LCS, Even Our Nation’s Security Is Pawned!

 

The latest to ‘hit’ (not literally speaking) our shores is the Littoral Combat Ships (LCS) scandal. The biggest defense purchase, which costs RM9 billion for 6 ships, RM6 billion paid out, but not one ship in sight even after the end of the 10 years contract period.

For any independent nation, national defense, security, and sovereignty is paramount to protect its existence, integrity, and the safety of its citizens. That’s why every Malaysian vows to spill their blood for our beloved nation. 

 

Yes, we proudly sing our national anthem every day, “Negara-ku ...Tanah tumpahnya darahku…”. But to our corrupt leaders even our nation’s security can be abused for their pecuniary interests without spilling any blood.

However, I should salute our defense forces and front liners who are risking their life every day to defend our country against foreign threats despite the handicaps thrown along their way. 

 

The Navy especially has been mired in multiple scandals for over three decades, from the New Generation Patrol Vessels, the Scorpene Submarines, and now the LCS. The Navy claims 61 percent of naval assets are operating beyond their expected service life, and all surface combat vessels are more than 20 years old.

Since the LCS scandal was exposed two weeks ago by the bipartisan parliamentary Public Accounts Committee (PSC), the nation is bombarded with brickbats and overly politicized blame game, but no one is taking responsibility. I don’t want to add to that useless debate here. 

 

But I will make a suggestion on what to do next to salvage this project by doing a brief review of the responses/situation, and then peer into the horizon on its implication to our nation’s financial security in order to avoid the fate of Sri Lanka.

In this respect, it is instructive to make reference to my series of articles on “klepto-economics”, a term I coined to define our nation’s economic and financial (mis)management which defies all contemporary economic, business, accounting rules and thoughts. It explains why such mega scandals as the LCS happens over and over again. 

 

I suggested then the eventual cost is the destruction of a nation, not from security threats but from our internal enemies who are supposed to protect us. The three articles can be read here: “The costs we pay for our klepto-economics” , “Klepto-economics: Class action ultimate recourse? , and “Klepto-economics: Race, religion and kafirs” .  

In Malaysia for some privileged leaders and elites, criminal offences such as corruption, stealing, abuse of power, criminal breach of trust, money laundering takes the form of political donations, gifts, welfare aid, religious cause etc. The key ingredient is money, lots of it in cash, and nothing is sacrosanct from pilferage including national security.  

Nonsensical defense

Former defense minister and deputy prime minister Ahmad Zahid Hamidi issued the letter of award for the LCS in Dec 2011, but within two months changed the design of the ship from that recommended by the Navy (the end user) to that of the contractor. That may have precipitated the scandal, or more likely was designed for that purpose. 

 

Zahid now says he is not to be blamed and wants to shut down any debate/investigation citing national secrecy. Former and current senior defense minister Hishammudin Hussein signed the contract in 2014 and oversaw implementation, but now claims everything was transparently done and calls for those guilty to be charged. Former finance minister and prime minister during that period Najib Abdul Razak is doing a 1MDB on LCS, loudly defending and blaming everyone else.

Let’s review some of their responses, including that of the current CEO of the Armed Forces Pension Fund (LTAT), Ahmad Nazim Abdul Rahman.

(i) Nazim says all the 6 LCS is to be built and delivered concurrently. This is contrary to the contract provisions to be delivered on a staggered basis. But Hishammuddin said only the first LCS is expected to be delivered in about two years’ time, and nothing about the rest. Who approved this “delivery switch”, like in the design switch? In any case, it is laughable they can deliver all at one go, but can’t even deliver one ship.

(ii) Nazim says of the RM1.4 billion cost overrun, RM400 million was used to cover the debts of a previous project. Boustead Holdings Bhd (BSTEAD) is a public listed company which has to follow all statutory accounting standards and Securities Commission rules. A bad debt can only be offset from a profit or a surplus generated, not from a bleeding on-going project. Now we have two failed projects instead of one. Bravo! Would BSTEAD need another project to salvage LCS? No one has yet unraveled Rafizi Ramli’s claim of unnecessary sub-contracting or layering which pushed up the cost from RM397 million (if contracted directly with the OEM) to RM1,185 million.

(iii) Najib and Nazim of course latched on to the default, fail-proof, bumi-template argument to justify the direct award to LTAT, and that 3,000 engineers and 400 companies (presumably mostly bumiputras) benefitted. Can they now explain the current situation to them, where all the vendors have stopped working/supplying because they are not paid, and the 3,000 engineers likely absorbed by the gig-economy? In any case, I don’t think any of them would want to be associated with the LCS project, as it may affect their future prospects. BSTEAD shares are now trading at RM0.76 compared to a high of almost RM4.00 a few years ago. As a major conglomerate of LTAT, it is anticipated that if BSTEAD/LCS fails almost 50 percent of the LTAT members’ contribution would be wiped out. Would Najib dare promote this narrative to the army veterans who recently picketed against LTAT, and offer a solution to revive BSTEAD without any further injection of taxpayers funds?

