ARMED forces and police veterans group Patriot has called on Boustead Heavy Industries Corporation (BHIC) to come up with an explanation regarding the RM42.8 mil claim against it by the Ministry of Defence (Mindef) for breach of obligations.
The breach of obligations was related to in-service support to be carried out by BHIC’s subsidiary, Boustead DCNS Naval Corp Sdn Bhd (BDNC), for two Scorpene submarines. BDNC was 60% owned by BHIC through BHIC Defence Technologies Sdn Bhd and the balance 40% held by French builder DCNS.
BHIC had made an announcement to Bursa Malaysia on June 5 regarding the claim.
Patriot said in a statement today that the announcement might be part of a “sinister connivance to press down the BHIC shares price to allow a hostile takeover.”
“The announcement by BHIC was ambiguous and confusing and this resulted in various news reports that left readers as confused,” said Patriot’s president Datuk Mohamed Arshad Raji.
He also said that upon checking it was confirmed that BHIC did “recognise” the ISS (in service support) non-fulfilment of contractual obligations. It made a full provision for a potential claim in its 2018 Annual Report. This was despite Mindef having yet to make an official claim at that time.
He added that in hindsight, perhaps it was unwise for BHIC to have done that in 2018. The provision made in 2018 on the claim contributed to the FY2018 after-tax loss of BHIC. Its action, compounded by the delayed approval by Mindef on the variation orders claim on the littoral combat ships, was part of the reasons for cost overrun and allowed the negative public perception of the company.
“In view of the negative media reports arising from the so-called Mindef claim, it would be prudent for the BHIC board to quickly make a public announcement to clarify the situation and explain why it said it had ‘adequate basis to defend and appeal against the claim’,” said Arshad.
He added that it was understandable that military assets produced and supplied by foreign companies came with ISS contracts. This is particularly so when they involve highly secretive issues such as the weapons systems. The receiver of the assets can be at the mercy of the supplier if the original contractual terms are not properly specified. Otherwise, ISS obligations like personnel training are easy to fulfill.
“There is also a vast difference between claims for liquidated damages and liquidated ascertained damages (LAD). What portion of the liquidated damages was due to kickbacks, governmental delay, change of government, or even unclear contractual terms? This is for the boards of LTAT and BHIC to sort out with Mindef.
“Only when the basis of claim is satisfactorily agreed upon by both parties will the claim become LAD. If BHIC is successful in defending the claim by Mindef, then the RM42.8 mil that was recorded as a loss in 2018 can be written back, boosting as profit for this year,” Arshad said.
He added that Patriot had taken a keen interest in the issue as the interests of servicemen were involved in the matter. – June 9, 2020
