Questions raised in Malaysia Parliament on why contractor was paid $1.86b though no ship delivered

The Malaysian government has paid out RM6 billion in the RM9 billion project to build six Littoral Combat Ships. PHOTO: SCREENGRAB FROM THE STAR/ASIA NEWS NETWORK

KUALA LUMPUR - Malaysia's locally built Navy ships are expected to be completed within the next year or two, said Defence Minister Hishammuddin Hussein on Monday (Aug 8), as he responded to growing clamour over the scandal-tainted project.

"I said at least within a year or two, I hope we will be able to complete the first ship," he said in Parliament in response to a supplementary question from a senator.

None of the six vessels ordered by Navy have been delivered by local contractor Boustead Naval Shipyard, which was awarded the project in 2013 without an open tender being called.

The government has paid out RM6 billion (S$1.86 billion) in the RM9 billion project to build the six Littoral Combat Ships (LCS), a parliamentary committee said last week.

Five of the vessels should have been delivered by this month, the bipartisan Public Accounts Committee (PAC), a body that reports to the Malaysian Parliament, said last Thursday (Aug 4).

The LCS are relatively-small ships generally designed for operations near the shore.

The contract traces back all the way to 2011, with the contract taking effect on Oct 3, 2013, Malaysian media has reported.

Boustead Naval Shipyard is a subsidiary of Boustead Holdings, whose biggest shareholder is the armed forces fund, Lembaga Tabung Angkatan Tentera.

Anti-corruption watchdog Transparency International Malaysia (TI-M) on Monday criticised how the project has been handled.

It compared the LCS scandal to the 1MDB scandal, where US$4.5 billion (S$6.2 billion) was allegedly siphoned out, and said Malaysia is increasingly becoming known for its bad governance resulting in the loss of billions of ringgit of public funds.

"With numerous governance and audit structures within the public sector which are responsible to prevent corruption and improve good governance practices in place, how could the LCS project which started in 2013 be allowed to become a colossal procurement and governance failure for so long?" TI-M president Muhammad Mohan said in a statement, as quoted by Malay Mail online news. "How could they collectively have missed all the red flags?"

The bipartisan PAC last Thursday issued a statement on its findings on the LCS deal. It said though not a single ship had been completed, the government had already paid Boustead Naval Shipyard RM6 billion, local media said.

The first LCS was supposed to be delivered in 2019, but is only 44 per cent completed, according to the PAC report.

The PAC also said the Navy's view on specifications for the six vessels was ignored by the Defence Ministry and Boustead, and another design was picked.

The deputy president of opposition Parti Keadilan Rakyat Rafizi Ramli had claimed that an internal investigation showed at least RM890 million had been misappropriated from the project due to fraud, duplication of contracts, and various other irregularities, Malaysiakini reported on Sunday.

PAC chairman Wong Kah Woh last week said former defence minister Zahid Hamidi would be called by the committee early next month, to testify on his role in the project.

Former commander of the Royal Malaysian Navy, Tan Sri Abdul Aziz Jaafar and the project's main contractor Boustead Naval Shipard would also be called for the proceedings, Mr Wong said.

Zahid said last week, as reported by Umno Online news: "I held the defence minister position from April 2009 to May 2013. So any party who caused the delay in the construction should be responsible for providing an explanation to the PAC."

The PAC said that of the sums paid out by the government, RM400 million was used by Boustead Naval Shipyard to repay previous debts incurred under its New Generation Patrol Vessel project, RM305 million was used for its facility in Cyberjaya, and another RM700 million was a cost overrun for the LCS contract.

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