purchase equipment from original equipment manufacturers (OEMs) to build the six LCS.

The letters of awards (LOA) to both CAD and CED were voided in view of allegations of misconduct, illegality and fraudulent dealings in relation to the LCS project.

Azhar, who was appointed BNS chief executive in May, said the OEMs in the current contract of the LCS project will remain involved in the project.

“The contract termination only refers to taking out the intermediaries. We are not replacing OEMs appointed through CAD and CED.

“That means BNS is only terminating CAD and CED as intermediaries. Thus, there is no issue on the appointment of new contractors. There is no additional cost to the government to complete the vessels due to the termination of CAD and CED,” he was quoted as saying.

BHIC is estimated to have lost RM890 million due to double claims, dummy payments and overlapping LOA, according to a forensic audit report on the LCS project declassified on August 22.

The forensic audit report also estimated that BHIC had already lost RM23.37 million due to alleged dummy payments made to three companies for non-existing technical services related to second generation patrol vessels from 2011 to 2012.

The forensic audit report further said that overlapping LOA were issued in favor of CED in April 2012 for Boustead Integrated Technology Center (BIT), which amounted to RM305 million.

The forensic report report noted that the cost of this BIT was already incorporated in the original RM898 million LOA issued by BNS for the combat management system to CAD.

The RM898 million LOA, together with another RM287 million, which was also for a combat management system, was reassigned from CAD to CED and endorsed by BHIC managing director Tan Sri Ahmad Ramli Mohd Noor on behalf of BNS on April 9, 2012.

BHIC also incurred an estimated loss of RM537 million due to double claims for the same services with different nomenclature related to services costs and combat system integration, which Azhar confirmed to The Edge.

BNS had appointed both CAD and CED to buy equipment from the original equipment manufacturer, which caused acquisition costs to swell several times.

As of 2018, BNS’ debt to the OEM stood at RM801 million, while it owed RM956 million to financial institutions.

The report also found that CAD and CED had charged a mark-up of approximately RM180 million for 10 LOAs.

In the 10 LOAs that were marked up, BNS issued two LOAs to CAD as an intermediary for RM1.185 billion, which made up of RM898 million and RM287 million respectively.

The LOA reflects approximately a three-fold increase against the value of the LOA issued to the Paris-headquartered Naval Group (formerly known as DCNS) at RM397 million.

The LCS project is the largest defense procurement in Malaysian history, amounting to a total of RM9 billion.


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