Anwar must explain U-turn on littoral combat ship project

Prime Minister Anwar Ibrahim must give us a convincing explanation for his decision to go ahead with the scandal-hit RM9 billion littoral combat ship (LCS) project. 

When he was the opposition leader in August 2022, Anwar called for the next phase of the LCS project to be scrapped. He said RM6 billion had already been "squandered" with no progress to show, and that the funds for the next phase of the project should be redirected to assist the people instead. 

He said there was clearly a misappropriation of funds and leakage as well as "massive corruption". He also called on the Malaysian Anti-Corruption Commission to investigate all parties concerned, including the defence minister and the ministry’s secretary-general.

"The next phase (of the project) must be stopped as there have yet to be any commitments made. We must arrest this and stop the nonsense," he said at a press conference in Parliament.

"The half a billion (for the next phase of the project) should be spent for the welfare of veterans who have been clamouring for support."

The LCS project is said to be the largest defence procurement in Malaysia’s history with a total cost of RM9 billion. It was awarded to Boustead Naval Shipyard Sdn Bhd (BNS) through direct negotiations. The Economic Planning Unit earmarked a budget of RM9 billion for the six vessels, with RM5.96 billion to be allocated under the 10th Malaysia Plan (2011 to 2015) and the balance of RM3.04 billion under the 11th Malaysia Plan (2016 to 2020).

The defence minister who kicked off the project in 2010 was Ahmad Zahid Hamidi. Zahid and his team decided on a model of ship that was not the one requested by the naval commanders. The defence ministry decided on a joint venture between the Malaysian shipyard Boustead and DCNS, the French defence contractor which had been mired in the Scorpene scandal. On May 26, 2011, the navy held a briefing with Mindef on the design and equipment of the LCS and selected the Sigma design by Dutch naval engineering group Damen Schelde.

Zahid initially agreed to the choice. By July 11, 2011, however, he had had a change of heart and insisted on the Gowind design by the French Naval Group (DCNS) on the advice of BNS. BNS subsequently negotiated with DCNS to begin the process for the design of the ships. 

Between December 2011 and January 2014, the finance ministry paid BNS a total of RM1.3 billion as down payment on the RM9 billion contract. In June 2014, the government finalised the LCS contract and agreed to pay BNS RM1 billion per year over the period from 2015 to 2019. The rest of the payments would be made between 2020 and 2023.

Even though the government had paid BNS a total of RM5.94 billion, up to May 2019, BNS was 23 months behind schedule in the construction of the LCS. On July 16, 2019, BNS proposed that the contract value of the six LCS be increased by RM1.42 billion and that the delivery of the first vessel, KD Maharaja Lela, be deferred to February 2022 instead of April 2019, according to the original contract.

The delays and proposal for an increase in contract value prompted the Pakatan Harapan government in 2018 to undertake an investigation into the overall management of the project.

The Public Accounts Committee revealed that not a single ship had been completed although Putrajaya had spent RM6.08 billion. Explaining the delay, the defence minister said the contractor had failed to submit complete designs, failed to acquire the necessary equipment, and failed to adhere to design specifications. If this is true, it would mean that the taxpayers will be paying an extra RM1.4 billion to compensate the company for its own incompetence and negligence.

The Malaysian Anti-Corruption Commission, which investigated the project, recommended that several individuals be charged. As of May 31, 2019, the company had total debts of RM956.86 million. Apart from its weak financial position, the overall management of the contract by Mindef was poor, the committee observed. 

The Public Accounts Committee ascertained from the investigation by the auditor-general that a full RM1 billion of the RM2 billion that was pushed through this questionable subsidiary mechanism for procurement simply cannot be accounted for at all.

On Aug 16, 2022, Ahmad Ramli Mohd Nor, the former managing director of BNS, was charged with three counts of criminal breach of trust in relation to the LCS project, involving the fraudulent approval of payments amounting to RM21.08 million to three companies, without the requisite approval from the BNS board.

Nonetheless, in March 2022, the Ismail Sabri Yaakob-led administration decided to proceed with the project, before the release of the PAC report in August.

It is clear from the series of scandals, from Scorpene, OPVs and now to LCS, that we have a dubious system of arms procurement that enables politicians to hive off lucrative defence projects to cronies who cannot deliver on their commitments. All this is done in the name of promoting "Bumiputera empowerment".

While all these controversial projects took place during the former Barisan Nasional administration, the question now is: what is the champion of "reformasi" going to do about it? By carrying on with this LCS project, handled by BNS, Anwar has gone back on his stance before GE15 when he was opposition leader.

He has to give us a full explanation for this about-turn and assure us that we will get to the bottom of this scandal which involves his deputy, Zahid. There will be other huge military contracts in the future and taxpayers must be assured that a new system will be in place to ensure that such dubious carryings-on never happen again. As Anwar said only a few months ago, "We must arrest this and stop the nonsense!"

Parliamentarians should push for greater transparency in defence ministry arms procurements and seriously debate the defence budget and monitor the procurement process to prevent a repetition of the scandals of the past. Malaysians do not want to hear anymore about the devils involved in arms procurement corruption.

Kua Kia Soong is a human rights activist.

The views expressed in this article are those of the author(s) and do not necessarily reflect the position of MalaysiaNow.