This article first appeared in The Edge Malaysia Weekly on October 3, 2022 - October 9, 2022

TH Heavy Engineering Bhd (THHE) is seeking financial support from the government, particularly the home ministry, to complete the three offshore patrol vessels (OPV) that it had been contracted to build for the Malaysian Maritime Enforcement Agency (MMEA).

According to a source close to the company, THHE’s ability to deliver the first OPV by this year is highly dependent on financial support from stakeholders and a decision by the home ministry to grant an extension of time (EoT) along with a new physical delivery date, under a new supplementary agreement.

“THHE is currently in discussion with its client (MMEA/home ministry) on how best to handle the challenges it faces,” says the source who has done work with THHE. When contacted, THHE declined to comment due to the sensitivity of the matter.

To recap, THHE received a non-binding letter of intent from the government for the OPVs on July 27, 2016. On Oct 27, 2016, THHE entered into a joint-venture agreement with Destini Bhd to undertake the contract.

On Jan 18, 2017, the JV company, THHE Destini Sdn Bhd, was awarded the contract for the supply, delivery, testing and commissioning of three OPVs, complete with fitting and accessories, for MMEA for a total contract sum of RM738.9 million. The contract tenure was 42 months.

In the financial year ended Dec 31, 2016 (FY2016), THHE saw its net loss widening to RM365.84 million from RM45.34 million in FY2015. Following the announcement of the financial results, THHE fell into Practice Note 17 (PN17) status. It was delisted on Sept 5, 2022.

The OPV contract was seen as a lifeline from the government. However, THHE could not capitalise on it, despite having a change in its largest shareholder from Lembaga Tabung Haji to Minister of Finance (Incorporated).

“The OPV project is most certainly affected by THHE’s financial challenges. However, THHE is doing its utmost to complete the OPV project,” says the source.

On April 6, 2021, Destini announced that the government had approved an EoT for the supply, delivery, testing and commissioning of the OPVs for two years, from Aug 23, 2020 to Aug 22, 2022. The decision was communicated via a letter dated Nov 17, 2020.

The delivery dates initially scheduled — Oct 22, 2021 for OPV 1, April 22, 2022 for OPV 2 and Aug 22, 2022 for OPV 3 — were extended to Feb 22, 2022, April 22, 2022 and Aug 22, 2022 respectively, according to the announcement.

The launch of OPV 1 was targeted for the end of August 2021, Destini announced. The oil and gas, marine and aircraft maintenance, repair and overhaul contractor said that the progress of OPV 1 had reached 89.5%.

It is not clear why it took almost five months for the contractor to disclose the EoT.

Destini’s involvement in the OPV project did not last long, despite being the technical partner in the JV. Days after Destini’s April 6 announcement, on April 21, 2021, both sides disclosed that THHE would be acquiring the 51% it did not own in THHE Destini for a cash consideration of RM121,131.12.

Without Destini, the status of the OPVs is under question. The delivery dates for the OPVs have passed, but none of the vessels have been completed and delivered to MMEA.

According to another source close to THHE, one of the reasons for the failure of the project was because THHE’s yard in Pulau Indah, Port Klang, is not equipped for the construction of OPVs. THHE is an oil and gas contractor, not a maritime vessel builder. “That’s why they had to upgrade the yard with a slipway so that the vessels can be launched into the water,” says the source.

However, he adds that THHE’s technical capabilities are focused on engineering management, with projects primarily subcontracted to a specialised vendor. THHE’s role is primarily to oversee project implementation and execution, he says.

In THHE’s 2021 Annual Report, the group stated that it had commenced the construction of a 2,500MT slipway capable of up and down slipping ships of up to 100m in length. The OPVs being built by THHE are 83m long and have displacements of 1,900MT.

“However, there was a delay in the construction of the multiple-berth slipway. The lengthening of the slipway is anticipated to be completed in February 2023,” says the source, adding that the facility will enable THHE to conduct shipbuilding and ship repair activities for up to three ships simultaneously.

THHE’s latest update on the slipway was that it incurred a RM13 million capital commitment in the second quarter ended June 30, 2022 (2QFY2022) for construction, with completion expected by February 2023. Without the slipway, the vessels cannot be launched. This means that at the earliest, OPV 1 can only be delivered to MMEA in the first quarter of 2023.

The delay in the completion and delivery of the OPVs has prompted the Public Accounts Committee (PAC) to begin proceedings and it will call MMEA and the home ministry before it. The issue with the OPVs is just another item in a long list of issues facing Malaysia’s defence and enforcement vessels and craft. The Royal Malaysian Navy is also facing delays in the littoral combat ship programme, which has cost taxpayers RM6 billion, without a single vessel being delivered.

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