Declassified LCS report reveals estimated cost of project ballooned to RM11.145 billion

(The Star) – The estimated cost of the six littoral combat ship (LCS) had ballooned to RM11.145 billion instead of the original RM9 billion, according to the declassified report on the project.

This was due to some proposed changes to parts of the project and the additional time taken for delivery, according to the Special Investigating Committee Report on Procurement, Governance and Finance.

“According to a letter by Boustead Naval Shipyard (BNS) dated July 16, 2019 following equipment changes and Implementation Schedule, additional costs estimated at RM1,416.44mil comprising RM58.41mil in direct costs and indirect costs of RM1,358.03mil were needed to complete the six ships,” the report said.

The indirect costs consisted of the duration of the Basic Design, Design Authority, delivery schedule for parts, warranty, insurance and financial cost, along with other resources.

“This brings the estimated project cost to RM11.145 billion (until the report is presented to the Defence Minister),” the report read.

The report noted that the ceiling cost was set at RM9 billion. In 2014, the Finance Ministry sanctioned RM128.6 million for interest cost for borrowings to the Defence Ministry – which will be funded by BNS and the government on a 50:50 basis.

This means the procurement cost of LCS had already increased to RM9.128 billion.

The Finance Ministry had also sanctioned another RM600 million to BNS for the procurement of the Integrated Logistic Support equipment. This further increased the procurement contract to RM9.7286 billion.

The investigating committee said it expects the cost of construction of the six ships to continue to increase following the changes in the main parts which also involves the implications of additional time taken for project delivery.

The report on the investigation led by former auditor general Tan Sri Ambrin Buang was declassified earlier Wednesday (Aug 17) following PAC’s recommendation on Aug 4 and the Cabinet’s decision on Aug 10.