The military investment fund has taken over the management of a firm building 27 navy boats amid concern it will not be able to deliver on the country's biggest contract, a report said yesterday.

The head of the PSC-Naval Dockyard Sdn Bhd, Amin Shah Omar Shah, was replaced by representatives of the military's Lembaga Tabung Angkatan Tentera fund, The Edge business newspaper reported.

Amin Shah was demoted to deputy chairman, it said.

"The changes are mainly to ensure the offshore patrol vessel project is completed," an unidentified source told the newspaper.

The military retirement fund is a shareholder in the privately held dockyard company, which the government has final authority over.

The Asian Wall Street Journal reported Wednesday that the government was looking for ways to unwind the RM24.3-billion-ringgit contract as it was increasingly sceptical that PSC could deliver.

Technical flaws

PSC Industries Bhd. signed the 10-year contract in 1998, agreeing to build 27 patrol vessels for the Malaysian navy. The first boat should have been handed over in September last year, with six to be delivered by 2008.

The navy detected various technical problems when it undertook sea trials of the first offshore vessel last year, Navy Chief Mohamad Anwar Mohamad Nor said in February.

"Firstly, it has technical flaws in the command system and secondly, the training package for officers and personnel to handle the vessel is a bit outdated," he was quoted as saying by Bernama news agency.

"The vessel should have been handed to us last September but because of the technical defects, the sea trials failed, (and) we've postponed the handover till this July," he said.

The Asian Wall Street Journal said the government had already advanced more than RM2.5 billion for the project. PSC was building the first two vessels with its foreign partners, led by Germany's ThyssenKrupp AG.