(iv) PAC Chairman, Wong Kah Woh described the site visit by the PAC team on Dec. 11 as heart-breaking. He described the construction site as seemingly abandoned, OEM suppliers not full paid, and no workers are on site. Of the total equipment value on storage of RM1.75 billion, about 15 percent or RM263 million has become obsolete.

(v) Finally, while all promises are made about future deliveries, no one has mentioned about needing more funds from the government. Isn’t it patently clear the project can only be revived by a huge injection of taxpayers money?

What is even more alarming, despite all their mismanagement and nonsensical rebuttals and promises, the above-mentioned leaders are setting the future narrative for this project using their powerful positions.

I would suggest the most sensible decision would be for the government to immediately isolate all those involved and failed in the delivery of the LCS. Secondly, a team of independent professional experts should be formed to evaluate the project on an on-going basis, compared to the alternative of scrapping the project and making a new order of LCS with the latest technology. To me, as a scientist and professional accountant, the solution is obvious. 

 

The huge cost of salvaging this project ending up with a product that is at least 15 years’ technologically outdated, as they say, is dead in the water. The option of ordering a new set of equipment with the latest technology, but by-passing the failed bumi agenda (read merit sans cronyism), will ensure the Navy gets its ships in less time than the outdated LCS, if at all it is delivered and not another mock one.

To avoid interference from politicians and cronies, this team should report to Parliament, through the bipartisan PAC, in terms of its assessment, options and implementation.

Currently the government and the opposition are preoccupied with establishing a Royal Commission of Inquiry and conducting more investigation. While this may be necessary as a long term measure, a decision has to be made now on the option moving forward as I suggested above.

Retirement funds raided

Looking beyond this LCS scandal, what is happening now is the depletion of our retirement funds from scandals after scandals.

The government pension fund KWAP through 1MDB, the armed forces pension fund LTAT through LCS, and the people's pension fund KWSP through Pembinaan PFI Sdn Bhd  and premature withdrawals, are being raided by these privileged class and elites who position  themselves as the protectors of race and religion. Previously we had Felda and Tabung Haji that were bailed out using taxpayers funds.

So what is the Malay-Bumiputra agenda all about where the 1 percent privileged squander the nation's savings/wealth? No wonder the bumiputras only own 17 percent wealth after 50 years of NEP. Conservatively, if we deduct about 7 percent owned by the elites, the 60 percent of bumiputras only own 10 percent of wealth.

Usually retirement funds are rarely withdrawn for other purposes apart from benefiting the members, and that too only as a last resort. All investments have to be prudent and conservative. 

 

But if a country squanders these retirement funds through dubious or failed projects, which invariably requires bailouts from the taxpayers consolidated funds, then that is an indication we are surely on the path of Sri Lanka.

What is worrying is that Najib who was primarily involved in the 1MDB scandal still insists that no tax payers’ money is used to settle 1MDB debts.  Apparently, while accounting principles dictate that all liabilities of a failed entity should be counted as bad debts, 1MDB debts are not included in our national debt, therefore distorting our true financial position.

Now Najib and his cohorts are singing the same narrative for LCS. Honestly, I don’t think they are that stupid in their responses, but cunningly projecting to the gullible masses that they are not at fault, and that the government has to pump in a huge bailout using public funds to revive the mothballed and abandoned LCS project. And it seems they control the levers of power to get what they want.

Most tellingly, despite all the scandals no one top official has been jailed or even punished. The latest case of the Attorney-General withdrawing the charge in court of embezzling RM50 million by the nation’s spy chief is baffling. And she gets to keep the loot. No questions asked how she earned the money as a civil servant.

15 August 2022 is shaping up to be a crucial day. Barisan Nasional supreme council meets and Najib’s final appeal on the SRC case starts. Will UMNO reform or the federal court meet out a fair judgement?

Personally I am not expecting a tsunami. But I have to quickly sort out my retirement funds before it is taken away or devalued. My personal security is more important than national security. I am not going to shed a single drop of blood for our country as long as these traitors rule.

*Raman Letchumanan is a former senior fellow at the Nanyang Technological University of Singapore, a former director at the Minister of Science, Technology and Environment, and a former head of environment/disaster management at the Asean Secretariat in Jakarta.*