New tenders could prove a boon to industry players

by MARK RAO / pic by MUHD AMIN NAHARUL

Works on the East Coast Rail Link (ECRL) could be broken down into smaller packages with new tenders given out as the project needs to undergo significant cost rationalisation if it is to proceed.

Initially estimated at RM55 billion, the cost of the 688km rail line from Port Klang to Pengkalan Kubor, Kelantan, has spiralled to RM80.92 billion due to upgrades and extensions made to the original project scope, as well as land acquisition and financing costs.

The amount does not include operational costs which have yet to be determined and factored into the overall cost.

Works on the extensive rail line was suspended ahead of Finance Minister Lim Guan Eng’s scheduled trip to China later this month to renegotiate some of the terms reached between the former administration and the relevant Chinese authorities.

China’s state-owned China Communications Construction Co Ltd was brought on as the engineering, procurement, construction and commissioning contractor in November 2016.

An industry source close to the project said proposing alternative procurement packages to the client, including bringing in contractors and subcontractors, can bring down the overall project cost.

“The project could be broken down into various smaller work packages such as civil, systems, station works, underground and the likes,” the source told The Malaysian Reserve (TMR) under conditions of anonymity. “Each package can then be tendered separately to various contractors and subcontractors.”

The source said in terms of technical capability, which includes past experience on similar works, financial capability and cost, the tender should be evaluated. “The best evaluated tender based on the evaluation will be recommended,” the source said.

The source added that cost alone is not the main criteria considered in the selection of contractors and subcontractors. A value engineering (VE) exercise should be performed beforehand to see where cost savings can be achieved.

“Various VE techniques include studying the standardisation of structural elements, exploring ground treatment versus structural options and reviewing the alignment in terms of horizontal and vertical design.”

The suspension of the ECRL, alongside other several mega infrastructure projects, led to Bursa Malaysia’s construction index declining 26% since the conclusion of the 14th General Election on May 9.

George Kent (M) Bhd, Lafarge Malaysia Bhd and HSS Engineers Bhd are among the affected players.

George Kent, initially perceived as a prime proxy for rail projects in the country, saw its share price plunge 66.2% from May 8 to May 30, while Lafarge Malaysia and HSS Engineers fell 23.4% and 59.4% respectively over the same period.

Lafarge Malaysia and HSS Engineers both had secured contracts for the ECRL, valued at RM270 million and RM107.5 million respectively.

While this has created uncertainty for the various stakeholders in the country, the industry’s view on this is that the government will continue to place emphasis on infrastructure for socio-economic benefits. “We foresee the current government giving more emphasis towards or institute more social infrastructure projects for the rakyat,” the industry source said.

“This will include areas of public transport, water infrastructure and public housing projects of low and medium costs which will provide opportunities to all local industry players.”

As more work becomes available in the market with a wider reach and at competitive rates, the opening up of new tenders for the ECRL could also prove a boon to industry players.

Earlier this month, TMR reported that the Malaysian government may reduce the scope and scale of the ECRL to slash the overall project cost.

This was done for the Light Rail Transit Line 3, which was given the green light after the cost was brought down by 47% to RM16.6 billion, from the initial RM31.65 billion estimate, on reduced capacity and rationalisation efforts.