The project, worth RM9.128 billion, was awarded to BNS by the government through the Ministry of Defence.
In
August 2020, as he answered questions in parliament about the
non-delivery of ships, the new defence minister had said the ministry
was considering terminating the contract with BNS, among other options.
He
noted that doing so would have adverse effects on the Armed Forces Fund
Board, the military pension fund which owns 59.4 percent of Boustead
Holdings.
Such a move would affect soldiers who are contributors, should the project be halted.
“For the record, Boustead Naval Shipyard Group is a government-linked company, managed by mostly Malay Bumiputera,” he said.
This
is yet another example of a failed “Bumiputeras Only” policy and vested
interests that afflict the whole military-industrial complex of
Malaysia.
On Feb 12, 2011, I wrote this article, “6 Patrol vessels: Watch how the cost inflates” published in the online press.
At
the time, some defence analysts and a retired admiral had come out in
support of the Malaysian government’s purchase of six New Generation
Patrol Vessels (NGPVs) arguing that these are sophisticated ships and
weaponry, thus the price is reasonable.
They also tried to
justify the closed-door negotiations by saying it’s the arms companies
that do not want their proposals and offer prices to be available to
their competitors. How often have we heard that?
This is
the standard explanation we have been fed all these years to justify the
outrageous figures in our military budget compared for example with the
budget for health and other urgent social services.
This attempt
at mystifying defence contracts has gone on long enough under the
technical pretext that it is “rocket science” that Malaysian taxpayers
and Members of Parliament apparently cannot hope to comprehend.
Using
the convenient excuse of “national security”, the Defence Ministry
keeps in shroud the specs of these sophisticated equipment and weapons
systems they are supposed to be fitted with.
Record of Navy’s procurements
The
naval dockyard at Lumut had been completed in 1984 at a cost of US$650
million but it had not been fully used. In 1989, the Auditor General
pointed out that the Royal Malaysian Navy (RMN) had, because of staff
shortage, sent many ships to private dockyards for servicing,
“…only
21 of the 36 ships scheduled for overhauling in 1986 were serviced in
that year and in 1987 only 15 out of 43 ships were overhauled. As a
result, the ships were serviced by private dockyards at a cost of
US$10.28 million in 1985, US$7.60 million in 1986 and US$10.98 million
in 1987.” (The Star, Dec 16, 1989)
The AG found that some of the facilities had never been used, resulting in the deterioration of some equipment.
And
he also found that the navy had not complied with regulations when it
made bulk purchases of spare parts for its Central Logistics Depot –
spare parts and stores valued at US$13.4 million for 1986 and US$4
million for 1987 which had been bought through local orders and
quotations when they should have been acquired through a contract after a
public tender. (ibid)
In 1991, because of the RM5 billion
arms deal signed by our maverick prime minister Dr Mahathir and the
Iron Maiden Margaret Thatcher, the ministry of defence announced the
contract to purchase two corvettes from Yarrow shipbuilders, UK costing
RM2.2 billion. (NST Nov 11, 1991).
RM2.2 billion for just
two corvettes was RM1 billion more than what had been allocated to the
Ministry of Science, Technology and Environment for capital expenditure
under the Sixth Malaysia Plan.
Two weeks later, then
defence minister Najib Tun Razak was quoted as saying the Royal
Malaysian Navy required 16 offshore patrol vessels (OPVs).
But
due to financial constraints, the RMN could only afford four or five of
these locally built OPVs. Mindef had budgeted RM85 million per OPV
excluding guns. (NST, Nov 25,1991) Dr Mahathir and his defence
minister might have done well to ask themselves the wisdom of buying two
corvettes for RM2.2 billion or using that budget to buy more than 20
OPVs at RM85 million-a-piece.
In my 2010 book,
‘Questioning Arms Spending in Malaysia: From Altantuya to Zikorsky’, I
have discussed the emergence and growth of our domestic Military
Industrial Complex and how this has led to the continuance of
non-transparency in the way contracts are given out and how Malaysian
taxpayers are subsidizing these rather privileged “appointed” local
Bumiputera contractors.
By mid-2006, only two barely
operational patrol boats had been delivered. In 2007, the
Auditor-general tabled a report in Parliament alleging that the contract
was in serious trouble.
