Military defends contract payment to Ching Fu Shipbuilding Co.

Taipei-The Ministry of National Defense denied on Tuesday that it had been pressured into making a payment to a financially-troubled naval contractor months before the budget for the project was finalized, saying the payment was made in accordance with the Budget Act.

The ministry clarified its position in a statement after Kuomintang Legislator Ma Wen-chun (???) earlier this month accused the Presidential Office of placing pressure on the Navy to pay NT$2.4 billion (US$81.6 million) to Kaohsiung-based Ching Fu Shipbuilding Co., Taiwan's largest private shipbuilder, late last year.

The payment was for work done on a NT$34.9 billion contract Ching Fu won in October 2014 to build six minesweepers for the Navy.

In an audio recording played by Ma at a press conference on Nov. 14, Ching Fu Vice Chairman Chen Wei-chih(???)was heard seemingly telling Kaohsiung Marine Bureau Director-General Wang Tuan-jen(???)and Fisheries Agency officials during a meeting on Oct. 7, 2016 that the Navy had initially rejected his request for a payment that should have been made in September last year and told him he would have to wait until March when the budget was to be approved.

Chen said his company could not wait for payment because sub-contractors needed to be paid, so he went to the Presidential Office to "communicate" with senior officials on the issue, and a few days later the Navy told him it had obtained the funds.

Ma also accused the ministry of misappropriation of public funds and of violating the Budget Act by paying Ching Fu from funds earmarked for the Armed Forces.

In response, the ministry said on Tuesday that the payment was made in accordance with rules governing the implementation and control of government budgets as stipulated in the Budget Act and the Directions for Implementation of Subsidiary Agencies Budget of Central Government.

The Navy also said on Monday that the NT$2.4 billion was a contractual payment that had to be made when Ching Fu completed the hull construction of the first minesweeper ahead of schedule on Sept. 27 last year and the company submitted two payment requests on Nov. 28 and Dec. 6, 2016, the Navy said, adding that the timeline contradicts Chen's claim made during the meeting on Oct. 7 last year, at which time the company had not yet submitted any payment request.

The Navy urged the media not to spread false information about the case that could mislead readers, while threatening to take legal action over media allegations.

The company is under investigation for its alleged role in a fraudulent bank loan case.

The fraud allegedly occurred when Ching Fu was trying to obtain a NT$20.5 billion syndicated loan from a group of nine domestic lenders led by First Commercial Bank, after winning the Naval contract in 2014.

Kaohsiung prosecutors, who launched their investigation in August, suspect the company used bogus documents falsify four capital increases that were required as part of the terms of the loan.

On Oct. 25, First Commercial Bank determined that Ching Fu had defaulted on the syndicated loan, of which NT$15.4 billion had already been disbursed. Ching Fu had failed to pay interest on the loan for two months, according to the bank.

The fraudulent bank loan case led to the replacement on Monday of the heads of three state-run financial services providers that provided Ching Fu with most of its syndicated loan.

Taipei Rapid Transit Corp. Chairman Ray Dawn (???), who has been appointed head of First Financial Holding Co. and its main subsidiary, First Commercial Bank, said Tuesday that the contract awarded to Ching Fu can be terminated if it does not help the banks and the ministry reduce their risk of exposure to bad debts.

First Commercial Bank plans to write off the loans it extended to Ching Fu and its subsidiaries as bad debt at the end of the fiscal year, Dawn said.

Meanwhile, President Tsai Ing-wen (???) on Tuesday directed the Ministry of National Defense to publish a list of ministry officials who have been censured for negligence by failing to confirm Ching Fu had the requisite financial and manufacturing ability before awarding the contract to the company.

Tsai issued the instruction after hearing a briefing on the case by Defense Minister Feng Shih-kuan (???).

She also said the ministry should promptly address and follow up on any problems arising from the awarding of the contract to ensure the national interest is not undermined.

Premier Lai Ching-te (???) also said Tuesday that the Cabinet has launched an investigation into the case and will refer all information it obtains, including findings related to the Navy's payment, to the Justice Ministry for further investigation.

Source: Focus Taiwan News Channel