A recently declassified government report revealed that the Ministry of Defense ignored concerns raised in 2011 by the then Malaysian Navy chief about possible malpractice involving a contract to build six warships for its fleet – the country’s most expensive military contract.

The 9 billion ringgit (US$2 billion) contract to build the half-dozen littoral combat ships is now the subject of public controversy as not a single vessel has been delivered to the port since that the department awarded the job to Boustead Naval Shipyard (BNS), a state-owned shipyard, in 2014.

The 108-page document, which was declassified this week, is the report of a government investigation into the construction project.

The report notes that the ministry rejected a recommendation from Admiral Abdul Aziz Jaafar, the head of the navy, for the design of the warships and followed one suggested by Boustead.

The report says the design was changed to the Gowind design on July 11, 2011, three days after BNS proposed the change to the MoD.

“Quoting the statement of Tan Sri Abdul Aziz, Chief of the Navy at the time, the decision was seen as ‘something seriously wrong,'” the report said.

Since then, the government has spent an estimated 6 billion ringgits (US$1.36 billion) without receiving any of the five coastal combat ships scheduled for delivery this month.

“The government should have listened to the navy’s advice because they are the end user,” said Mohamad Imran Abd Hamid, president of the Royal Malaysian Navy Veterans Association.

While Abdul Aziz recommended a ship designed by Sigma, the navy was forced to accept a ship designed by Gowind. Navy officials said the Sigma design has been used by the Indonesian Navy where it has proven itself.

“Sigma was a proven design based on the corvette class of warships, which has similarities to a frigate class ship design,” Abd Hamid told BenarNews.

The report of the Special Committee on the Inquiry into Governance, Procurement and Finance also expressed concern over the alleged lack of due diligence on the part of the Ministry of Defense regarding the financial situation of the SNB. He noted that the company only had 130 million ringgit ($29 million) in paid-up capital when it won the contract.

“The paid-in capital represents less than 2% of the total cost of the project. The ratio showed that the financial capacity of the company is not equal to the value of the project. The government will be at high risk if BNS fails to complete the project,” the report said.

An analysis of BNS’ financial statements between 2014 and 2018 showed that the company suffered losses in three of the five years.

The committee reported that the SNB’s cash flow problems caused delays in payments to suppliers. As a result, suppliers refused to send raw materials and equipment, resulting in a work stoppage at the shipyard.

In the summary of the report, the committee proposed that the government continue with BNS as the contractor, but that steps be taken to ensure that the project is completed on a new schedule and without overruns.

BNS officials did not immediately respond to BenarNews’ requests for comment.

Welcome downgrade

Muhammad Mohan Abdullah, chairman of Transparency International Malaysia (TI-M), an anti-corruption watchdog group, said his organization applauded the government’s decision to declassify the report.

“What we want is for those responsible for this fiasco not to go unpunished. It’s taxpayers’ money and there has to be top-down accountability,” he told BenarNews on Friday.

Responding to the report’s financial concerns, Mohan said the failure to carry out due diligence on the main contractor reflects badly on the government.

He said it was not clear that when the contract was signed in 2014 the SNB had sufficient working capital to fund the project to meet the completion deadline.

Officials last week invited journalists to the Boustead shipyard wharf in Lumut, Perak state, where they were shown one of the ships under construction.

Wong Kah Woh, chairman of the House Public Accounts Committee, recently submitted his bipartisan group’s 250-page report for parliamentary debate after a two-year investigation into the project.

“The outcome of the procedure revealed that the LCS project was awarded to BNS through direct negotiations, with the government paying 6.083 billion ringgits, but no LCS ships were completed despite the original schedule indicating that five ships would be ready for delivery completed by August 2022,” Wong told reporters at the time.

On Wednesday, Wong welcomed the declassification of the government report and said he was waiting for the forensic audit of the SNB’s financial records to be made public as well.

Meanwhile, Barjoyai Bardai, an economist at Universiti Tun Abdul Razak, urged critics of the government to wait for the results of the investigation to be revealed by the relevant authorities.

“One by one it will be revealed as 1MDB so we are waiting,” he told BenarNews, referring to billions missing from state development fund 1Malaysia Development Berhad which led to corruption charges against former Prime Minister Najib Razak, his wife. Rosmah Mansor and other officials.