There were 298 recorded complaints on
the two boats, which were also found to have 100 uncompleted items in
one boat and 383 in the other!
According to the Auditor-general,
14 progressive payments amounting to RM943 million had been paid out
even though he could find no payment vouchers or relevant documents
dealing with the payments.
He attributed the failure to serious
financial mismanagement and technical incompetence stemming from the
fact that PSC had never built anything but trawlers or police boats
before being given the contract by the Ministry of defence! (Auditor-General’s Report 2006, Sept 7, 2007)
The
Auditor-General Report estimated that the government could claim at
least RM214 million in penalties for the late delivery of the two OPVs
and the non-delivery of the remaining four.
However, the Cabinet
decided to waive the claim of penalties and even awarded the contractor
an increase in the contract price of RM1.4 billion in January 2007.
The
Defence Ministry paid in advance RM4.26 billion to the contractor in
December 2006 when the progress of the work done only amounted to RM2.87
billion. (ibid)
Despite the fiasco and the great financial loss
to Malaysian taxpayers, the mammoth contract was awarded to yet another
local company - Boustead Holdings which effectively took control.
Transparency in arms procurements
In
2012, Transparency International (TI) found that two-thirds of
parliaments and legislatures around the world failed to exercise
sufficient control over their Ministry of Defence and the armed forces,
and 70 percent of these largest arms importers left the door open to
corruption.
Malaysia had a score of 25.14 out of 100.00 per cent
in a 6-band rank which ranked “Very High” risk of corruption amongst 21
other countries.
In this report, TI identified seven key
areas in which parliaments may reduce corruption, namely (a) Budget
Oversight & Debate; (b) Budget Transparency; (c) External Audit; (d)
Policy Oversight & Debate; (e) Secret Budgets Oversight, (f)
Intelligence Services Oversight; and (g) Procurement Oversight.
Parliamentarians
should push for greater transparency in MOD arms procurements and
seriously debate the defence budget and monitor the procurement process
to prevent the repetition of such scandals.
There should be special select committees to scrutinise any big-budget procurements.
The
Auditor-General's Report 2019 pointed out that the Defence Ministry had
not imposed liquidated damages against shipbuilder Boustead Naval
Shipyard Sdn Bhd (BNSSB).
This prompted the Defence Ministry to
say, in its response to the report, that it had issued a notice to the
shipbuilder in June 2020. According to the report, the Defence Ministry
demanded the BNSSB to pay RM217.5 million in a notice dated June 15.
As
of June 30, 2020, the ministry had yet to issue a demand letter to the
company requesting liquidity damages. Instead, the ministry only issued a
reminder notice to the company on June 14, 2019.
Ship-building project to resume
In
2020, the Government said it would allow Boustead Naval Shipyard (BNS)
to resume construction of littoral combat ships for the country’s navy
despite its failure to deliver on schedule and an unfinished probe into
missing funds in the billion-ringgit project.
The move will
preserve 1,600 local jobs and more than 400 small and medium-sized
businesses owned by Malay Muslims, the then Defense Minister Ismail
Sabri Yaakob said in a statement, which did not say anything about the
past delivery delays or corruption allegations.
At an
August 2020 parliamentary debate, Ismail Sabri acknowledged that none of
the LCSs had been completed in over 9 years, despite the government
having paid RM6 billion ringgit so far.
There is no glory
in predicting a tragedy affecting billions of taxpayer’s monies when the
country is going through the covid crisis, and our national coffers are
under ever greater strain.
Still, the blame for the fiasco
should be laid squarely on the politicians who did not adhere to the
necessary SOP regarding transparency in framing our defence priorities
and transparency in arms procurements. It is even more bewildering that
such a multi-billion contract can go on with little or no supervision to
ensure that public funds are prudently spent.
National interest or Boustead’s interests?
It
is time to open our defence policy for public debate. The Malaysian
people need to be told who our perceived enemies are so that we can
discuss the best means to combat these threats.
The government
should be made to produce annual defence white papers and be open about
all these defence procurements. Our defence analysts know that the specs
for these vessels will ultimately be known anyway and the justification
for secrecy in contract negotiations is unjustified.
Finally, it
is unclear whether these fabulous defence equipment purchases are in
the national interest or merely to fill the construction pockets of
another vested interest, namely our local military-industrial complex.
