Will the mega contracts translate to huge profits?

ASEAN+ August 09, 2016 01:00

By P Aruna

The Star

PETALING JAYA - Never before have Sarawak-based construction firms enjoyed a windfall of this magnitude.

To date, the total awarded packages for the construction of the Pan Borneo Highway amount to about 9 billion ringgit (US$2.23 billion) of the total estimated 16 billion ringgit for the portion of the highway in Sarawak.
The Pan Borneo Highway is among the largest infrastructure jobs the Malaysian government has ever undertaken, with a combianed price tag of close to 30 billion ringgit for the Sarawak and Sabah portions.
Along with the massive project came a windfall for Sarawak-based construction firms, which are given priority to secure these projects.
Huge contracts, worth at least 1 billion ringgit each, were dished out to construction firms over the past week, totalling 5.5 billion ringgit.
“Sarawak companies have never been given a privilege of this magnitude, to receive the bulk of about 16 billion ringgit in projects.
“It has been handed to them on a silver platter, and it is a straightforward project.
“The question is, whether the companies will be able translate this into their bottomline,” said an industry observer.
Project delays, leading to swelling costs are usually among the major concerns, he said.
He recalled that a mega project in Sarawak, prior to the Pan Borneo highway, was the construction of Bakun hydro dam.
The Bakun project, which was completed 18 months behind schedule, also saw the construction cost balloon from 6 billion ringgit to 15 billion ringgit.
The dam was to be built at the start of 1994 by a privatised joint-venture consortium named Bakun Hydroelectric Corp, made up of Ekran Bhd (a company controlled by executive chairman Ting Pek Khing), Tenaga Nasional Bhd (TNB), Sarawak Electricity Supply Corp, Malaysia Mining Corp and the Sarawak government, but work on the dam came to a halt in 1997 due to the Asian financial crisis.
However, for the Pan Borneo highway, it is believed that the cost of constructing the highway will be kept within its RM16bil budget due to the establishment of a project delivery partner (PDP).
This is the same method used in building the mass rapid transit (MRT) network for the Klang Valley.
Lebuhraya Borneo Utara Sdn Bhd (LBU) is the PDP for the Pan Borneo Highway Sarawak.
In previous years, the government used to get the Public Works Department to hand out contracts for its infrastructure projects.
Later, it set up Project Management Companies (PMCs) to oversee the jobs given out to contractors.
“The MRT was the first project done under a PDP. “It is the responsibility PDP has to ensure that the project is done within cost, and completed on time, or it will be responsible for any additional cost,” said the industry observer.
The Sarawak stretch of the highway, which measures 1,089km, is estimated to cost about 17 billion ringgit and is expected to be completed by 2022. The Sabah portion, spanning 1,236km is expected to cost 13 billion ringgit.
(US$1 = 4.04 ringgit as of 8/8/2016 via oanda.com)