Alleged mismanagement: LCS audit implicates Najib’s associate Lodin

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In defending his administration’s management of the scandal-plagued littoral combat ship (LCS) project, former prime minister Najib Abdul Razak had repeatedly stressed the contract was not awarded to a crony company.

He said the project was given to Boustead’s subsidiaries owned by the Armed Forces Pensions Fund (LTAT), which the former premier claimed as his “crony” in the same way the rakyat is.

However, a forensic audit by Boustead Heavy Industries Corporation Bhd (BHIC) on the LCS project revealed that several points involving alleged mismanagement in the project could be traced back to then LTAT chief Che Lodin Wok Kamaruddin, a close associate of the Pekan MP.

Starpic

Not only was Lodin involved in the LCS project at its initial stages but he also served as BHIC chairperson and was involved in 1MDB.

BHIC is the parent company of Boustead Naval Shipyards (BNS), the main contractor of the LCS project.

The first mention of Lodin in the BHIC audit report was in regard to Contraves Advanced Devices Sdn Bhd (CAD).

BHIC had bought a 51 percent stake in CAD for RM25 million. The idea was for BHIC to have a platform to collaborate with German defence contractor Rheinmetall Air Defence (RAD).

However, the audit report found that the BHIC board, led by Lodin, agreed to a recommendation that the management control of CAD remains with RAD as the latter had “internal expertise” to run the company.

“It is difficult to find a justification for such logic because expertise was needed for the LCS programme but not for the management (of CAD).

“(The decision) seriously jeopardised the interest of BHIC and BNS in the hands of CAD,” said the report.

The findings appear to corroborate allegations made by PKR deputy president Rafizi Ramli that Lodin had signed away control of CAD.

Lodin had told Malaysiakini then that he could not recall making such a decision as many years had passed and he did not have the BHIC meeting minutes at hand.

Besides giving up control over CAD, the BHIC board also agreed to terms that effectively allowed representatives from RAD to have a free hand in CAD’s finances and approve payments without the involvement of anyone from BHIC.

The audit indicated that it could not determine the consequences of such an arrangement as there was no access to CAD’s banking records.

Skewed terms

CAD and its subsidiary Contraves Electrodynamics Sdn Bhd (CED) were given Letters of Award (LOA) for 11 LCS components totalling RM3.29 billion from 2010 to 2014 – the years covered by the BHIC audit.

The audit noted that the terms for most of the LOAs and variation orders (VO) were not in favour of BHIC but rather for CAD and CED.

Out of six sources of potential losses to BHIC, three are linked to CAD and CED – including overlapping LOAs, double claims and unfavourable currency change in the LOA – which totalled around RM855 million.

Problems over CAD’s involvement were raised to Lodin in a letter dated June 1, 2016, by a long-time BHIC business associate.

Concerns ignored

Among the issues flagged in the letter was that “lucrative” equipment contracts were diverted from BHIC and BNS to CAD, despite Boustead firms having the ability to undertake the tasks themselves.

The business associate also said that having to give up 49 percent of expected profits from CAD’s work was unjustified as BNS had the expertise and experience to build ships.

“The letter also mentioned that CAD had guaranteed spin-off for local opportunities in maintenance and support, but contrary to it, all such work was given to overseas entities.

“This was against one of the basic objectives of having an LCS programme in Malaysia,” the audit report stated.

The report also noted that Lodin was expected to discuss concerns over CAD with the BHIC board of the LCS steering committee for necessary action, but instead put the letter in cold storage.

The audit also highlighted that Lodin and then-BNS managing director Ahmad Ramli Mohd Noor did not exert any executive authority to reverse the unfavourable arrangement in CAD’s ownership but instead “allowed things to happen against the financial interest of the company”.

Issues regarding LOAs and financial mismanagement in the LCS project had been raised by Boustead group internal auditors from 2013 to 2016.

However, the LCS audit report noted that these observations by internal auditors “failed to raise the alarm” at Lodin or Ahmad Ramli’s offices.

Another area which the audit highlighted was Lodin’s involvement in the procurement of hull construction steel kits.

According to the report, the LCS commercial team had recommended Dutch-firm, Centraalstaal as the supplier for the kits as the company made a “technically superior” but cheaper bid.

However, the team was then instructed by LCS project director Anuar Murad to contact IHC Metalix BV (IHC) – another Dutch firm which made a bid that cost €700,000 (RM3.1 million) more – to see if they could match the final price agreed with Centraalstaal.

The commercial team’s group supply chain head protested, saying it was unethical, resulting in him being removed from the project.

Centraalstaal then wrote two letters to Lodin on Sept 4 and Oct 3, 2014, claiming irregularities in the hull construction steel kits tender process.

However, the audit report noted the letters were ignored.

A letter was also sent to Ramli on Sept 4, 2014, stating the possibility of wrongdoing as there was an “exceptional delay” in feedback from BNS after a final negotiated price had been agreed upon.

Eventually, Lodin signed the LOA in favour of IHC on Sept 9, 2014.

The audit noted that BHIC might have suffered a loss of RM4.58 million after having to issue additional VOs to IHC for a mill certificate, despite the certificate cost already being included in the original quotation.

It is to note that Lodin served as LTAT chair from 1985 to Sept 2018. He also served as Boustead Holdings managing director from 1991 to Dec 2018.

He resigned as BHIC chairperson in Dec 2018.

Ramli – also a former navy chief – was charged last week with three counts of criminal breach of trust (CBT) involving RM21.08 million over the LCS project. – Malaysiakini